Management Accounting - Solved Assignment

MANAGEMENT
ACCOUNTING

INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
P1. Management accounting system and essential requirements of these systems.....................4
P2. Various kind of method management accounting reporting.................................................6
M1. Benefits of management accounting systems......................................................................7
D1. Management accounting systems and management accounting reporting is integrated
within organisational processes...................................................................................................8
TASK 2............................................................................................................................................8
P3. Preparation of an income statement using marginal and absorption costs...........................8
M2 Management accounting techniques for preparation accounting reports............................12
D2. Interpretation of financial reports.......................................................................................13
TASK 3..........................................................................................................................................13
P4 Advantage or disadvantage of planning tools which is used for the budgetary control.......13
M3 Uses of different planning tools and their application for preparing and forecasting budget
...................................................................................................................................................15
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.....................................................................................................................15
M4 Responding to financial problems, management accounting can lead organisations to
sustainable success.....................................................................................................................17
D3 Evaluate planning tools for accounting period to respond financial problems appropriately
...................................................................................................................................................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
The management accounting system can be defined as a kind of accounting system apart
from other accounting system which provides information to the managers for better decision
making. In other words, it is an accounting system that includes all kind of information including
financial and non financial that becomes a basis for preparation of policies and plans in the
context of organisations (Abdelmoneim Mohamed and Jones, 2014). Though this accounting
system is not mandatory for the companies to apply but now these days due to its benefits it is
becoming very crucial for the organisations To understand in detail about management
accounting, alpha financial consultancy company is selected which provides financial services to
their clients who operates in retail, manufacturing etc. Their client company is TPG processing
company which is involved in the manufacturing sector. Overall in the project report different
kind of management accounting systems, reports are mentioned as well as use of costing
technique is described for preparation of financial statements. Apart from it, in the report
advantages and disadvantages of planning tools and role of management accounting system in
resolving the financial issues is also described.
TASK 1.
P1. Management accounting system and essential requirements of these systems.
The management accounting system consists different kind of system which plays an
important role in the context of organisations. Like the alpha financial consultancy provide
guidance to their client company. Herein, below some types of management accounting systems
are mentioned below: Price optimisation system- This is a kind of accounting system which provides a
framework for deciding the prices of products and services. As per this accounting
system companies assign the price in an effective manner which is beneficial for both to
the customers and companies. Except from it, this accounting system plays an important
role in analysing the customers feedback on different pricing levels. So this is essential
for two activities first one is fixing the price of products and services as well as
evaluation of customers on different prices. Same as in the TPG processing company they

implement this accounting system for determining the prices of their manufactured
products and services. Cost accounting system- This is a type of accounting system that computes the overall
cost of different kind of activities. On the basis of this accounting system companies can
manage and control their costs. While in the absence of this accounting system, it will be
difficult for the companies to determine all the expenditures which can hamper the
profitability. So basically, this accounting system is essential for the companies in
minimising overall cost so that profitability can increase. Herein, the aspect of TPG
processing company they use this accounting system in the guidance of alpha financial
consultancy. Due to this accounting system, they can analyse about which activities are
consuming higher costs and which ones are beneficial for them. Inventory management system- It is one of the important accounting system of
management accounting system. Eventually, this accounting system manage the raw
material and finished goods in a significant manner so that further decision can be taken.
Apart from it, this accounting system manage and control the cost of ordering, storing
etc. The inventory management system is essential for taking decisions regarding to the
purchasing of new material as well as for to produce new products. Same as in the TPG
processing company they manufacture new products on the basis of finished goods
available in the warehouses. Along with their purchase team buy new raw material as per
the availability of raw material in the stores. So overall, this accounting system is
required in those organisations which operates in manufacturing or construction.
 Job costing system- The job costing system is a type of accounting system which
manages the cost which occurs on various kind of jobs for multi-pal activities. Due to this
accounting system, organisations can evaluate about total cost of job. So this accounting
system is essential for minimising and controlling the cost of job that is assigned in
different kind of activities. For example in the client company of Alpha financial
consultancy company, they evaluate overall cost of job in their manufacturing activities
and accordingly they make decisions for further.
So these are the accounting systems which have their own role in the context of TPG processing
company.

P2. Various kind of method management accounting reporting.
Management accounting reporting- The management accounting reporting can be defined
as a systematic process in which companies evaluate their actual performance with the help of
set standards. The TPG processing company prepares different kind of reports with the guidance
of Alpha financial consultancy. Herein, below some types of management accounting reports are
mentioned below such as: Cost accounting reports- These are the reports which consists detailed information about
the cost of different kind of activities. Due to this reports organisations can assess about
which activities are occurring loss for them and which ones are not. So with the use of
these reports companies can take suitable decisions regarding to the expanding. For
example in the TPG processing company, they prepare this report on the basis of cost
accounting system. As well as these reports provide basis for computing profitability of
different activities. Inventory reports- The inventory reports are those reports which contains information
about the cost of ordering, carrying etc. Apart from it, these reports provide information
about how much finished goods and raw materials are available in the stores. So with the
help of these reports companies can evaluate about the need of new material and can
purchase accordingly. Herein, the aspect of TPG processing company they prepare this
report for analysing about how much raw material is available in their warehouses.
Eventually, they are involved in the manufacturing sector so it is very important for them
to use these reports in their different operations of the manufacturing sector. Budget reports- The budget reports are those reports which measure the actual
performance. Under these reports managers compare their actual performance with the
pre set standards. Eventually, these reports are useful in the measuring the financial
performance of the companies. For example in the TPG processing company, they
prepare this report by estimating future income and expenditures. On the basis of it, they
compare the actual income and expenditures. In the absence of these reports it can be
difficult for the companies to assess their actual level of performance. Account receivable ageing reports- This is a kind of reports that includes detailed
information about the total collection of any company from debtors in the market. As
well as these reports categorise the information about the debtors with the date so that

they can calculate the interest. Same as in the TPG processing company, they prepare this
report for the purpose of analysing about how many debtors they have in the market as
well as for calculating the interest rate on due payment.
 Performance reports- The performance reports are those reports which provide detailed
information about the performance of different kind of activities and employees. This is
why because these reports measure the actual performance then compare it with standards
Herein, the context of TPG processing company they prepare this report for measuring
the actual performance of their activities.
So these are the reports of management accounting systems which are being used by different
kind of organisations. Such as the TPG processing company makes these reports for better
management of their manufacturing activities.
M1. Benefits of management accounting systems.
The management accounting systems have own benefits and it depends on the
organisations that how they use it. Below the advantages of management accounting systems are
mentioned:
Management
accounting system
Benefits
Price optimisation
system
This accounting system is beneficial in determining the prices of
products and services at appropriate level. Such as in the TPG
processing company it is beneficial for them in assigning the price of
their products and services.
Cost accounting system This system is useful in computing overall cost of different activities.
On the basis of this accounting system, the above respected company
controls and reduce the total cost of manufacturing.
Inventory management
system
The inventory management system is beneficial in the managing the
available stock in the warehouses. Such as in the TPG processing
company they manage their raw material and finished goods
available in the warehouses.
Job costing system This accounting system is useful in computing the cost of jobs of
different activities separately. Such as the TPG processing company,

applies this accounting system for managing cost of job.
D1. Management accounting systems and management accounting reporting is integrated within
organisational processes.
The management accounting system and reporting are aligned with each other. This is
why because all necessary information for preparing the reports achieved from the management
accounting systems. Such as in the aspect of TPG processing company, they prepare accounting
reports such as inventory reports, cost accounting reports with the help of accounting systems
such as cost accounting system and inventory management system. So basically, the
management accounting systems and reporting are aligned with the organisational process.
TASK 2
P3. Preparation of an income statement using marginal and absorption costs.
Basically, there are two kind of methods for preparation of income statements. Herein,
below both the methods are mentioned:
Absorption costing method- It is a kind of method that consider fixed and variable costs
in an equal manner. In other words, this consider both cost as the cost of unit.
Marginal costing method- This is a type of costing method which considers both the cost
in different manner. It consider variable cost as unit cost and fixed cost as period cost.
Income statement by absorption costing method
Particulars May June
(in £) (in £)
Sale 50 15000 25000
Less: Cost of Goods sold
Opening stock
Direct Labour cost 5 2500 1900
Direct Material cost 8 4000 3040
Variable production Expenses 3 1500 1140
Fixed indirect production 4000 4000

expenses
Closing stock -4800 2122.4
Total cost of goods sold 7200 7957.6
G.P. 7800 17042.4
Selling and Distribution Cost 4000 4000
Administrative expenditure 2000 2000
Sales commission cost 750 1250
Net Profit (NP) 1050 9792.4
Absorption Cost per unit
Direct Labour rate 5 5
Direct Material rate 8 8
Variable Expenses 3 3
Fixed indirect production cost 8 10.53
Total Absorption Cost (Per
unit) 24 26.53
May June
Opening Stock - 200
Production 500 380
Units sales 300 500
Closing stock 200 80
Income statement by Marginal costing method
Particular May June
(in £) (in £)
Sale 50 15000 25000

Less: Cost of Goods sold
Opening stock - 3200
Direct Labour cost 5 2500 1900
Direct Material cost 8 4000 3040
Variable cost 3 1500 1140
Less: Closing cost -3200 -1280
Total cost of goods sold 4800 8000
G.P. 10200 17000
Fixed indirect production expenses 4000 4000
Selling and Distribution expenses 4000 4000
Administrative expenses 2000 2000
Sales commission cost 750 1250
Net profit (N.P.) -550 5750
Absorption Cost per unit
DL 5 5
DM 8 8
Variable Cost 3 3
Marginal cost per unit 16 16
May June
Opening stock - 200
Production 500 380
Units Sales 300 500
Closing stock 200 80
Calculation of material cost variances: Herein, below three variances are calculated which are
as for may month:
 Material cost variance = standard material cost – actual material cost

 Material price variance = (standard price – actual price)* actual quantity purchased and
used
 Material usage variance = (standard quantity – actual quantity)* standard price
Given, Standard Price = £10/kg
Actual Price = 20900/2200 = £9.5/kg
Actual quantity = 2200kg
Standard Quantity = 1000kg
Material price variance = (10-9.5)*2200 = £1100 (Favourable)
Material usage variance = (1000-2200)*10 = £ 12000 (Adverse)
Material cost variance = (10*1000)-(2200*9.5) = £10900 (Adverse)
Calculation of closing inventory of material using LIFO and Weighted average method:
Under LIFO method:
Date Purchased Issued Closing stock
Units (In£)/
units
(In£)
Total
Units (In£)unit
s
(In£)
Total
Units (In£)unit
s
(In£)Tot
al
01/05/1
9
40 3 120
12/05/1
9
20 3.6 72 - - - 40
20
3
3.6
120
72
15/05/1
9
20
16
3.6
3
72
48
24 3 72
20/05/1
9
20 3.75 75 - - - 24
20
3
3.75
72
75
23/05/1
9
- - - 10 3.75 37.5 24
10
3
3.75
72
37.5
27/05/1
9
- - - 10
15
3.75
3
37.5
45
9 3 27
30/05/1 - - - 5 3 15 4 3 12

9
Under Weighted Average method:
Date Purchased Issued Closing stock
Units (In£)/
units
(In£)
Total
Units (In£)unit
s
(In£)
Total
Units (In£)/
units
(In£)
Total
01/05/1
9
40 3 120
12/05/1
9
20 3.6 72 - - - 60 3.2 192
15/05/1
9
36 3.2 115.2 24 3.2 76.8
20/05/1
9
20 3.75 75 - - - 44 3.34 147
23/05/1
9
- - - 10 3.34 33.4 34 3.34 113.56
27/05/1
9
- - - 25 3.34 83.5 9 3.34 30.06
30/05/1
9
- - - 5 3.34 16.7 4 3.34 13.36
M2 Management accounting techniques for preparation accounting reports
The management accounting techniques play an important role in the preparation of the
income statements. Such as in the TPG processing company, they prepare income statements
with the use of absorption and marginal costing systems. So basically, the management
accounting techniques are useful in preparing different kind of accounting reports.

D2. Interpretation of financial reports
In the project report with the use absorption and marginal costing method, income
statements are prepared. As per the absorption costing method company is earning the net profit
of £1050 in May month while in the June they are earning the revenue of £9792.4. While in the
marginal costing method, company is getting the lose of £ 550 in May month but in next month
earning the profit of £ 5750.
TASK 3
P4 Advantage or disadvantage of planning tools which is used for the budgetary control
Budget – It is the evaluation of organizational resources which is used for the projection of
plan. It is produce by the top management for the estimate of their performance. Budget includes
all the expenditure and revenuer which is generated from the operational functions. Manager oif
the organization produce different types of budget which critically evaluate the performance of
business as well as employees. Before producing any kind budget, manger evaluate the past
performance which is helpful in decision making process. Most of budgets will cover financial
and monetary aspects of the organization. With the help of budget manager of TPG processing
company will take essential decision which further helps in achieving business goals &
objectives. It helps in decision making and further it will be converted into action plan. Budget
plays very important role in the business because it explains the strategy and path to get success
in their work. TPG processing company use the various budget to control their activities. There
are various budgets which can follow by the organization. But before that, they have to analyse
its advantage or disadvantage and it ill discussed below:
Cash Budget
This budget prepared by manager of the TPG Company for the identification of real cash
flow or it can be internal or external from the organization. Cash budget majorly focuses on cash
and cash related activities. With the help of budget, individual can analyse and then able to
understand the business performance, position and liquidity. In can be, used by the TPC
processing Company to improve their weak areas which affect the business. Further helps in
eliminating useless activities which increase the efficiency or effectiveness or it can be prepared
department wise. There some advantage or disadvantage of cash budget and it is discussed
below:

Advantage:
 Cash budget helps in tracking each and every movement of flow of cash and other related
items. TPG helps in monitoring all the cash flow for the effective results.
 It helps in accumulating funds for future and the other contingency which ensure about
availability of funds in future.
Disadvantage:
 Written data in the cash flow can easily manipulated and hide their actual performance.
Manager if the TPG use this budget for the internal cash management not for the training.
 Cash budget fails in detecting fraud and other error.
Operating Budget
This budget is prepared by the organization which includes the operational expenses and
income for the specific time period. It includes the estimation of income and expenses which
further helps in building strategy. In TPG, manager builds small budgets for effective or
efficient. Manager of TPG Company can adopt this budget and it has its own advantage or
disadvantage which is discussed:
Advantage
 It helps in maintaining day to day operational activities which increase the productivity or
profitability.
 It helps in maintaining operational activity which provides accuracy in their work.
Disadvantage
 It is complex and time consuming process which takes long time to operate.
 It includes operational budget for small size company such as TPG which majorly focus
operational part.
Master Budget
This budget used to prepare for the every departmental functional. This budget will take
time to develop each departmental budget. With the help of this budget, organization develops
separate estimation of expenses or revenue. With the help of this, manager of TPG processing
company identify the performance of each functional area. Further improvement will require
enhancing their performance in order to reduce the cost and increase the efficiency. It will
include the all financial information which helps in taking decision making process and
development of effective strategy. Manager of TPG can use this budget and identify the each

functional area performance of the business. Effective implementation will increase the
efficiency or effectiveness.
Advantage
 It will provide the accuracy in their work which help the manager to build effective
strategy or decision which further helps in achieving business goals & objectives.
 Master budget increase the coordination or communication among the different
department which perform their work separately
Disadvantage
 It is time taken process which consumes lots of efforts because preparing each divisional
budget will take long time.
 It is very complex budget which create confusion and they required expertise to
understand because it include the financial statement which required understanding.
M3 Uses of different planning tools and their application for preparing and forecasting budget
Budgets required to develop which help the manager to build effective or efficient budget
because with the help of this employees able to perform their task in order to achieve
organizational objective & goals. Planning tools helps in increasing accuracy and efficiency of
results of budgets. With the help of these tool, manager develop efficient budget which further
required completing their task in order to achieve their business goals & objectives. Manager of
TPG processing company use the master budget which helps in identifying each department
function and their performance which required evaluating for the further decision making
process. Manager of TPG company use this planning tool for the budgetary control which
increase the efficiency or effectives which further helps in achieving their business goals &
objectives. Along with this, it will increase the forecasting techniques and ability.
P5 Compare how organisations are adapting management accounting systems to respond to financial
problems
Every organization face the financial problem which affect the productivity as well as
profitability of the company. There are various problems which arise due to inefficiency in the
operational functions. Financial problems can be occurring due to shortage of funds and other
resources. TPG processing company already face the lots of financial problems which required
solving with the help of different management techniques. After solving all the financial issues,
organization get the stability which required to achieve their business goals & objectives which

further required to enhance productivity or profitability. There is some major financial problem
which faced by the TPG processing company as follows:
Lack of liquid funds: Company required adequate funds but its liquidity position is very bad
so organization not able to pay their daily expenses. This problem becomes barrier for the TPG
Company because it will affect the production and operational activities. Manufacturing company
always required to maintain some adequate liquidity which required performing their daily activities.
For this, company required enough working capital to perform their task in order to achieve their
goals & objectives. Frequent shortage of funds will affect the production even stop the manufacturing
process due to lack of financial stability.
Cash mismanagement: In the TPG processing company, another financial problem is
mismanagement of cash which affect the organization. Due to this reason, expenses are more than its
earning and business the issue such as loss or theft of cash, excess cash expenditure, and negative
cash flows. So it is important for the organization to effectively manage the cash because they have
to maintain some adequate amount of liquidity to perform their task.
Techniques to solve financial problems:
Benchmarking: It is the systematic process where individual have to put lots of efforts
towards achievement of performance in the organization which is based on benchmarking criteria.
This process majorly focuses on improving their internal business activities with the help of various
techniques. In the TPG processing company, benchmarking technique can analyse the way by which
financial problem can be solved.
Key financial indicators: This technique used by the organization in order to identify the
key area which required improvement to enhance their productivity or profitability. It includes the
various key areas such as gross profit margin, liquidity ratio etc. All are required to solve financial
problem which affect productivity or profit margin of the company. Manager by using KPI technique
solve the problem of mismanagement of cash in the business. With the help of this, business maintain
the liquidity in the organization.
Comparison between Airdri and TPG processing company:
TPG Airdri
 Company face the problem regarding
excessive costs which increase
manufacturing and production costs.
Due to this issue, company face the
 Airdri company face the problem of
liquidity which affect the business in
order to perform their task to achieve
their business goals & objectives. In

problem and it will reduce the profit
margin.
results, company not able to perform
their day to day manufacturing
activities. It will reduce the
productivity as well as profitability.
 Managers of TPS processing company
use the price optimisation system which
helps the manager to control their
excessive costs and expenses in the
manufacturing functions. After
adopting this method, manager can
build strategy to reduce their cost o
increase the profit margin.
 Airdri Company uses the cost
accounting system which helps in
solving financial problem after using
this system, business able to track their
each unit cost. High cost will incur
shortage of funds within daily
operations.
M4 Responding to financial problems, management accounting can lead organisations to
sustainable success
Small or medium size organization such as TPG processing company wanted to expand
their business for the successful outcomes. But due to financial problem it becomes difficult to
implement various strategies because shortage of funds makes them stop to done their activities.
Manager of TPG Company, follow various management accounting systems to solve their
financial problem which affect the productivity or profitability. Company use cost accounting
system to analyse their each unit cost which help the manager to build strategy and try to
maintain or reduce their cost for the whole period of production. It will increase the efficiency or
effectiveness which further helps in achieving their business goals & objectives
D3 Evaluate planning tools for accounting period to respond financial problems appropriately
Planning tools include the various budget required to develop as per the requirement of
organization in order to increase their efficiency or effectiveness. Planning tool helps in solving
financial problem of the organization. For example, master budget is used by TPG for overall internal
analysis, which helps the managers to build strategic decisions (Zoni, Dossi and Morelli, 2012).
Planning tools such as master budget, inventories budget, cash budget etc. required detailed
information to solve internal problem.

CONCLUSION
From above discussion, it has been concluded that management accounting and its system
help the business in order to analyse the requirement. These systems help the business to perform
their task in order to achieve high level efficiency which reduce the cost or increase the profit
margin. It further helps in achieving business goals & objectives. In addition, accounting reports
helps in evaluating individual as well as organizational performance. Different planning tool and
techniques are required to develop strategy or business decisions. It will increase the efficiency or
effectiveness of the business. Management accounting system helps in solving financial problems in
order to develop liquidity or increase the profitability.