Management Accounting: Types, Systems, and Planning Tools

Management Accounting
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Contents
INTRODUCTION...........................................................................................................................3
TASK1.............................................................................................................................................3
Explanation of management accounting and different types of management accounting system
......................................................................................................................................................3
Benefits of management accounting system................................................................................3
Different types of management accounting reporting..................................................................3
Importance of integration of management accounting system with reporting.............................3
TASK2.............................................................................................................................................3
Calculation of marginal costing...................................................................................................3
Calculation of absorption costing................................................................................................3
TASK3.............................................................................................................................................3
Explanation of different types of planning tools with their advantage and disadvantages..........3
Uses of different planning tools and their application for forecasting budget.............................3
TASK4.............................................................................................................................................4
Financial problem and use of management accounting planning tools to solve the problem.. . .4
Compare how organizations are adapting management accounting systems to respond to
financial problems........................................................................................................................4
CONCLUSION................................................................................................................................4
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INTRODUCTION
Business organization is established for run successful business in economy. For this
purpose, they use management accounting. It is defining as special branch of accounting. It is
concerned with analyzing, collecting recording and representing accounting data in a systematic
way which id manager to take decision for the organization. To understand this concept, ABC
Limited has been taken which is medium size organization. This report is prepared to define the
types of management accounting system and reporting system use to integrated organization
function. How manger s calcite profit with the use of marginal and absorption costing method
and planning tools used in formation of budget and forecasting of future business activities. This
report also concerns with how financial problem effect the organization and use of management
accounting tools to solve this problem in effect way.
TASK1
Explanation of management accounting and different types of management accounting system
Management accounting: This word is mixture if 2 different word management and
accounting. The term management define as the art of things done by other people and
organizing all the business activities in systematic. On the other side accounting is recording of
business transaction. Management accounting is branch of accounting in which all the
transaction record in systematic format which helps in taking decision. It also known as
managing or managerial business accounting (Ball Grubnic and Birchall, 2014). It plays major
role for medium size organization. Following are the types of managerial accounting system
which the ABC Limited can be apply
Job process system: This system is essential with the use of job system organization will be
understand the cost required in manufacturing of each product they identify the number of order
and the time required for delivering order to customers. With the use of job costing system ABC
Limited can record their customers order.
Cost management system: The most effect system of managerial account is cost management
system. IN management accounting various methods of costing are used through which the cost
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of manufacturing product and value of profit identify. Standard costing, marginal, job process
costing are part of this system. All have different method to calculate cost it depend on the
organization which method they follow to evaluate cost.
Inventory management system: In this system stock valuation has been done. For this various
types of stock management tools have been used. EOQ, JIT, ABC analysis and total quality
management tools these are usefully recording stock level. With the use of inventory
management system managers can identify the minimum, maximum and dangers level of stock
through which they can control the storing cost of inventory.
Price optimization system: This is most effective system. Implementing of this system help in
generating of profit. There are various types of pricing strategies, price skimming, price
penetration, price discounting all these are determining the price of product. It helps in overcome
the cost value and earn profit by selling price a higher rate. ABC Limited applies price skimming
method for their organization (Landherr, 2017).
Benefits of management accounting system
Following are the benefits of different type of management accounting system
Particular Management accounting system’s benefits
Job costing system ABC Limited use this method to identify the
number of order they get by their customers.
Record all the systematic
transaction .calculate the cost incurred on job
ordering of each product.
Cost management system Management department of ABC Limited use
cost management system to identify cost
value of each business activity with the help
of this they identify which activity require
higher amount of investment and then
formulate policies to reduce their cost.
Inventory management system This system is helpful in controlling
management cost of stock by systematically
manage inventory and reduce wastage
activities
Price optimization system With the use of this system, management
department of ABC Limited decide their
pricing rate of product on the basis of that
they earn profit and satisfied their customers.
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Different types of management accounting reporting
Management accounting report is formulated in order to track all the record of business
activities in systematic way which helps in future functioning procedures. Following are the
types of reports prepared by ABC Limited
Account receivables report: This report is formulated on the basis of collection information
regarding debtors. Account receivable report contains information regarding credit sales and
those debtors which are not paid their purchase amount to the organization. It helps in identify
non-performing assets of the debtor. On the basis of it management department formulate
policies to account received through which they target their amount as soon as police and
increase cash sales by offering attractive offers to debtors.
Budgetary report: This reports combinations of all the reports, it includes the data through
which future income and expenditure. This report is also helpful in taking decision as it is the
summery of all the reports.
Inventory management report: It is most useful report it is based on the data collected by stock
management system. This report is defining the minimum, maximum ad dangers level of each
stock. This report also concerns with h the cost required in maintain stock.
Performance report: It is prepared to analysis the performance of every department and their
employers. This report is summarized all the work and target archived by the employers. On the
basis of performance report ABC Limited managers takes decision regarding incentive,
promotion and give promotional and reorganizations on the basis of evaluate performance report
(Burn and et.al. 2015).
Importance of integration of management accounting system with reporting.
Management accounting system and reports play essential role in the process of
managerial accounting. The accounting reports are prepared on the basis of data collect by
management accounting system. Performance report and budget, stock are prepared by analysis
the cost incurred an debit and credit balance of the organization. Theses report help in taking
future decision and various system are used to control the risk of future uncertainties in ABC
Limited. As this organization is wants to expand their business and by using theses system and
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report manger can enhance performance as well as generate gain by effective use of pricing
strategies.
TASK2
Calculation of marginal costing
Marginal costing: This is one of the most useful methods of identifying cost of the
business accounting activities. It in marginal costing only variable cost consider for determine
the profit an effete of changing in units from the profit ((Haddadzade, Razfar and Zarandi,
2014).
Calculation of absorption costing
In this method of costing all the essential elements are calculating ad concern for
determine cost and indenting value of profit. It is useful in manufacturing uses organization
where cost of each product cans calcite easily.
Standard costing: In this method of costing difference between actual cost and standard cost
had been calculated and on the basis of theses the reason of variation has been identify and
organization change policies to reduce the variation. They use material, labor and overhead
variance through which they can determine budget and actual cost differences.
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