Management Accounting Research and Analysis

This assignment discusses the significance of management accounting research, planning tools, and various accounting systems in achieving future growth and stability. The analysis highlights the merits and demerits of using different planning tools and how their implementation can be crucial for managers. It also emphasizes the importance of resolving financial issues through effective use of accounting systems.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: About management accounting and their essential requirement......................................1
P2: Different types of accounting reporting system...............................................................3
M1. Evaluating benefits of accounting system.......................................................................5
D1. Critical evaluation of management accounting systems and reporting...........................5
TASK 2............................................................................................................................................6
P3: Explain Marginal and Absorption costing methods.........................................................6
M2: Analysis of various accounting techniques.....................................................................8
D2: Interpretation..................................................................................................................8
TASK 3............................................................................................................................................8
P4: Advantage and disadvantage of using types of planning tools for budgetary control.....8
M3: Application of the planning tools for preparing, forecasting and analysing budgets...11
TASK 4..........................................................................................................................................12
P5: Comparison with other companies regarding respond to financial issues.....................12
M4: Analysis of management accounting techniques..........................................................13
D3: Evaluation to deal with planning tools used to resolve financial issues........................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Management includes interlocking operation of creating corporate policy and overall
planning, organising and directing an organisation resources in respect to attain its aims and
objectives in more quick time. While accounting is systematic process of summarising, recording
financial transaction that are done by the company within an organisation. Overall recording and
formulation of policies and plans are implemented in respect to get more benefits in coming
period of time. The role of manager in “Unicorn Grocery Ltd” is to organise all essential
requirements those are needed to increase growth and stability of the company.
This project module aims to focus on effective utilisation of various types of accounting
systems and reporting. Apart from this, different types of costing those are reliable fore
calculation net profit and loss of the company. Likewise, some planning tools for budgetary
control are discussed under this report (Tappura and et. al., 2015). At the end of this report,
comparison with other companies those are adopting management accounting systems to respond
to financial issues are mentioned properly.
TASK 1
P1: About management accounting and their essential requirement
In current era, it has been seen that managers are playing vital role in formulating various
systems those are helpful in recording various financial and non-financial transaction those are
done within an accounting period of time. This will assist manager of Unicorn Grocery to make
effective decision those are crucial for future planning and sustainability of the company. In
present business environment, business wants to overall all performance data that goes beyond as
per the basis of cost based information. Better management accounting consists of vital role and
responsibility to managers at a wide scale to get more reliable and effective outcomes in coming
period of time (Groot and Selto, 2013). A good accounting consists to a responsibility to manage
a large range of critical management data and their techniques such as cost volume analysis,
budgetary control and cash budgets etc. It is a provision that influence effective decision making
and provide expertise in areas of financial reporting during formulation and development of
organisational strategies. Mainly, it seems to be the effective activity of preparing and
implementing financial data regarding all that information those are collected with the help of
financial accounting.
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Definition: Management accounting is the process of formulating management reports
and account that used to provide reliable and timely financial and numerical data by the
managers to make every day and short-term decisions. It used to generate monthly or weekly
reports for an organisations internal people such as department managers and other higher
authorities.
According to J. Batty: Management accounting is known as vital term which used to
describe the accounting techniques with special knowledge and ability in their task of increasing
profit or loss period.
Types of Management accounting system
 Cost accounting system: It is a vital system for an organisation which is being used for
the determining the forecasted cost for their product, profitability evaluation, stock
valuation and to control overall additional cost. In order to get profitable operation in
near future, they need to make proper estimation of cost that are used during production
of product and services. There are various types of cost systems which are taken into
account while analysing cost for a product. Such as standard costing, normal and actual
costing (Schäffer, 2013).
 Inventory management system: It is said to be valuable quantity of product owned and
kept by an organisation that is intended either for resale or as new material and elements
that is being used to producing product for the company. There is an effective system
which is being used in stock management is Just-in-time (JIT). It is the strategy of
companies that employ to enhance overall efficiency and reduce waste through receiving
products only as they are required in manufacturing process. This seems to be helpful for
producers to estimate demand in reliable manner.
 Price optimisation system: It seems to be utmost important strategies which a company,
after collecting information from various customer regarding the products they make
certain decision. It is uses as numerical analysis in respect to analyse how clients will
react to other prices for their products and services. It is used to estimate the prices that a
company used to examine would be best suitable for their objectives such as increasing
operational gains during the time. This seems to be formal methods to invent pricing
structure that optimise goal such as earning or customer procurement.
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 Job costing system: It used to track the cost for labour that is being used within a job. In
case job is associated with service, direct labour and can be nearly every of the cost job.
It is used for assigning production costs to a separate products or batches of goods. It will
record the direct material and labour that is actually utilise plus the production overhead
to individual job. The Unicorn grocery used to make proper utilisation of all those
products that are produce within an accounting period of time.
 Activity based accounting: It is an accounting method that identifies and expenses or
costs incurred to overhead activities and then assign those costs to products. It is also
known as Activity based costing (ABC). It is the system recognizes the relationship
between costs, overhead activities and costs of products. ABC technique is mostly used
in manufacturing industries and ensures reliability of cost data. Quantifying true costs
and classifying the costs.
P2: Different types of accounting reporting system
Business enterprises is working in respect to increase overall profitability and growth for the
company. it is known as public reporting of operating and financial information through a
business enterprise. These reports are majorly useful for the better decision making on the basis
of evaluating financial position of the company. A reporting entity is considering as firm,
industry and companies that used to prepare financial reports (Fourie and et. al., 2011).
Accounting report are said to be compilation of financial data that are associated from the
accounting statement of the company. The role of manager is to collect all essential data about
current position of Unicorn grocery about their overall sales done within an accounting period of
time. These reports are submitted to the various investors or outside stakeholders. On the basis of
financial stability of the company they used to make their valuable decision regarding capital
investments.
The overall strength of an organisation can also be decided by analysing their position.
These are said to be custom made reports make with the intention for particular objectives, like
detailed evaluation of sales through region or capability of a specific goods line. There are
various types of accounting reports which are needed to be followed by the manager to reach a
certain level in coming future time. The main motive of the company is to control their addition
cost that are making maximum effective on the reputation. There are various sources from which
data can be collected in respect to prepare report of the company. all the reports are equally
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summarising and given imported while making any kind of decision in coming period of time.
Some of the vital reporting systems that are taken into consideration re discussed underneath:
 Performance report: It is known as utmost important activity in project evaluation
management. It consists of various activity such as collecting and dispersion of project
information, progress of project and proper utilisation of resources and overall status of
the stakeholders. It is a detailed information that is used to measure the outcomes of some
vital activity in relation for their success over a particular time period. These are regularly
prepared by higher authorities and government bodies which is being financed by public
money those are required to show the money incurred effectively during the time.
 Account receivable report: This seems to be an effective report which is being prepared
in order to analyse total list of unpaid customer’s invoices and unutilised credit amount
memos. It is considering as primary tools that is being used by the collection of personnel
to estimate which invoice are overdue for payment. In some cases, it is known as
reconciliation statements that uses to divide amount owned by all clients as per the
duration of time they are outstanding and unpaid (Bovens, Goodin and Schillemans,
2014).
 Cost management accounting report: Cost management accounting also known as
management accounting or cost managerial accounting. It is the process of identifying,
measuring, analysing, interpreting and communicating information to managers for the
achieving organisation's desired goals. Overall, it is a process for quantifying and
minimising the costs and pertain sets of techniques to assist the management in
developing several budgets, standards and ascertain the cost of production of any product
or services in business.
 Inventory management report: As per this report, the manager need to make backup
plan for their stocks those are kept by the company. The major aim of management is to
control their inventories those are coming and going from the business within an
accounting period of time. It seems to be essential element of supply chain management
that used to control flow of product from manufacturers to warehouses. It need to follow
certain documents such as Just in time, ABC analysis, First in first out (FIFO) and Last in
first out (LIFO).
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 Job cost report: It is known as one of the vital method which is being used to record the
costs of producing job in steed of a processing them. By the help of this, a project
controllers and accountant can easily be able to control and track of each job, regulating
data which is being often more related with the operations of a businesses. There are
various types of costing techniques which are taken into consideration such as batch,
process and standard costing.
M1. Evaluating benefits of accounting system
One of the crucial point to the taken into account that every management accounting
systems is equally important for “Unicorn grocery”. This will assist them to plan their future
budgets and production related activities in effective manner (Harris and Durden, 2012). In the
present scenario, most of the managers are searching or investing in attaining best system for an
organisation that will useful in recording all necessary transactions those are done within the
department. Some of them are:
 Cost accounting system: By the help of this, manager can have used to analyse cost
related to the revenue and expenses that can be clustered through cost objects, product
line and distribution channel.
 Inventory management system: Increase information transparency within an
organisation in case company used to order more or in case of over and under-stocked.
 Price optimisation system: It is essential in a company that want to connect to their
business capacity with profit and more significantly. It is considering as utmost important
part of price management system.
 Job costing system: Accessibility is the primary benefit to the management in case they
are using this system. Total expenses that are incurred in them can be determine under
this system.
D1. Critical evaluation of management accounting systems and reporting
In order to get more benefit in near future time organisation need to make plan effectively
for control their expenses and cost so that maximum gain can be incurred. This seems to be vital
aspects for Unicorn grocery to make use of all those systems and reporting that are responsible
enough to provide maximum benefit to increase reputation in front of other. According to the
Melnyk and et. al., (2014) both management accounting system and reporting are directly related
with one another. All the information collected from the department are analyse by using
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effective system and formulate report on the basis. These are compilations of financial data that
are derived from accounting statements of Unicorn grocery financial reports.
TASK 2
P3: Explain Marginal and Absorption costing methods
Cost is said to be value which is been paid by the company in order to earn something.
There are various types of cost those are essential for to be taken into account. This will be more
vital to determine correct cost for the production process. Some of them are discussed
underneath;
Fixed expenses: It refers to those expenses which remains constant every month during a
specified period of time. These expenses cannot be changed easily and normally paid on regular
basis may be monthly, weekly quarterly or yearly. These are not the variable expenses.
Variable cost: It refers to those expenses which includes daily basic expenses to operate
the business, these expenses are considered as discretionary. Variable expenses are those which
changes according to the requirement they are not the fixed expenses. Variable costs changes
according to change in the units of production, contribution is the core concept of marginal
costing which is calculated by determining the difference between all variable costs and sales
price. Marginal costing is a decision making technique which is used to make effective decision
about various expenditures incurred by the company.
Marginal costing method – Marginal costing method is a technique of profit
ascertainment by charging all marginal or variable cost against unit costs of produced goods and
writing off all fixed overheads whether selling or production expenses against contribution.
Marginal costing involves calculation of marginal cost which is a sum of all direct costs such as
direct material cost, direct labour costs, variable production and selling expenses, any changes in
variable costs or units directly effects the income or profit of the company (Marginal Costing.
2018).
Absorption costing method – Absorption costing is also known as full costing as it
involves all manufacturing expenses either variable or fixed, absorption costing is an accounting
technique in which all costs of goods sold are charged against selling price of sold goods to
determine gross profit (Callahan, Stetz and Brooks, 2011).
Prepare an Income statement using Marginal and Absorption costing method
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Marginal costing method -
Particulars Amount
Sales revenue 33000
COGS 9600
Production 800*16 12800
closing stock = 200*16 3200
Contribution 23400
Fixed cost ( 3200+1200+1500
) 5900
Net profit 17500
Absorption costing method –
Particulars Amount
Sales revenue 600*55 33000
COGS 14025
Gross profit 18975
Selling & Administrative expenses 1 * 600 +
2700 3300
Net profit/ operating income 15675
Break-Even: Break-Even is a point where organisation is experiencing the state of no
profit and no loss, or a state where all incomes and expenditures are equal. It determines the
monthly and annually sales of the company.
(a): BEP: Fixed cost / contribution
: 6000/12=500
(b): PV ratio: Contribution / sales *100
: 12/40*100=30%
BEP in sales= 500*40
= 20000
(c): The number of products that need to be sold to make profit of 10,000
Desire profit= contribution / contribution per unit
= 16000/12
= 1333.33
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(d): The margin of safety if 800 products are sold
Actual sales: 800
BEP sales: 500
MOS: 800-500 /800 * 100: 37.5%
The margin of safety is considered as the financial ratios which measures the sales
amount that exceed the break-even point.
M2: Analysis of various accounting techniques
Management accounting techniques like marginal costing and absorption costing are used
to determine net income or profitability of this organisation here net income determined using
marginal costing method is higher than the net income calculated using absorption costing, as
absorption costing takes all costs into account either fixed or variable. Management accounting
techniques like standard costing and historical cost accounting are not used by this organisation
as they seemed to earn more effective financial statements by using marginal and absorption
costing.
Using marginal costing, an organisation can determine contribution, whereas using
absorption costing an organisation can determine gross profit on which fixed costs and selling-
distribution costs are charged respectively to ascertain net incomes.
D2: Interpretation
In the above scenario, organisation can earn profit if they produce goods more than 500
units as the breakeven point is 500. It is the state where organisation is no profit and no loss. The
above organisation is needed to produce at least 1334 units to earn a profit of 10,000, using these
techniques an organisation can determine the profit making ability.
Margin of safety shows safety level of an organisation or it can be said that MOS shows
how much sales can fall before a company can reach breakeven point.
TASK 3
P4: Advantage and disadvantage of using types of planning tools for budgetary control
Planning is said to be an effective process of thinking regarding the activities needed to attain
a desired aims and objective of an organisation. It consists of innovation, creation and overall
maintenance of a plan. It is said that management starts with planning and plan begins with the
formulation of aims of the company. It is more crucial with the formulation of strategies in
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budgets. Because budgets are more reliable and vital aspects for every business organisation
those are responsible for deriving overall strength and position of the company at the same
period of time. It is considering as financial plan for set duration of time, usually for a year. It
can also include sales volume and revenues, cost and expenditure and other cash flows
information about the company (Abrahamsson, Englund and Gerdin, 2011).
Zero based budget: It refers to those budgets which are usually prepared without using any
year priority budget, as these type of budgets are prepared under the process of zero based
budgeting(ZBB), without using previous year's budget or spending numbers. Overall, ZBB is the
technique of preparing the budgets which are based on 'zero base' by evaluating every cost and
every expenses.
Budgetary control is said to be effective process through which budget are prepared for the
future period and are compared with the actual performance for finding out variances. If any.
Objective of budgetary control:
 Defining the objective of the enterprise.
 Provide plan for attaining objective that are so defined.
 Coordinating the activities of various departments.
Advantage of budgetary control
 Define the aims, plan and policies
 Fixed target
 Help the management in case of any contingency.
 Reduce cost of production
Disadvantage:
 Budgets are prepared for the future period which is always uncertain.
 It is considering as only management tool.
It is used for the purpose of planning and performance evaluation which can consist of
spending for fixed assets and rolling out initial products and further training activities. In order to
control additional cost for the company they need to make use of various budgets such as
operating, cash and master budgets. These types of budgets are reliable enough in providing
necessary information for the company in future. In case any problem found in budget they need
to use of planning tools. Such as:
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Forecasting tool: It is known as estimation of unknown condition those are arises in the
departments without providing any information. Estimation is more similar, but can be more
common terms and usually refers to estimation of time value of money, cross-sectional and other
factors. It begins with certain assumption those are based on management experiences and
judgment etc.
 Advantage: This method can be use by an individual organisation that relies on data
present and sector in which the company operates. It used to provide valuable
information about financial position of the company.
 Disadvantage: It is very tough to make accurate prediction about the future events.
Making accurate decision on forecasted can provide reliable outcomes in financial
downfalls (Nielsen, Mitchell and Nørreklit, 2015).
Scenario tool: It is known as thinking about strategic planning techniques that few
organisations can make use of flexible and long term plans those are effective helpful in near
future time. It will be operative in case of critical situation that are arises within an organisation.
They need to develop suitable situation for markets to enable them and control all implications
that are arise in an organisation.
 Advantage: It is innovative thinking regarding future possible behavioural directions of a
system. It is vital in wider learning process within the department.
 Disadvantage: The growth and dependency would rely on plenty of conditions such as
plausibility and relevance of scenarios, their coherence and other challenging narrative
aspects of a given scenario.
Contingency tools: It is known as effective plan that devised for getting a reliable results
other than their usual planning. It is often asked for risk management during an exceptional risk
that unlikely would have certain to handle for the company can be resolve by using appropriate
accounting tools. The budget which will be made within an accounting time can be control by
using appropriate methods. All those activities those are undertaken to ensure that proper and
follow-up process will be taken into consideration in an organisation.
 Advantage: It used to hold steady, even in case of disaster. Business can have used to
maintain the best state of operations that are best possible to handle any kind of crucial
situations those are arises in the department.
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 Disadvantage: The use of this method is more helpful but in case it put into practice, this
become very difficult to handle. It is more reactive rather than proactive in nature.
Sales budget: It is known as the estimation of total sale in units as well as prediction earning
from these sales. Business uses these budget to set department aims and objectives.
 Advantage: A sales volume part of the sales budget is based on sales estimation.
 Disadvantage: It cannot effectively forecast the future trends of events or any other
activities.
Sales budget for 2018
Sales budget for 2018
1st 2nd 3rd 4th year
Expected sales (in Units) 1000 1000 1200 1440 4640
Selling price 10 11 12.1 13.31
Total sales 10000 11000 14520 19166.4 54686.4
Cash budget: It is the statement under which proper estimation of future cash receipt and
payment are recorded into table in such a manner that indicate forecast cash balance of a
business. This budget helps the organisation to avoid the shortage of cash at the time when
expenses increases and also provide current cash position of the firm.
 Advantage: It fit with the need for compliance and expense control.
 Disadvantage: This can be reducing through a valuable classification system which will
be taken into account by the company.
Capital budget: It is known as the planning process which is being used to determine,
whether an organisation long term investments such as new machinery and plant are worth the
capital through the industry capitalisation structure.
Advantage:
 It is used to determine time value of money.
 Acceptance of consistent with the aim of increase value for the company.
Disadvantage: Difficult to resolve for the IRR irrespective of a financial calculator or
spreadsheet.
M3: Application of the planning tools for preparing, forecasting and analysing budgets
It has been found that financial reporting function are consider as one of the crucial aspects
for the department. There is certain application such as:
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Budgeting: once company decide to make future planning, they need to decide how these
plan is going to implement. To predict future cost and expenses Unicorn grocery is going to
incurred they need to make used of forecasting tools in reliable manner.
Cash flow forecasting: It is more predictive by their nature. This will assist the business
owners in determining peaks and trough in company finance. This would create certain risk
which can be resolve by using contingency plan (Abdel-Kader, 2011).
TASK 4
P5: Comparison with other companies regarding respond to financial issues
In every business the major problems are related with financial issues those are arises in an
organisation without having any alarm. Often if a unicorn grocery is having financial issues they
need to make sure that expense can be done at minimum interval. In the long term process, stress
is said to be increasing more burden on the department. It has been found that every year there is
opportunity to make better growth and position in the market. This will assist them to increase
better future and coming time. Financial challenges are some of the hard ones for an entrepreneur
as well as an organisation to deal with them. They can make huge burden on overall strength and
performance of the company in near future time.
These are term in corporate finance that is used to indicate a situation when potential to
creditor of an organisation are broken with difficulty. Many people are on regular basis need to
deal with certain kind of financial issues and the impacts on mental position of the company
internal department. These issues can be happening to be impossible to reduce, but using certain
valuable tools and techniques it can be resolved properly. Some common issues that are arises in
the department are discussed underneath:
 Cash flows: It is known as one of the crucial aspect for an organisation. They need to
make proper analysis of cash inflows and outflows that are done within the accounting
period of time (Kokubu and Kitada, 2015). It has been seen that sometime, position of the
company looks better on the paper. But actually it is not moving in right direction.
 Legal challenges: In case company is not following appropriate rules and regulation
while recording of financial transaction they need to deal with certain kind of the
financial issues. Many companies settle all their unjustified suits because it has been seen
that the cost of going to legal form and other expense are much harder than other things.
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 Product and services quality problems: It has been observed that most of the
companies like Unicorn grocery which is operating at very small level. They need to
make target to get maximum benefits from the market. But because of various issues
those are related with the production of goods are affected as well as restricting them
from doing so.
In order to overcomes above issues manager, need to make use of appropriate accounting
system those are responsible for controlling the effects on the performance at the same point of
time. Some of them are discussed underneath:
 Key performance indicators (KPI): It is more reliable and measurable value that used
to provide crucial information about overall performance of the companies as per the last
financial performance.
 Financial governance: As per this rules which is related with stringent set of plan and
polices that are issued by financial bodies to ensure that financial issues cannot get arise.
Comparison
Unicorn grocery Ltd Zylla company
As this company is operating at small level that
seem to use key performance indicators that to
deal with all kind of financial issues.
This particular company is uses various tools
and system to face financial downfall within
the department.
Cost accounting system can be more beneficial
for them to monitor cost of production for an
individual products.
Budgetary tools and techniques are needed to
be utilised for getting more advantages in near
future time.
M4: Analysis of management accounting techniques
There are various types of accounting techniques such as historical cost which is based on
the past rules and regulation. The standard costing tools which can assist them to make better
decision as per the current production of a products. While marginal costing is another important
technique which is used to resolve various aspects that are arise in an organisation.
D3: Evaluation to deal with planning tools used to resolve financial issues
There are various kind of tools that are useful for the purpose of controlling budget of the
company. forecasting tools can assist them to deal with issues before their occurrence. There are
certain tools such as benchmarking which can have used to set specific standard in near future
and start operating on that particular direction.
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To responding the financial problems, the role of management accounting in sustainable
success of the company are mentioned below:
 the tools and techniques of management accounting help in combination of sustainable
matters into different process of decision making.
 This helps to develop the reporting strategy which integrate the sustainability issues that
allows the financial and non-financial information report.
CONCLUSION
This project report is concluded that management accounting is utmost crucial aspects for
the department. They need to make use of accounting systems and reporting to record various
financial transactions that are done during the period of time. Although, types of costing methods
can happen to be more vital for calculating net profit but their implementation is more crucial
move by the managers. By the help of merits and demerits of planning tools, it will be easy to
applied best tools at the right point of time. Similarly, use of various accounting system in
resolving financial issues are primary concern for the company as discussed in the above project
reports. This will assist them to make future growth and stability in better manner.
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REFERENCES
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