Cost Accounting and Management Systems

This assignment delves into the intricacies of cost accounting and its interconnectedness with various management systems. Students will examine different cost accounting methods like absorption costing and job costing. The focus extends to inventory management systems and their integration within a comprehensive cost accounting system. Additionally, the assignment highlights the crucial role of management accounting in optimizing pricing strategies and driving organizational success.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................2
TASK 1............................................................................................................................................2
P1 Management accounting systems..........................................................................................2
P2Approaches of management accounting reporting.................................................................5
TASK 2............................................................................................................................................7
P3 Difference between income statement made through marginal and absorption costing........7
TASK 3..........................................................................................................................................11
P4 Merits and demerits of planning tools which are used for budgetary control.....................11
TASK 4..........................................................................................................................................13
P5 Adopting management accounting systems for answering to financial troubles.................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

Report
From : Management Accounting Officer
To : General Manager
Subject : To write a effective report to GM covering management accounting and management
accounting system together with various costing tools and reporting to enable the company
significantly implement them.
1

INTRODUCTION
In the modern era, management and accounting both are the important aspects thus both
concepts are different from each other. Thus, it is required for an organisation to adopt and use
smart techniques so that they will attain their decided goals and objectives. Generally,
management related with the different activities of business firm whereas accounting aids to
define detailed information related to the financial information of an organisation. Hence, this
report based on Taj stores which is a small retail firm of UK. It sells home products and goods to
customers as per their order.(Macintosh and Quattrone, 2010) However, management accounting
helps to business managers of the company because with the help of this they can identity all the
deviations so that they will significantly take effective decisions in the critical situations for
resolving problems and issues. Further, this assignment will discussing about management
concept and various its systems. In this addition, there are several type of management
accounting reporting methods which also will be elaborating in an systematic way. In order to
this, here will be systematically differentiate between marginal and absorption costing technique.
At the last, advantages and disadvantages of the planning tools will discuss which also can be
used for the budgetary control. (Baldvinsdottir, Mitchell and Nørreklit, 2010)
TASK 1
P1 Management accounting systems
Generally, it is not easy to take effective judgement of the financial situation of company
within the less time period. Due to this, managers of company can adopt management accounting
systems within the organisation so that they can easy to identify financial and non- financial
issues and troubles of firm. While company using this aspect at work place then respectively
improve the profit level.(Ward, 2012) Apart from this, Taj stores are operating their business at
the small level due to this, its employees always focus on to take loan at the low interest rate.
Thus, it is needed to be allocate funds within the organisation as per the requirements so that they
will easy to get high number of returns from the external market. With the help of this aspect
accounting manager will take better judgement of their financial and non financial positions.
Along with this, top level management of the selected enterprise concentrate on to record all over
information related to the business because it will beneficial for superiors. At the last, there are
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elaborating basic difference among financial and non- financial accounting which is stated under
follows such as:
Financial Accounting Managerial Accounting
Basically, these accounts are made for the
extrinsic parties like bound holders of the
company.
Whereas it will be created for the intrinsic
persons of the business such as staff members,
employers, colleagues and so more.
Managers can be used past data of company
for preparing financial accounts.
This have to be related with the present and
future time period.
Reporting of the financial information is linked
with the selected company.
Specific area reporting.
With the help of financial accounting managers
can easy to measure their financial records and
information.
In which significantly examine the all over
operations.
Examination of operational is done.
Its needed for every public firms is to be
prepared according to the legal rules of the
nation.
Whereas, there are no any legal rules and
boundaries for business firms to formulate
managerial accounting.
Small business firm have to be utilise and use different management accounting systems
within the organisation because with the help of them they can take numerous benefits.
Generally, small businesses has limited funds and resources due to this they cannot able to bear
large number of wastage of their resources. Along with this, it is needed to be implement
effective management accounting systems so that employers of the firm can perform their
operations in more adequate manner(Lukka and Modell, 2010). Generally, it assist to decrease
confusion from several units on the basis of results so that they will complete their operations
within limited time period. Hence, there are significantly explaining the procedures such as:
Inventory management system: If an organisation store their large number of products
in excessive range then respectively increase their some expenditures such as carrying cost.
Whereas stock of the products has not sufficient as per the demand then employees of the firm
3

cannot able to full fill requirements of their clients. Hence, it affects on supply chain process of
company. Further, it is compulsory to be use an effective software at work place for managing
and controlling entire inventory. In this addition, they also can track availability of their
products, orders and stock. Apart from this, managers of selected enterprise will use EOQ
methodology within the company for determining the correct time period as well as order
quantity level. At the last, it helps to reduce the level of wastage so that company can smoothly
run in the competitive market place. (Parker, 2012)
Cost accounting system: This is one of the main aspect of the management accounting
system because with the help of this employers can control the wastage. Generally, this method
can be used for the managing manufacturing units so that they can easy to determine their
revenue level. At the work place of company its necessary to be focus on some major aspects
such as material, labour and so more.
Job costing: This management accounting system aids to examine the capacity of
generate profit level of business. Therefore, this method is beneficial for the organisation
because with the help of this respectively increase the number of jobs due to this enhance the
profit level. (Otley and Emmanuel, 2013)
Price optimisation: Generally, price of the products are totally depends upon their
demand level. Hence, company is liable to provide high quality of goods to clients as per their
order and demand. Therefore, it is required by the company must be set reasonable price of their
goods and services as per their quality and quantity because effective cost of products aids to
attract large number of clients towards firm. By doing this, respectively enhance the profit and
sales of enterprise. At the last, it is mandatory for every company should be adopt effective price
optimisation methodology at the work place for examine the value of their items.
4

P2Approaches of management accounting reporting
Every kind of business firm have to be make different kind of authentic reports due to
this they can significantly identify their past working information.(Renz, 2016) In this addition,
there are different type of methods which can be adopted by an organisation which all are stated
under such as:
5
Inventory
management
System
Cost
Accounting System
Price
Optimisation
Job Costing
Management
Accounting
system

 Inventory control reporting: This report is basically related with the inventory
investigation which aids to manage and control inventory of the business firm in an
systematic way. Therefore, the main issues can significantly find out with the help of this
report. For example: While over and under stock of products can easy to associated with
the merchandise. Along with this, inventory report will helps to examine the present
requirements and sales of the business firm within a specific time period. At the last, this
method is used by Taj stores because with the help of this effectively decrease the
carrying expenditures. In this addition, employers of the firm can examine the different
merchandises will significantly shows in the effective outlets which required for the
company. Therefore, several type of products and items are sale by an organisation to
their customers as per their order. (Weißenberger and Angelkort, 2011)
 Account receivable reporting: Selected organisation is operating their business in the
London from past times. Hence, this company has large number of permanent customers
who buy products and goods on the credit. Therefore, managers will develop an effective
report in which have to be mentioned all credit amounts which is provided by superiors
of the firm to clients. At the last time, this report is made on the basis of monthly, weekly
and quarterly base.
 Performance reporting: In the context of this report, managers of the company can easy
to examine performance of their employees and current position of organisation.
Basically, Taj stores are working at the small level in the UK due to this there are does
not have that much divisions. Hence, it is not that much required to the develop this
report by every business firm. At the last, with the help of this report employers of the
firm can easy to examine the actual and expected working performance. Thus, superiors
of the company can take better decisions in some critical situations due to this
respectively improve the working performance and profit level. (Cinquini and Tenucci,
2010)
 Account payable reporting: With the help of this report managers can identify the
actual amount which have to be pay to their suppliers. Generally, it is fundamental for
every employers of the business firm to pay amount on the decided time period to their
suppliers because it aids to maintain their relationships. Whereas, while managers pay
amount before time period so might be distributor will give some appropriate discount to
6

company. There is not any limited and decided time period to make this report by the
organisation.
 Budget reporting: This report is compulsory for every business firm in which have to be
make a budget for their organisation. With the helps business firm can make effective
comparison and analyse the budgeted performance. Generally, this records are developed
for the specific and particular year. In which systematically mentioned the expenditures
and income level of the period. At the last, an effective report aids to provides proper
information about income and expenditures of the business firm. With the help of this
managers will easy to take better decisions to improve revenue level. Along with this, all
these methods are beneficial for every company because managers can easy to handle
difficult situations as well as reduce the wastage level. Due to this, it is needed to be
make appropriate and systematic report by every organisations because by doing this
managers can identify their last performance and financial position.(Fullerton, Kennedy
and Widener, 2013)
TASK 2
P3 Difference between income statement made through marginal and absorption costing
In the context of income statements, it is also one of the major authentic statement for the
every kind of companies because in which mention revenue and expenses due to this managers
of the organisation can take better decisions. This is an single method of identifying the loss and
profit level of company.(Nixon and Burns, 2012) Along with this, there are significantly
explaining the marginal and absorption costing which both are stated under such as:
 Marginal costing: In the aspect of this method, fixed expense of the company will taken
on the basis of periodical. Whereas, treatment of every variable cost done by the
managers in the normal way. This amount of the company is deducted after the
contribution amount. While an organisation seeks to be launch an effective product
within the market place for their customers so that employers of company have to be
spend some additional money in production process.(Vaivio and Sirén, 2010) Therefore,
there are significantly has to be charged some effective things such as material, overheads
and labour. In order to this, there are also mentioned and calculate fixed, administration
and selling cost.
7

 Absorption costing: This is totally different from marginal costing thus in which
concluded sort of cost such as variable and fixed cost. Both these costs are based on
selling units of the business firm. Whereas, in this costing method does not concluded
some expenditures while developing income statement of the company such as
administration costs. Along with this, there are systematically elaborate the major
difference among marginal and absorption costing such as:
Basis Marginal Costing Absorption Costing
Use This financial method is used
by the employers of the
company for taking better and
effective decisions.
This aspect will be used by an
organisation in the extrinsic
report.
Accounting standards While managers of the
company is effectively doing
the valuation of their stock
after that they cannot
significantly use the sort of
approaches according to the
rule because it is elaborated in
the accounting regulation.
Generally, this costing method
is developed by the regulation
of international accounting.
With the help of this an
company can use this
technique at the time of
valuation.
Fixed cost As per this method, it is
required to be deduct fixed
expenditures from the
contribution. This approach
only useful by the enterprise if
company's products are sold
out within the same year.
This aspect can be use if
products are sell at the time of
similar year.
8

Inventory valuation It is required to be include
variable cost while managers
of the company valuing their
stocks.
In the context of absorption
costing, in which managers
have to be mentioned entire
cost for an particular purpose.
Calculation though the Absorption costing method
Working notes
Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £2
Fixed cost £3
Total £16
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*19 = £13300 100*16 = £1600
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £2100
Fixed overhead: £2000
Total £100(over absorbed)
Administration Cost: In this budgeted cost is £800 and Actual cost is £700
Production Cost: £700
Selling cost: In this budgeted cost is £400 and Actual cost is £600
Net profit using absorption costing £ £
Sales
(-) Cost of Sales:
21000
9

Opening stock
Manufacturing
Closing stock
(Under)/ Over absorbed fixed prod.
O/h
Gross Profit
Less Expenses
Variable sales expenditure
Fixed administration expenses
Fixed selling expenditure
Over absorption
Net Profit
0
11200
(1600)
600
700
600
(100)
(9600)
11400
(1800)
9600
Working 1: Calculate variable production cost £
Direct material 6
Direct labour 5
Variable production O/h 3
Variable production cost 14
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*14 = 9800 100*14 = 1400
Net profit using marginal costing £ £
Sales value
Less: Variable costs
Opening stock
Manufacturing
0
9100
21000
10

Closing stock
Contribution
Less Fixed costs
Variable Production expenses
Administration cost expenditure
Selling cost
Net Profit
(1300)
2000
1300
600
(7800)
13200
3900
9300
As per above represented financial statements of the company with the help of them can
easy to examine that absorption costing method required to adopt by organisation. With the help
of this, employers will gain maximum revenues such as £9600. whereas, selected enterprise
while applying marginal costing aspect in their work place then revenue will be become
approximately £ 300. Hence, this major difference among revenue of the company has been
crated by the fixed value. Therefore, while selected organisation is using marginal costing
method in their work place then employers will systematically deduct their entire fixed cost from
the contribution amount so that they will calculate the amount of profit. Along with this, while
employers of the enterprise adopting absorption costing approach so that they can subtract fixed
cost of their company which is totally related with the sales of this year.
However, according to the outcomes, it has been understood that solution of the fixed
cost will based upon the choosing costing method. Along with this, another one major reason
behind the major difference of £ 300 that is closing stock of firm. However, entire expenditures
of company which is connected with the closing inventory which must be treated within the
upcoming time period. On the other hand, in the marginal cost method there is not matter that
company's products are sell out or not over all costing has been systematically calculate within
the similar year. Therefore, as per above mentioned two reasons which has been find out by the
company. At the last, while an organisation will significantly register their revenues through the
using absorption costing method. Thus, this aspect is very beneficial for the Taj stores which
must be used by organisation.
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TASK 3
P4 Merits and demerits of planning tools which are used for budgetary control
It is an fundamental rule for the every business firm to make effective budget for their
organisation with the help of this managers can easily control and manage their income and
expenses in an systematic style.(Qian, Burritt and Monroe, 2011) In this addition, employees of
the company will significantly complete their tasks as per the decided plan. Meanwhile there are
available some effective techniques which can be used by Taj stores for controlling budget which
all are stated under follows such as:
 Cash budget: While developing this budget for an selected organisation have to be
carried out data and information which should be related with the cash. With the help of
this aspect can easy to examine the actual cash level of an organisation. Therefore, in
which systematically mentioned inflow and outflow of the cash. Hence, it is needed to be
record and make effective cash statements of the company in an systematic manner for
smoothly running organisation in the competitive market place.
However, it have various advantages and disadvantages thus it is helpful for the company
to decrease problems and issues related to the bad debts. In order to this, employers of the firm
should be ensure about the receive rest of the fund within the limited and decided time period.
Additionally, they have to be pay their entire credit amount in the decided time. Along with this,
as per the outcomes business firm will significantly make better and healthy relationship with
their shareholders and other their major competitors. (Van der Stede, 2011)
Along with this, also it have some disadvantages which all are totally connected with the
cash methodology. Cash budget accuracy will easy to fluctuate as per the external market
environment due to this it is more flexible in the nature. Hence, it is not easy to make an
effective budget by the managers and top level management of the selected company at the last,
this plan basically developed by the organisation to consider last year financial information and
data of enterprise. (Luft and Shields, 2010)
 Master budget: In the aspect of this method, an selected organisation can significantly
allocate different resources to various units of the enterprise. Basically, this budget is not
only focus on a particular division but it concentrate on to attain organisational goals and
objectives in the systematic style. Both these type of budgets are developed by every
12

organisations hence in which have to be mentioned all over information by managers of
company.
While managers of the enterprise develop master budget so that with the help of this they
can use several resources systematically. It assists to decrease the wastage and unwanted costs
due to this respectively increase the profit level. Meanwhile, with in the organisation every
employees or staff members are knows their roles and responsibilities which all are have to be
effectively performed by them for attaining goals and objectives. It assist to remove confusion
and problems from the business environment. (Nandan, 2010)
However, utilisation of the tools and techniques is much more expensive as like Taj
stores are working at the small business firm in the UK due to this it is not easy to afford master
budget. This company have limited fund which is necessary for every type of company for
smoothly running in the competitive market place. At the last, as per above define it is an small
firm they can easy to remove confusion and issues without adopting different methods.
 Capital expenditure budget: This is an spending plan which can be used by the
organisation. With the help of this budget managers can easy to manage their financial
assets. In this type of budget have to be mentioned all information regarding purchasing
new equipments, haul loans, borrowings items and so more. Due to this can easy to
calculate the capital expenditures of of firm. Along with this, it assist to reduce problems
and issues which might be linked with the judgement of investment of fund. At the last it
is developed for the long time period due to this employers face several problems while
making this budget for company. (Pipan and Czarniawska, 2010)
 Zero based budgeting: At this time, it is needed for every business firm to make a new
budget after analysing the each and every functions of company. While managers are not
include previous budget then that can be consider zero based budget. Along with this,
with the help of this budget managers will easy to allocate resources as per the
requirements. Whereas, if company using this aspect then have to be required large
number of workforce at work place.
 Activity based budgeting: In the concept of this type of budget in which have to be
neglect previous information hence this budget is totally depends upon activities which
had already done. It assist to remove unnecessary works from the work place due to this
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they can control cost and revenue level. At the last, for developing this budget have to be
required large number of money also huge time period. (Banerjee 2010)
TASK 4
P5 Adopting management accounting systems for answering to financial troubles
Business environment is uncertain in the nature because in which included several factors
which can be affect on company. Due to this, its affection on business might be financial and
non- financial in the nature. Along with this, management accounting systems are aids to sort out
all issues and problems in an impelling style. However, there are significantly represent the
major difference among two major organisation such as Taj stores and Vectair Holding. Hence,
Taj stores are using modern methods at their work place whereas Vectair holding firm is using
traditional approaches. ( Van Helden and Northcott, 2010)
Taj Stores Vectair Holdings
As this company is using lean and modern
accounting method within the organisation
with the help of this they can take proper
benefits from their major competitors because
with the help they ca maximum utilise their
resources due to this respectively decrease the
level of wastage.
This organisation is using traditional method
which is very much simple as compare to
modern. Thus, they cannot able to get proper
benefits from the external market place.
Modern accounting method is more complex
as compare to other methodologies. While
employees of the firm using method have to be
give huge time for analysing the data.
This is easy to use within the organisation bust
managers of the company will not able to
effectively examine the data and information.
One of the major benefit of this method is “
Creating correct and quick call”.
Whereas, this aspect does not have these type
of benefits.
14

Selected enterprise is using new and advance
methodologies due to this they can attain their
objectives as well as complete their tasks in
effective way.
Employers of the firm have to be maintain their
accounts manually only.
Along with this, there are different type of strategies and tools which can be used by
selected firm which all are stated under:
 Key performance indicators: In the context of this aspect, employers of the
organisation will maintain their appropriateness within the organisation due to this they
can achieve their decided goals and objectives. It aids to resolve issues and problems so
that respectively decrease the level of debts.
 Benchmarking: In the aspect of this method, it is used by every kind of business firm
because in which employers of the company has to be set some effective standards for
their goods and services. Due to this, they can easy to examine their actual performance
and quality level through the comparing with pre decided standards. (Herbert and Seal,
2012)
CONCLUSION
It can be stated from the above report that management accounting is the best and
effective tools of managing daily operations of business in a company. Under the project, several
information us examined in regard of costing, reporting and other accounting system. There are
two approaches or methods i.e. absorption and marginal costing which can be used for measuring
and controlling the pricing and costing activities of company. System and report of framework of
management accounting can be used for leading enterprise toward right direction as well as
achieving goals. Entire information ad data which is stored through these techniques can be
utilised for further sustainability and growth process of organisation which is very crucial.
Hence, it avail in sustaining and development for long or short term period.
15

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pp.213-240.
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Ward, K., 2012. Strategic management accounting. Routledge.
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Online
What is absorption costing? 2017. [Online]. Available through
:<https://www.accountingcoach.com/blog/absorption-costing>.
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