Management Accounting Contents INTRODUCTION

Management Accounting

Contents
INTRODUCTION...................................................................................................... 3
LO 1....................................................................................................................... 3
Management accounting system and their types...............................................3
Different types of management accounting reports...........................................6
M1 Identify the benefits of management accounting system and it's application
in the organisational context .............................................................................7
D1 Critically evaluate that how management accounting system or
management accounting report linked within organisational process................8
LO 2....................................................................................................................... 8
Costing methods along with a calculation of net profitability.............................8
M2 Management accounting techniques and financial reporting documents...13
D2 Financial reports which applies to interpret business activities..................13
LO 3..................................................................................................................... 13
Different planning tool used for budgetary control with their advantages and
disadvantages.................................................................................................. 13
M3 Use of planning tools for preparation and forecasting the budgets............16
LO 4..................................................................................................................... 16
Organisations are adapting management accounting systems to respond to
financial problems............................................................................................ 16
M4 Management accounting in response to solve financial issue that can lead
to the sustainable success................................................................................18
D3 Planning tools to resolve the financial problems.........................................19
CONCLUSION....................................................................................................... 19
REFERENCES........................................................................................................ 20

INTRODUCTION
Management accounting play an essential role in the growth and success of an
organisation as it directs managers to prepare a suitable reports and make an effective
decisions in order to operate its business functions more smoothly. Such reports contains all
valuable information related with financial as well as non-financial transactions made by
various departments on daily basis so that the actual financial position of company can be
easily identified. For this, mutual support by various departments such as marketing,
production, finance etc. should required in order to give reliable and accurate information to
the management. The present assignment report is based on BRIGHTSTAR company which
is engaged in providing financial services to the clients operated business in UK market. The
project describes the management accounting and reporting systems along with their
integration and benefits. The project also discusses the costing methods with a suitable
example of calculation of net profitability. Various planning tools to control budget and
resolving financial issues are also briefly explained under this report.
LO 1
Management accounting system and their types
Management accounting is concerned with an activity of identifying, evaluating,
recording, and interpreting financial information which is useful for managers to make
suitable decisions and effective plans for smooth functioning of business. The main purpose
of management accounting is to track and estimate costs that will help managers to prepare
an effective budget for future business activities. It provides information both financial as
well as non-financial information which is useful for internal as well as external interested
parties to an organisation regarding their decisions for betterment of an organisation. For this,
it is important for all the departments of an organisation such as marketing, production,
finance etc. to provide sufficient details about their transactions made on daily basis so that it
can be accurately recorded and utilised while decision-making process (Baars and et.al.,
2015).

Bases Management accounting. Financial accounting.
Meaning. It is the accounting system which
provide information to the
manager to make policies, plans
and strategies for their business.
In this accounting system company
prepare a financial statement of an
year to provide financail
information to their shareholders.
Is it necessary? No Yes
Information Monetary and non monetary
information.
Monetary information only.
Useful for? It is used by internal department
only.
It is used by both internal and
external department.
Therefore, BRIGHTSTAR company should support its accounting manager to
perform their roles and responsibilities through motivating and guiding them so that they can
bring valuable outcomes to company by analysing the actual financial position of company.
Types of management accounting systems
Cost accounting system: It is valuable system which is utilised by management to
estimate the cost that will be further incurred in future business activities so that cost has been
controlled, inventory has been valued and profitability should be increased. It is also called as
product costing which valued the cost of products after determining the actual cost incurred
in manufacturing and selling products to the final customers. It is most beneficial to use by
manufacturing company such as BRIGHTSTAR company in order to monitor and record
transactions made during financial transaction process. Therefore, BRIGHTSTAR company
must use such system in order to establish a framework and estimate the cost that will be
utilised in future transactions with their clients. It makes easy for company to value its
products and after that sell into market with an effective prices in adding with their margin
(Brennan and Merkl-Davies, 2013).
Actual costing- is a system that include direct cost rates and actual overhead which is
used in process of production. It is used by bright star comapny to find out their measurable
cost. In these they add their material cost, employee charges and time which is invested to
provide services for their customer.

Normal costing- this is a tool that is used to derive the actual cost of a product. In
normal cost process price of product are include under actual cost while overhead price is the
pre-determined factor that can be used in normal costing. Bright star company is using them
as asset valuation because they are in service industry.
Standard costing- under this type of costing their value in material, labor, and
overhead cost all are pre-determined. It work as a benchmark for them that can be used for
calculate the standard cost of the goods that can produce by the manufacture. Like bright star
company calcualte their interest rate as per the bench mark told by banks or private sector.
Price optimisation system: It is another useful system which brings valuable
information about the actual perception and buying behaviour of targeted people regarding
the pricing policies implemented by an organisation on their offerings. It assist managers of
BRIGHTSTAR company to think twice about their existing pricing policy and accordingly
make suitable changes in order to maximise the satisfaction level of customers and achieve
their loyalty with company for longer period of time. For this, managers should first
determine the rivals’ pricing policy along with the quality of their offerings and on the basis
of which decide to charge prices in exchange of their products and services to the customers.
It directly makes position impact on their existing consumer base as well as profitability.
Inventory management system: It is a system which directs the managers of an
organisation to track and monitor the products through the whole supply chain or some
portion of it which is used in its business operation. The main purpose of using such system is
to make control and monitor the level of stock along with the deliveries and orders. It also
facilitate managers to acquire knowledge about the requirements of inventory so that the
order has been take place in advance which increases their capabilities to meet customers’
needs and requirements on timely basis. Along with this, it ensures company to have
sufficient amount of funds due to which allows company to run their process without any
interruptions. It increases the brand loyalty as well as profitability of company (Hasniza
Haron, Kamal Abdul Rahman and Smith, 2013)
Job costing system: It is the framework which gathered information about the total
expenses incurred in particular generation process. Such expenses are utilised to produce
something which are more in demanded by targeted people. This will assist managers to
make an effective pricing policy that covers all the expenses incurred so that profitability can
be gained on selling each products to the customers. BRIGHTSTAR company can use such

system to analyse the cost of transacting its financial products and on the basis of which
setting pricing policy which increases the satisfaction level of customers as well as profit
margin of company. Job costing system includes different aspects such as getting an enquiry,
order for generation, recording of expenses and achievement of employment etc.
Different types of management accounting reports
Budget reports: This is a report which is prepared for the purpose of maintaining
performance level of company for future period of time. It is prepared by every organisation
irrespective of the size whether small, medium or large as it is necessary to prepare in
advance for executing future business operations more smoothly. It is based on the estimation
of cost invested in future business activities so that desired results can be attained within pre-
determined time period. It reduces the wastage of resources which makes positive impact on
the profitability of company (Klychova, Faskhutdinova and Sadrieva, 2014).
Inventory management report: It is prepared to maintain sufficient level of inventory
with company so as to meet customers needs and requirements on time. Such reports contains
accurate information about the actual inventory and inventory required to order from
suppliers with the purpose of continuing production process without facing any interruptions
related with shortage of stock. BRIGHTSTAR company is engaged in providing financial
services therefore it is very important for their managers to prepare such report in order to
facilitate their various departments to perform their functions without facing any
disturbances. Analysing such reports enable managers to decide whether there is required to
order inventory or should wait keeping in mind the reducing storage cost. It increases
capabilities of company to fulfil the requirements of customers which in results achieving
their loyalty for longer duration.
Account receivable report: It is another reporting system which gives accurate details
about the list of default debtors so that legal action can be made against them for further
recovery. Such report maintains the financial position of company by identifying the amount
which will be recovered in future time period . It questions the existing credit policies of
management as well for non-recovery or loss to company which provides them an
opportunity to make changes in their existing credit policies so that the chances of facing
losses or bad-debt can be minimised. It indirectly supports in maintaining profitability of
company (Nas, 2016).