Management Accounting - Sample Assignment

MANAGEMENT
ACCOUNTING

Introduction
The management accounting is a type of accounting system which is related to the
providing financial and non financial information to the managers so that they can take important
decisions regarding to the internal management. This accounting system is different from other
kind of accounting system, this is why because it contains detailed information about monetary
and non monetary transactions. As well as this accounting system is not compulsory to
implement. In this report, different kind of systems and accounting reports are mentioned. Along
with financial statements are prepared with the use of appropriate costing techniques. Apart from
it, benefits and limitations of various planning tools and role of management accounting system
in resolving the financial issues is also described (Songini, Gnan and Malmi, 2013). For details
understanding of this topic, company named Brightstar financial company is chosen which
provide services to the manufacturing company KEF Plc.
LO1
P1.
The management accounting consists different kind of accounting systems that play a
significant role in the context of different kind of organisations. Some accounting systems are
mentioned below which are being used by the KEF manufacturing Plc company:
 Cost accounting system- This is a type of accounting system that provides a basis for
computing the cost of various kind of cost of activities. In the absence of this accounting
system it can be difficult for the companies to calculate about how much cost is occurring
in different kind of activities. Eventually, this accounting system is essential for
managing and eliminating the total cost as much as possible. Apart from it, this
accounting system is also beneficial in resolving different kind of financial issues. Such
as in the KEF manufacturing Plc they use this accounting system in the guidance of
Bright- star financial company. Due to this their cost of manufacturing activities get
under control.
 Inventory management system- The inventory management system is a kind of
accounting system which is related to the proper management of the stock including raw
material, finished goods etc. As well as in this accounting system companies can take
further decision about purchasing of new material and production of new products. This

is why because on the basis of it, companies can aware about how much stock is
available in the warehouses. Such as in the KEF manufacturing Plc company, they
implement this accounting system to evaluate about the available raw material, finished
goods and make decisions accordingly (Salterio, 2012).
 Price optimisation system- The price optimisation system is an accounting system that
determines the price of products and services at an effective level. As well as it is helpful
in analysing customers reaction on different pricing levels. Eventually, in the absence of
this accounting system it can be difficult for the companies to determine the right price of
their products. So this accounting system is essential for right pricing of products and
services. Such as in the KEF manufacturing plc company, they implement this accounting
system for the purpose of allocating right price of different products and services.
 Job costing system- The job costing system is a kind of accounting system that
determines the cost of job of different activities separately. Eventually, this is beneficial
in providing detailed information about the cost of jobs and companies can make suitable
decisions about the jobs. So basically, this accounting system is essential for the
controlling the cost of jobs. Herein, the aspect of KEF manufacturing plc, they apply this
accounting system for the purpose of evaluating the cost of job which is assigned in
different kind of activities.
So overall these accounting systems are being used by the KEF manufacturing plc in the
guidance of Bright-star financial consultancy.
P2.
There are various kind of methods preparing the reports, which are being used by the
companies to manage their financial and non financial performance. Such as in the KEF
manufacturing plc, they prepares different kind of accounting reports with the help of accounting
systems. Herein, below some types of accounting reports are mentioned below: Performance report- It is a kind of report that tracks and manage the performance in a
systematic manner. In this report, manager set the financial and non financial goals which
are needed to be achieved after that compare the actual performance with the standards.
So main purpose of the performance report is to control the performance of different
activities as well as of employees. In the KEF manufacturing plc company, they prepare

these reports so that they can evaluate the efficiency of their activities and can take
further decisions accordingly. Cost accounting reports- The cost accounting reports are prepared with the help of cost
accounting systems. In this report companies get the detailed information about cost of
different activities and accordingly can evaluate which activities are high cost consuming.
As well as on the basis of these reports, organisations can take better decisions about
minimising the cost. Basically, these reports are suitable for the manufacturing entities
because they are required to have detailed knowledge about cost of activities. Same as in
the KEF manufacturing company, they prepare this report to get information regarding to
the cost of their different kind of activities (Novas, Alves and Sousa, 2017). Inventory reports- The inventory reports are kind of reports which are related to
providing information about quantity of raw material and finished goods available in the
warehouses. Due to this companies can aware about how much stock is available so that
they can purchase new material. Apart from it, this report is also useful in getting
information about various kind of overhead in the process storing the stock. Same as in
the KEF manufacturing plc, they make these reports for the purpose of managing their
raw material and prepared products. This is why because on the basis of it, they can
decide whether they should purchase new material or not.
 Account receivable ageing report- This is a kind of report which is associated with the
providing detailed information to the companies about the total payables in the market as
well as about how many debtors are overdue. Apart from it, in this report companies can
get information about dates on which payment is due. So overall main objective of this
report is to help the companies in collection of amount from the debtors. In the above
respected company, they prepare this report for the purpose of getting information about
the total amount due in the market from different debtors.
So these are the reports of accounting which are being used by the KEF manufacturing plc for
getting important information about financial and non financial activities (Rossing, 2013).
M1.
The management accounting system consists various kind of accounting systems which
are mentioned above. Each of these accounting system has some importance which is mentioned
below:

Various type of
management
accounting system
Benefits
Price optimisation
system
The price optimisation system helps to the companies in allocate the
right services at the right place. Same as within KEF manufacturing
plc, system is beneficial in fixing the accurate cost of products and
services.
Job costing system As name assists, it is beneficial for above mentioned company in
computing the cost of job separately. Such as for above mentioned
company it is beneficial in controlling the cost of job.
Inventory management
system
It is beneficial in effective management of stocks which is stored in the
warehouses. Like in the above respected company they implement this
accounting system for the purpose of taking decisions about purchasing
of raw material and production of new products.
Cost accounting
system
This accounting system is beneficial in providing detailed information
about the cost of different kind of activities. Same as in the KEF
manufacturing plc, they manage the cost of different manufacturing
activities by this accounting system.
D1.
The administration accounting group and management accounting reports are combined
with each other. This is the main reason in which integration companies can prepare
management accounting reports. Same as in the KEF manufacturing plc, it makes the reports
regarding the inventories and storage units are effectively prepared under cost and inventory
system. So it shows that management accounting system and reporting are linked within the
organisational process.

LO2
P3.
Marginal costing method- It is used by the company for knowing its product cost which
is relevant cost in production of a particular organisation. In this method, only variable cost shall
be deducted from sales revenue.
Absorption costing method- This is other type of technique of management accounting
in which all cost related to production of a product is considered whether fixed cost and variable
cost. This method is used by the company in calculating the cost of regular products (Bradbard,
Alvis and Morris, 2014).
Income statement under absorption costing method for month of May & June
Particulars May June
Fixed production cost standard 4000 4000
Fixed production cost actual 5000 3800
Under/over absorbed cost 1000 -200
Income statement under Marginal costing method for month of May & June

Inventory cost as per marginal
May June
Opening inventory 3200
Closing inventory 3200 1280
Per unit Direct materials cost 8
Per unit Direct labor cost 5
Per unit variable production overheads cost 3
Absorbed fixed productin cost per unit 10
Cost of sales 26
Material cost variances:
Given information is as follows-
Standard price(SP)- £10 @ per kilograms
Actual price (AP)- £ 9.5 @ per kilograms (20900/2200)
Actual quantity (AQ)- 2200 Kilograms
Standard quantity(SQ)- 1000 Kilograms
Material price variance (MPV)= (SP-AP) * AQ

(10-9.5)* 2200= £1100 F
Material usage variance (MUV)= (SQ-AQ)*SP
(1000-2200)*10= £12000 A
Material cost variance (MCV)= Standard material cost- actual material cost
Valuation of closing stock using LIFO
Date Reference Purchase Issues Balance (Inventory)
Units £/Units £ Total Units £/Units £ Total Units £/Units £ Total
05/01 Previous balance
(inventory) 40 3.00 120.00
05/12 40 3.00 120.00
Bought 25 units
at £ 3.60 each 20 3.60 72. 20 3.60 72.00
05/15 20 3.60 72.
Issued 36 units 16 3.00 48. 24 3.00 72.00
05/20 24 3.00 72.00
Bought 20 units
at £ 3.75 each 20 3.75 75. 20 3.75 75.00
05/23 Issued 10 units 10 3.75 37.5 24 3.00 72.00
10 3.75 37.50
05/27 9 3.75 33.75
Issued 25 units 25 3.00 75.00
05/30 Issued 5 units 5 3.00 15.00 4 3.75 15.00
Valuation of closing stock by using weighted average method:
05/01 Previous balance
(inventory) 40 3.0000 120.0000

05/12 Bought 25 units at £
3.60 each 25 3.60 90. 65 3.2308 210.0000
05/15 Issued 36 units 36 3.2308 116.307
7 29 3.2308 93.6923
05/20 Bought 20 units at £
3.75 each 20 3.75 75. 49 3.4427 168.6923
05/23 Issued 10 units 10 3.4427 34.4270 39 3.4427 134.2653
05/27 Issued 25 units 25 3.4427 86.0675 14 3.4427 48.1978
05/30 Issued 5 units 5 3.44 17.2135 9 3.4427 30.9843
M2. Management accounting techniques for preparation of financial reporting documents.
The management accounting techniques are useful in preparing the financial statements.
This is why because these techniques provide a framework for presenting the financial reports.
Herein, the project report the KEF manufacturing plc prepares income statement with the use of
absorption and marginal costing method.
D2. Interpretation of income statements.
After seen the above calculations related to income statements that are calculated by the
marginal statements gives true and fair presentation of company's financial information and
therefore, it is suggested to the company to follow marginal costing for calculating the cost
related to the its various products.
LO3
P4.
There are various planning tools which may used by KEF Plc for its budgetary control to
improve its efficiency and effectiveness in business operation. But there are some benefits as
well as limitations for using these planning tools to support the budgetary control in an
organisation. Some of planning tools which are used by an organisation and its advantages and
disadvantages are as follows:
Fixed budget:

Fixed budget is prepared by the management accountant for fixed scale of operation and
it can not be change according to the actual scale of operation (i.e. actual production of given
period). In other words, it can not change or flex according to change in volume of production.
Advantages:
 It is based on the past (historical) data and current state of the business.
 It is easy to prepare and forward looking view for the organisation.
Disadvantages:
 Company can not change this budget during that year, even though there is a changes in
the level of business operations.
 It requires more time to find out the exact financial resources required and also cost
involved is very high (Chan, Tong and Zhang, 2012).
Flexible Budget:
Flexible budget is a budget that can be change or can adjust according to the time scale of
business operation. This budget is more sophisticated than static (fixed) budget. It is also called a
variable budget because it is a financial plan of estimated revenues and expenses based on the
actual amount of output.
Advantages:
 Management accountant is free to establish budget for any level of activity within
relevant range even after the relevant period over.
 Flexible budget helps the company in assessing the performance of the various
department heads (Wagner, 2015).
Disadvantages:
 In this budget, there is linearity of cost and also there is no specific record in an
organisation.
 It is based on the assumption of continuity, due to this, it does not consider the going
concern (i.e. in case of any issue in continuity of activity, it may be stopped).
Zero based budget:
This budget starts from zero base function in which every function within the
organisation like KEF Plc is analysed and evaluated according to the needs and costs and
thereafter, zero based budget is prepared around the what is needed for upcoming period.
Advantages:

 In preparing this budget, there is no requirement of much spending, it may prepared with
justified spending (Clinton and White, 2012).
 It helps in finding out the redundancies in the business operations and it also helps in
elimination of waste, focuses use of resources.
Disadvantages:
 Although, there is many benefits in preparing such budget but it is very costly and
complex to prepare.
 A company prepared this budget may suffers loss of long term planning and this budget
is not useful in manufacturing sector.
Incremental budget:
This is a budget prepared by using a previous period's budget and in other words, it is
prepared for using actual performance as a basis with incremental amount added in previous year
budget. In this budget, while preparing this, resources are allocated on the basis of previous
period.
Advantages:
 There is inefficient or obsolete operations may be find out and consequently, it
may be eliminated (Nilsson and Stockenstrand, 2015).
 It is good to prepare this budget because it responds the changing business
environment and in this, resources may be allocated efficiently and economically.
Disadvantages:
 Incremental budget has more emphasis on the short term benefits or goals and
consequently, it detriments (ignores) the long term goals.
 The process of preparing the incremental budget may be rigid, due to this, company
like KEF Plc may not be able to response various threats or opportunities in the
external environment.
M3.
Budget preparation requires application of these planing tools as stated above for
increasing the efficiency and effectiveness of business operations by improving the working style
of workers and its employees. For systematic process of any budget, these planning tools play a
critical and important role. These includes cash budget, master budget, flexible budget etc. for
providing a basis for planned figures of probable events. By including planning tools in

budgetary control, management personnel may make the reliable estimate of probable
performance of organisation and mangers may also use this for reporting purpose. For this, KEF
Plc company also uses different tools and their application such as zero cost budget for some
circumstances, cash budget for some different circumstances and so on. Therefore, it adopts
these as per the need of company (Halbouni and Nour, 2014).
LO4
P5.
In every organisation, whether small, medium or large, at each level of activities and
functions, there are some issue can be raise due to positive business environment. Financial problems
is a situation where money is the sole cause of problems in any business organisation like KEF Plc.
By adopting management accounting system at early stage, a company may resolve its financial
problems which helps the enterprises to achieve consistency in growth and ensure long term survival.
In medium sized entities like KEF Plc less knowledge of financial problem can lead to major
financial issues such insolvency in long run and so on. Some of these problems are as follows:
 Lack of liquid funds: This is a major financial problem of KEF Plc, it means that company is
not able to pay its day to day expenses due non availability of liquid assets in short period of
time. It is linked to organisation's working capital directly. As company is manufacturing
entity so company should maintain adequate liquid funds for any sudden expenditure or
contingent manufacturing expense. If there is a non availability of liquid funds frequently, it
may cause the non functioning of business operations which are essential (Boyns, Edwards
and Nikitin, 2013).
 Poor cash management: Another problem of an entity like KEF Plc are not proper utilising of
cash funds (i.e. cash management problems). It may be represented by the negative cash
flows from operating activities, loss of cash by theft, cash deficit (i.e. Expenses are more than
cash available). For resolving this problem, there is requirement to manage the cash in best
possible manner by make plans for applications of cash funds. If in any company, there is a
no proper management for cash then it may lead to liquidity problems.
Some of the significant techniques which may be used by managerial personnel to resolve financial
problems in an organisation are as follows:
Benchmarking: It is a process by which certain levels and criteria may be set for doing
works towards achievement of these criteria or assess performance of entity based on such

benchmarking criteria. In any organisation like KEF Plc, there shall be main objective to apply the
benchmarking to improve its functioning. It assist the company in facilitating understanding to
employees that what is the importance of a small piece or resource in production of its products and
services (Ngwakwe, 2012).
Key financial indicators: These are the indicators that help the company in financial
aspects. It provides information to the entities like KEF Plc about the non value added areas and
other key financial areas. Such indicators includes gross profit margin, net profit, net profit margin,
current ratio and so on that provides indicators about true financial position of the company.
Comparison between KEF Plc and TPG processing company:
KEF Plc TPG
 KEF Plc faces the problem of liquid
asset shortage, due to this, this
company unable to do its day to day
task which is required for earning
profits in long run and other related
factors and due to this, there is a lack of
productivity in business operations.
 TPG faces the problem of excessive
costs due to increase in manufacturing
cost. It results in less profit margin
available with the company, it may be
due to an market where companies can
not increase its sales price.
 KEF Plc may use the cost accounting
system to resolve the such financial
problems. Managers through cost
accounting system analyse the different
activities which is main cause of such
financial problem. By use of cost
accounting system, cost accountant in
company can track record of various
costs incurring shortage of liquid funds
within in day to day operations.
 Price optimisation system may be used
by the management of TPG company to
control excessive costs and expenses in
production of the products and services.
By utilising this system, an organisation
may allocate various functions which
may cause increase in cost. It can also
help company to increase their profit
margin per unit (Bargate, 2012).

M4.
For making diversification and achieving economical success to any medium size
enterprise like KEF Plc, there is a requirement to resolve the various financial problems. Without
responding the financial problems, a manufacturing organisation like KEF Plc can not achieve its
goals and objectives. For this, such company may use cost accounting system which includes
various planning tools to recognise the area related to mismanagement of cash. Management
accountant normally tries to capture and respond to financial problem but in changing business
environment and cut throat competition, it is very difficult. For this, a company should require to
plan its future business operations and according respond the probable financial problems by
using management accounting techniques (Parker and Fleischman, 2017).
D3.
As Planning tools act as a support system for a management accountant for smoothly
react organisational problems related to financial problems. For example, a critical master budget
may be used by the KEF Plc evaluating the internal environment, which helps the the
management accountant to take prudent (calculated) decisions. Such planning tools gives a
detailed groundwork for consistently evaluation of important area of financial issues and
accordingly provide solution for this. Providing solutions of financial problem can raise the
functioning of business organisation within a short period (Englund, Gerdin and Abrahamsson,
2013).
Conclusion
Above report transmits that management accounting system plays a important role in
functioning of business operation that operated in manufacturing sector. By using different
methods of management accounting system, an organisation may achieve its desire goals and
objectives in efficient and effective manner. Income statement may be very helpful for an
organisation for determining the correct financial position. It may be prepared either absorption
method or marginal method, company shall choose the the correct method which are most
suitable to it. It is further concluded that although there are benefits of using the various planning
tools but there are also some limitations of these in budgetary control. Reporting is important part

of management accounting system as it helps in transmitting the overall performance of organisation
to top level or strategic level managers.