Management Accounting: Systems, Methods, and Planning for Budgetary Control

This report explores the significance of various managerial accounting reports and their role in decision making. It discusses different management accounting systems, such as job costing and cost accounting, along with their advantages and disadvantages. The report also assesses various methods for managerial accounting reports, including budget reports, job cost reports, accounts receivable aging reports, and inventory reports. Additionally, it explains the benefits and drawbacks of different planning techniques, such as cash budgeting, investment appraisal techniques, and zero-based budgeting, for budgetary control.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
P1. Explaining management accounting systems along with its essential requirements............3
P2. Assessing different methods that can be used for managerial accounting reports................6
P4. Explaining the benefits and drawbacks of different planning that can be used for budgetary
control..........................................................................................................................................7
P5. Comparing how management accounting systems can be adapted by firm for responding
monetary problems....................................................................................................................12
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting practice is associated with the preparation of managerial reports
that provides manager with suitable framework for decision making. In the context of
organization, managerial accounting reports are highly significant which assists manager in
evaluating and monitoring internal business performance. Managerial reports are highly
prominent as it contains information about both monetary as well as non-monetary aspects and
thereby helps in developing suitable policies. This report is based on the case scenario of Lets
Grow Ltd which is involved in manufacturing related activities and operations. In this, report
will highlight the significance of various managerial accounting reports with regards to Lets
Grow. Along with this, report will also develop understanding about various managerial reports
which aid in organizational decision making. It also entails how planning tools can be employed
by the firm in order to fulfill the aspects pertaining to budgetary control. Further, report will
shed light on the manner in which management accounting system helps in addressing monetary
problems.
P1. Explaining management accounting systems along with its essential requirements
Management accounting refers to the process of preparing reports by applying financial
tools and provisions. MA system advices firm about internal operational management in
monetary terms and thereby ensure development (Weetman, 2019). There is mainly four
management accounting system which in turn highly significant for the firm from the perspective
of decision making and maximization of profitability such as:
Job costing
It may be served as a technique which can be used by the firm for tracking specific cost
related to particular job. Using this method, owner of Lets Grow can accumulates expenses
related to material, labor as well as overhead and thereby ascertains cost of specific job.
Advantages
 Cost can be identified at any stage of job completion and thereby helps in exerting
control where required

 Estimation of each job and activity can be assessed through the means of previous
records (Advantages and Disadvantages of Job Costing, 2020).
 Facilitates budgetary control and remedial measures
Disadvantages
 Expensive and time consuming due to the inclusion of more clerical work
 Lack of standardization affects its significance
Cost accounting
Cost can be ascertained and meanwhile Lets Grow can set price of the products or
services. Moreover, by taking into account cost accounting system firm can determine per unit
cost and thereby determines price by adding profit margin into it. Thus, referring following
formulas Let Grow can asses both cost as well as price:
Cost per unit = Total expenses / number of units produced
Price = cost per unit + (CPU * profit %)
Advantages
 Helps in reducing the level of wastage, losses and inefficiencies
 Cost accounting helps in reducing cost and identifying the reasons pertaining to profit or
loss
 Advise company for taking decision about making or buy
Disadvantages
 It is not future centric because only past information’s available
 Further , it is based on the assumption of full capacity utilization which not appropriate in
all context

Price optimization system
By undertaking this system or software Lets Grow Ltd can perform mathematical
analysis. Moreover, it clearly presents customer’s behavior or response at varied price level. In
other words, this system helps company in assessing the quantity that will be purchased by the
customers at different pricing level (Vásquez and Naranjo-Gil, 2020). Referring results of
analysis manager of Lets Grow Ltd can set suitable prices for the products or services being
offered.
Advantages
 Helps in influencing customer decision making and thereby maximizes profitability.
 Assists in developing suitable pricing framework and gaining competitive edge
Disadvantages
 Skilled and trained personnel are required for operating this software
 Maintenance of software is expensive
Inventory management system
As per this, emphasis is placed on maintaining records about stock which is sold and
required for ensuring smooth functioning of the manufacturing activities. Moreover, using this
system company can identify stock level which it required for ensuring uninterrupted daily
activities. In this regard, Lets Grow Ltd can adopt JIT, EOQ etc and thereby attains
predetermined objectives.
Advantages
 Helps in avoiding over storage
 Facilitates reduction in holding as well as ordering cost and thereby enhances profitability
 Saves both cost and time
Disadvantages

 Highly complex and expensive
 Facilitates elimination of risk only to some extent
P2. Assessing different methods that can be used for managerial accounting reports
Managerial accounting reports refer to those which are prepared by business units on
weekly, monthly and quarterly basis. Business unit emphasizes on preparing managerial reports
as per the needs and requirements which contains information about internal departmental
performance. For the purpose of decision making managerial reports are highly significant which
helps in making evaluation of performance and thereby assists in setting strategic direction for
upcoming time period. Thus, for achieving success and taking appropriate decisions Lets Grow
Ltd prepares following reports:
Budget report:
This report is highly significant which helps in measuring performance more effectually.
Moreover, each business unit prepares budget on the basis of estimation in relation to earnings
and expenses. In this way, budget report helps in assessing the extent to which each department
performed as per the budgeted figures or standards. Thus, referring deviations that take place in
each departmental performance Lets Grow can set suitable financial framework for the upcoming
time period. Along with this, budget reports also give indication about the areas where cost can
be trimmed (Holopainen, Niskanen and Rissanen, 2019). In this way, budget report facilitates
effectual monitoring and thereby helps in controlling cost level. Further, budget reports help Lets
Grow in providing employees with suitable incentives.
Job cost report:
It assists in evaluating profitability aspects that associated with particular job. This report
exhibits expenditures associated with specific project and thereby comparison of same is done
with projected revenue. Job cost report provides Lets Grow Ltd with valuable information about
the areas that are extremely performing well. On the basis of this, business organization can put
extra efforts and resources in profitable operations rather than other one. In this way, job cost
report contributes in organizational profitability by ensuring optimum utilization of resources.

Accounts receivable aging report:
For the purpose of managing cash flows this report is considered as highly significant as
it helps in taking decision about credit offerings. In other words, accounts receivable aging report
furnishes information about time within which customers are clearing their dues (Types of
managerial reports, 2020). Through using such report firm can find problems that take place in
collection process. In the case of customer’s default and taking additional time in making
payments Lets Grow can tighten collection process. Moreover, high problems in collection
aspects directly impacts working capital and thereby daily activities as well. Hence, referring this
report firm can take appropriate decision in relation to cash management and associated aspects.
Inventory report:
Usually, manufacturing firms maintain inventory for converting the same into finished
goods. Thus, when company maintains high level of stock within an organization then cost and
profitability aspects are affected. Lets Grow Ltd can make manufacturing process highly
efficient by taking into account inventory report. Moreover, it serves information about stock
wastage, hourly labor rate and overhead cost related to per unit. Hence, with the help of such
report owner of Lets Grow can do comparison of different assembly lines. In this way, stock
report helps in removing undesirable activities from operations. Further, it helps in ascertaining
method, such as JIT, EOQ etc, which is benefic for firm with regards to cost control and profit
maximization.
P4. Explaining the benefits and drawbacks of different planning that can be used for
budgetary control
Budgeting may be served as a process which is undertaken by the firm for assessing
whether it has enough funds for carrying out business activities or not. In other words, budgeting
includes monetary information about sales, other incomes and expenditure pertaining to specific
time frame (Curry, 2019). Thus, with the motive to make optimum utilization of financial
resources manager of Lets Grow Ltd emphasizes on using budgeting tools and techniques.
Through this, manager can also do monitoring of departmental performance.
Cash budget

This quantitative framework includes information about all the inflow and outflows in
relation to specific time period.
Cash budget of Lets Grow Ltd for the period of six months is enumerated below:
Particulars
March (in
£)
April (in
£)
May (in
£)
June (in
£)
July (in
£)
August (in
£)
Cash inflows
Total sales or cash
inflows 126000 156000 168000 124000 144000 162000
Cash outflows
Less: expenses
Purchases 50000 50000 70000 80000 90000 100000
wages 30000 30000 30000 30000 30000 30000
Rent (paid quarterly) 12000 12000
Depreciation 2000 2000 2000 2000 2000 2000
Variable overheads 10000 15000 18000 12000 14000 16000
Fixed overhead 30000 30000 30000 30000 30000 30000
Total expenses 134000 127000 150000 166000 166000 178000
Cash surplus / deficit -8000 29000 18000 -42000 -22000 -16000
Opening cash balance 20000 12000 41000 59000 17000 -5000
Closing cash
balance 12000 41000 59000 17000 -5000 -21000

Interpretation: The above depicted cash flow shows fluctuating trend in the sales revenue
of firm. Moreover, after the month of May sales of firm decreased from £168000 to £162000
respectively. It has assessed from the evaluation that irrespective of decreasing revenue expenses
increased to the significant level. Due to this, in the month of July and August deficit of £5000 &
£21000 occurred. Hence, manager of Lets Grow is required do changes in the existing strategic
and policy framework. For ensuring enough cash balance within an organization Lets Grow Ltd
should offer less credit to debtors. By doing this, company can generate cash within suitable time
period and thereby would become able to carry out business activities effectually.
Working note:
Sales assessment
Parti
cular
s
March (in
£) April (in £) May (in £) June (in £) July (in £)
August (in
£)
Reve
nue
recei
ved
in
simil
ar
mont
h
150,000
*20% =
30000
180,000 *
20% =
36000
120,000 *
20% =
24000
140,000 *
20%
=28000
160,000 *
20% =
32000
170,000 *
20% =
34000
Amo
unt
earne
d in
follo
wing
mont
96000 150,000 *
80% =
120000
180,000 *
80% =
144000
120,000 *
80% =
96000
140,000 *
80% =
112000
160,000 *
80% =
128000

h
Advantages Disadvantages
 Simple and easy to formulate
 Helps in ascertaining company’s cash
position in relation to specific time
span
 It clearly exhibits monetary resource
availability and gives indication in
relation to raising funds (Otley, 2016)
 Assists in avoiding cash deficiency and
thereby ensures smooth functioning of
business operations.
 Highly relies on the estimation of
future events which in turn considered
as unrealistic in the current times
 Lack of flexibility and rigidity aspect
limits its importance in the modern
business era.
Investment appraisal techniques
There are numerous techniques such as payback period, net present value, average and
internal rate of return which helps in appraising the performance of new project prominently
(Ax, and Greve, 2017). By using capital budgeting tools Lets Grow can assess whether proposed
investment will be viable or not in monetary terms. Thus, by applying such tools manager would
become able to identify the level to which investment project will aid in organizational
profitability.
Advantages Disadvantages
 It provides business unit with accurate
framework for decision making by
taking into account time value of
money concept.
 On the critical note, firm fails to refer
the timing of cash flows while
evaluating projects.

 Further, such techniques help in
determining profitability aspect by
taking into account cash flows rather
than profitability.
 In this tool, identification and selection
of appropriate cost of capital is difficult
task.
Zero based budgeting
With regards to budgetary control purpose, Let Grow can prepare budget using the tool of
ZBB. Moreover, in this, budget starts from scratch and no focus is laid on considering previous
framework. Accordingly, manager focuses on the re-evaluation of every line of item and justifies
expenses which will be incurred by the departments. In this, personnel identify each possible
alternative in relation to performing activity and associated cost (Messner, 2016). Thus, as per
the priority of activity cost is allocated to particular function and justified properly. Hence, using
such modern technique management of Lets Grow Ltd can set suitable financial plan for the
business unit.
Advantages Disadvantages
 Helps in doing efficient allocation of
financial resources because focus is
placed on developing relation between
needs and associated cost.
 Ensures discontinuation of obsolete
process through the evaluation of whole
budget.
 While preparing budget as per ZBB,
firm also involves employees
pertaining to decision making. This in
turn improves co-ordination as well as
 In ZBB, more time and efforts are
required which in turn creates conflicts
in terms of skills and managerial
aspects.
 Further, evaluation of each and every
line of item is difficult task which in
turn requires managerial training.


communication among departments and
thereby contributes in success.
P5. Comparing how management accounting systems can be adapted by firm for
responding monetary problems
In the context of manufacturing business units, problems are usual which in turn directly
impacts firm’s performance. Thus, using below mentioned tools and techniques Lets Grow Ltd
can deal with financial issues effectually.
Benchmarking
On the basis of this tool, Lets Grow Ltd can do assessment of business processes and
performance in line with the leading companies operating in concerned industry. Moreover,
attainment of competitive edge over rivals is one of the main motives of firm (Hopper and Bui,
2016). Thus, by setting both internal and external benchmarks manager can assess how company
is performing at marketplace over others. Thus, by keeping in mind loopholes manager can take
suitable decision for further growth and improvement.
Advantages
 Helps in comparing performance
 Assists in policy formulation
Disadvantages
 Setting appropriate benchmarks is not an easy tasks
 Inappropriate benchmark misled decisions
Balance scorecard
This is recognized as one of the most effectual tools or performance metric which helps
in identifying, improving and controlling business activities from both monetary and non-
monetary perspective (Cooper, Ezzamel and Qu, 2017). Moreover, as per this, business

functions are evaluated on the basis of four aspects such as financial, internal business, customer
as well as innovation and learning. Hence, by developing and using balance scorecard Lets Grow
can monitor business performance and thereby develops competent policies which help in getting
the desired level of outcome or success.
Advantages
 It offers visual picture of strategic aspects and gives base for discussion
 Software automation makes all the processes easier and faster
 Ensures better alignment between strategy and goals
 It presents goals and strategies in a clear format which in turn facilitates effective co-
ordination and communication
Disadvantages
 Requires more data for evaluation purpose
 In addition to this, it is highly difficult for the firm to maintain strategic mapping
 Sometimes, balance scorecard misled results because it is based on ineffectual cause and
effect logic.
Key performance indicators
KPI’s are considered as quantitative measure which helps in evaluating and monitoring
organizational success with regards to attainment of goals & objectives. On the basis of this, by
setting KPI’s in relation to sales, profit, market share, brand image etc Lets Grow can assess the
extent to which company is performing well.
Advantages
 Helps in tracking progress and provide accurate results in terms of numbers & statistics.

 In the case of large business unit, it is highly difficult for the higher authority to progress
of each and every one. In this, KPI’s assist in tracking progress level in line with the
organizational goals.
 Offers input for the development future strategies and policies
Disadvantages
 It may cause of reduction in the quality and authenticity of working aspects. Moreover,
employees only place emphasis on achieving short term results rather than quality work.
 This method does not offer suitable results in long run.
Variance analysis
By using this, Lets Grow can easily identify and rectify problems that take place within
an organization. As, this quantitative method emphasizes on analyzing difference that takes place
between actual and planned behavior. Accordingly, by doing comparison of actual income and
expenditure with predetermined standards firm can assess causes due to which employees failed
to meet set criteria. In this way, such analysis presents financial issues take place within business
unit and offers opportunity in relation to improving the same.
Advantages
 In this, remedial measure can easily be taken by identifying causes of differences.
 Helps in assigning and fixing departmental responsibilities.
 Gives input for cost control and profit maximization by highlighting inefficient
operations.
Disadvantages
 Adversely impacts employee motivation and creativity when budgeting exercise is
loosely done by the personnel.
 Time consuming exercise

By doing assessment, it has found that Lets Grow Ltd undertake variance analysis tool with
the motive to address or resolve monetary problems in the best possible manner. The rationale
behind this, it variance analysis technique helps in reviewing business issues and problems on
periodical basis. Thus, continuous evaluation of performance helps in assessing problems and
thereby enables management to take corrective measure for performance improvement. On the
other side, ABC employs KPI method which in turn recognized as ineffectual. Moreover, it is
short term oriented and does not provide assistance in attaining success in long run. Along with
this, setting of suitable KPI’s is not an easy task for the managers. KPI method helps in
evaluating departmental and employee’s performance but it does not provide assistance in
getting desired outcome by maintaining quality work. Thus, it can be presented that ay the time
of making selection managerial accounting technique manager should keep in mind both benefits
and drawbacks.
CONCLUSION
In conclusion to this report, it can be presented that by undertaking managerial
accounting systems and reports manager of Lets Grow can evaluate business performance.
Moreover, cost accounting, job costing, price optimization etc are highly effectual which helps in
taking appropriate decision about price. Along with this, it has been articulated that managerial
reports assists manager of Lets Grow in setting suitable standards and benchmarks for the
departments. Besides this, it can be inferred from the evaluation that cash budget helps in doing
comparison of actual performance and thereby specifies variances. It can be summarized from
the evaluation that planning tools enable company to assess the extent to which specific goals are
met. Thus, through using planning tool manager of Lets Grow Ltd can exert control on expenses
and thereby maximizes profitability. It can be seen in the report that managerial accounting
system improves business performance significantly by resolving monetary problems.

REFERENCES
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