Management Accounting Systems and Cost Calculation

This study material provides an in-depth understanding of management accounting systems and cost calculation. It covers the different types of management accounting systems, their benefits, and critical evaluation. The material also explains how to produce financial reports. Suitable for students studying management or accounting courses.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management accounting systems..........................................................................................1
P2: Management accounting reporting........................................................................................3
M1: Benefits of Management accounting systems......................................................................4
D1: Critical evaluation of Management accounting systems......................................................4
TASK 2............................................................................................................................................4
P3: Calculation of costs...............................................................................................................4
M2: Application of management accounting techniques.............................................................9
D2: Producing of financial reports...............................................................................................9
TASK 4............................................................................................................................................9
P4: Planning tools for budgetary control.....................................................................................9
M3: Analysis of planning tools..................................................................................................11
TASK 4..........................................................................................................................................11
P5: Comparison of organizations...............................................................................................11
M4: Analysis of response to financial problems........................................................................13
D3: Evaluation of planning tools...............................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is a process through which management reports and accounts
are prepared so that accurate and timely information is obtained in order to facilitate taking of
different types of decisions (Alyousef and Mickan, 2016). Through it, analysis and interpretation
of the available financial data, facts and information is done which will be helpful in the
attainment of the goals as well as objectives. Thus, In this way it is useful for the organizations to
find out their problems and issues so that rectifying actions can be taken quickly. By using it the
management can make sure that it can work towards making the financial system of the company
better by using it. This report is based on Capital Joinery Ltd. It is a manufacturing company
which deals in joinery, made-to-measure doors, windows etc. In this assignment, detailed focus
will be made on demonstration of management accounting systems, calculation of costs,
explanation of the use of planning tools. Additionally, detailed analysis on comparison of way
organizations make the use of management accounting to respond to financial problems will be
covered as a part of this project.
TASK 1
P1: Management accounting systems
Management accounting is an important decision-making tool which is used internally by
the management. For The managers it is therefore crucial that it used properly (Baños Sánchez-
Matamoros, 2020). Thus in this way Capital Joinery Ltd. Can make its use so that important
decisions can be taken. It is very useful method for the companies which is helpful for them in
ensuring appropriate use of their funds.
In an organization the following types of Management accounting systems are used. The
explanation of these systems is given as follows-
Cost accounting system- It is a system which is helpful for the firms in their profitability
analysis, inventory valuation as well as cost control (Brukhanskyi, Yazlyuk and Bincharovska,
2018). Therefore, Capital Joinery Ltd. can use it so that estimation of the overall level of costs
can be made effectively and efficiently. It has to make sure that by using this system the
estimation of the costs as well as use of techniques and methods for cost reduction can be made.
This is helpful in the enhancement of the overall profitability level.
Essential requirements-
1

 In this system, there must be a cost flow assumption because it has to identify the way the
flow of cost occurs in an organization. This will help the company in ensuring that it is
able to estimate the level of costs easily. There must be a lot of accuracy in it because if
this assumption is wrong then this can lead towards the creation of a lot of problems and
issues as the calculations will not be accurate thereby creating difficulties. Thus accuracy
is an essential feature which must be present in this accounting system.
 This system must ensure that inventory cost flows must be recorded at certain intervals.
For the organization it will be helpful in the estimation of the level of stock effectively
and efficiently.
Inventory management system- In this system, there is recording of different stock items
within the organization and the information which is associated with them (Cokins, 2016). Thus
it is important for the firms like Capital Joinery Ltd. To make its use so that the assessment of
stock level within the company can be made in a proper manner.
Essential requirements-
 In this system, there must be an use of inventory management software which can record
the details of different stock items effectively and efficiently. Thus in this way the
company will be able to identify its different inventory items. The inventory management
software which is being used must be relevant so that the management of different types
of stock items can be done properly which will help in the attainment of the overall
efficiency and effectiveness. In this way the assessment of the movement of the stock
items can be done in the right way effectively and efficiently without problems and
issues.
 This system must have processes and policies for the purpose of labelling, documentation
and reporting of stock items. This allows an organization to easily track the inventory
items.
Job costing system- In this system, there is an analysis of different types of job costs. Also the
job performance of the organization can be estimated by using this system (Cools, Stouthuysen
and Van den Abbeele, 2017). Thus, for Capital Joinery Ltd. It is quite crucial that it uses it
properly because it is a manufacturing company and is required to make sure that it can ensure a
reduction in the overall costs by making the use of this system.
Essential requirements-
2

 In this system, there must be an improvement in the overall job profitability by
identifying the areas where the excess job costs can be identified. Therefore for the
company, it is quite important that it identifies the way it can enhance its overall level of
profits. This system must make sure that the up-to-date requirements of job costs are
identified which will be helpful in achieving the goals and objectives as the costs can be
reduced to maximize the overall level of profits without problems and issues.
 This system must allow for labour or material analysis. In this way an organization can
identify the deviations and variations if any in the costs and thus rectify them effectively
and efficiently.
Price optimization system- In this system, a detailed analysis of the level of price at different
demand levels is done (Cooper, Ezzamel and Qu, 2017). Therefore, In the context of Capital
Joinery Ltd. It is an useful technique so that the estimation of the overall level of prices can be
made effectively and efficiently.
Essential requirements-
 This system must have mathematical programs through which forecasting of demand
levels can be made. For the company it can help in the estimation of prices. This system
must be highly reliable so that the prices can be set correctly using the right ways of
forecasting the prices which will help in the attainment of the overall goals and
objectives.
 This system should identify the way of collection of historical data which can be useful
for the organization. For the firm it can be very useful in the setting of a right price.
P2: Management accounting reporting
Management accounting reports are prepared by the organizations so that help can be
provided to them for analysing and interpreting the given financial information, facts and figures
properly (Culasso and et.al., 2016). In Capital Joinery Ltd. The use of following reports is done-
Budget reports- These are the reports which are helpful in the preparing a detailed
analysis of the different types of budgets in the organization (Englund and Gerdin, 2016).
Therefore budgets like Cash Budget, Production Budget and Master Budget can be summarized a
a part of these reports. In the context of Capital Joinery Ltd. These can be very useful so that the
3

company is able to ensure that an overall estimation of the expenses and receipts is made
properly.
Accounts Receivable Aging Reports- In these reports there is an estimation of the
different Debtors who have been extended credit by the organization (Hopper and Bui, 2016).
Thus, a list of those Debtors who have not paid their dues on time can be made by the
management of the company. This will help in collection of the amount from Trade Receivables
effectively and efficiently. For the company, these reports can therefore be very useful in this
regard.
Cost Managerial Accounting Reports- These reports are used in order to identify the
costs of the organization and its different departments (Jain, Jain and Rezaee, 2016). In a
manufacturing company like Capital Joinery Ltd. There can be multiple departments like
Production, HR, Finance, Marketing etc. in a company. In these departments there can be
multiple expenses which are incurred by the organization. With the preparation of these reports
identification of excessive expenditures and overheads can be made so that use of rectification
techniques can be made to reduce the expenditures and overheads for aiming at higher-level of
profitability.
Performance reports- In these reports, there is a thorough estimation as well as
assessment of the level of performance in the right manner (NGUYEN and LE, 2020). Use of
techniques like KPIs, Benchmarking etc. is made so that the performance level of the companies
can be assessed. Thus in these reports deviations and variations in the performance can be
identified through the facilitation of comparison with the standards. Thus in this way the
management of Capital Joinery Ltd. Can use them for assessing the performance in its processes
and removing deviations and variations if any. Thus in this way it can be said that these reports
can be quite useful for the company.
M1: Benefits of Management accounting systems
All of the above-mentioned systems are very much beneficial for the organizations. This
is so because when these systems are used by the management they can ensure that they can
improve the working pattern by bringing a much-required change in the overall processes. Thus,
In the context of Capital Joinery Ltd. It can be said that by making a use of these systems goals
and objectives can be set for the future so that they can be attained.
4

D1: Critical evaluation of Management accounting systems
The use of Management accounting systems can be made in the right manner when they
are integrated properly in the different processes of the organization. Thus, for a company like
Capital Joinery Ltd. It is required that its management can identify the need of these systems
within the organization and can easily facilitate their integration effectively and efficiently. In
this way the management of the firm will be able to ensure that the attainment of goals and
objectives can be done properly and thus a higher-level of efficiency and effectiveness can be
maintained within the company.
TASK 2
P3: Calculation of costs
In Management accounting, the use of following methods can be made so that an overall
assessment of the costs can be made within the organization (Nuhu, Baird and Appuhamilage,
2017). This is therefore helpful in ensuring that the right actions are taken so that the level of
profits can be maximized by making the use of these techniques. The following methods are used
by Capital Joinery Ltd. for the estimation of costs and overall profitability level-
Marginal costing-
This is a technique which is useful for the company so that it can estimate the costs
clearly (Phornlaphatrachakorn, 2019). By making its use, the companies can ensure that they are
able to not only assess the profits but can also find the Break-even point where there is neither
profits nor loss for them. Thus Capital Joinery Ltd. Uses it for determining its profits.
Advantages-
 This technique is very simple to use for the organizations. Therefore in this way they are
able to ensure that it can be used easily in the company.
 With the use of this method different types of decisions can be effectively taken. Thus, in
this manner it provides the required help for the organization.
Disadvantages-
 There is difficulty in segregation of the costs when its use is made within the company.
Therefore this can affect its profitability level.
 Comparison of the organizations is difficult when the use of this method is made within
the company.
5

Absorption costing-
This is a method through which an estimation of the overall level of costs can be made
effectively in the organization (Rahman and Ramli, 2016). Thus, In the context of Capital
Joinery Ltd. It can be a very useful technique because its use will help the managers in
facilitating the absorption of overheads properly by segregating them according to the overall
expenses of the different departments in the company.
Advantages-
 Segregation of the costs can be done properly by using this technique. Therefore for the
company it can be highly useful.
 Overheads can be absorbed properly in the organizations through the use of this method.
For the organization this can therefore create an advantage.
Disadvantages-
 The comparison and control of costs is difficult through the use of this technique. For the
organization this therefore can create a disadvantage.
 In the preparation of flexible budget this method is not very helpful. The reason for this is
lack of differentiation between the fixed cost and variable costs of the organization.
Therefore, for the firm a disadvantage can be created due to this reason.
6

7

8

9

M2: Application of management accounting techniques
Both the Marginal and absorption costing techniques are very useful for the
organizations. When these techniques are used by them they can make sure that the estimation of
the level of expenses and profitability can be made. For a Manufacturing Company like Capital
Joinery Ltd. It is necessary that it uses both of these techniques so that it can help it a lot in the
estimation of the profits and comparison with the other organizations so that the relevant areas of
improvement can be identified and the improvements can be made whenever necessary.
D2: Producing of financial reports
The use of financial reports is crucial in the organizations as by making their use the
firms are able to find out the way accurate analysis and interpretation of the data can be carried
out. Thus, In the context of Capital Joinery Ltd. Their use is necessary because they can help in
the finding of problems and issues so that they can be solved.
TASK 4
P4: Planning tools for budgetary control
The use of planning tools is quite useful because by making their use the plans for Short-
term, Medium-term and Long-term can be framed by the management of the companies
(Ravenda and et.al., 2019). Thus in this way the management of Capital Joinery Ltd. can ensure
that it is able to use the following planning tools-
Incremental budgeting-
In this type of budgeting method, a budget is prepared by making some changes to the
budget which was prepared in the last year. Therefore, for the manager of Capital Joinery Ltd.
The use of this technique is useful so that they are able to prepare a budget without facing
problems and issues.
Advantages-
 The use of this type of budgeting method is quite simple. Thus for the company it useful
as there are no problems and issues faced while preparing it. This is because in the
preparation of this budget the different types of figures are required to be added which
makes it quite simple to prepare this budget.
 Using this budgeting method can be helpful in the maintenance of stability in the
organization. Thus In the context of an organization it can be very useful. Thus in this
10

way this budget can make sure that the operations in the organization can be managed
with stability.
Disadvantages-
 This budgeting technique leads to an increase in the level of expenditures. For the firm
this can create problems and issues in this manner. Therefore in this way this budget can
lead towards a decrease in the overall profits of the company which can impact its level
of operations.
 Using this method can affect the innovation which is used within a organization.
Therefore in this way the company can be affected. Thus in this way this budget can
affect the innovation capacity within the firms and can impact their level of operations.
Activity-based budgeting-
In an Activity-based budget, the analysis of different types of activities of an organization is
done so that analysis of costs can be done properly (Ruggeri and Rizza, 2017). Therefore, for
Capital Joinery Ltd. This can be a very useful budget.
Advantages-
 Analysis of the different types of costs can be done easily when the use of this method is
made. Thus for the company this is a useful method which can be used by them. Thus in
this way it can be said that the cost analysis can be done effectively by using this
technique which will help in proper segregation of the costs.
 Segregation of the costs according to the different types of activities can be made
effectively when this method is used. Thus In the context of the organization an
advantage can be created. This will be helpful in the better allocation of the different
types of costs effectively and efficiently.
Disadvantages-
 The preparation of this type of budget can be very time-consuming and costly. For the
firm this can lead towards a disadvantage. Therefore it can be an affair which can impact
the organizations as it can not only consume time but can also increase the overall
expenses.
 Understanding of business processes is essential for the preparation of this budget. If the
employees in the organization do not have this knowledge then this can create a
disadvantage for the organization. Thus in this way this budget can impact the business
11

processes because they may not be able to work properly if this budget is prepared
wrongly.
Zero-Based Budget-
It refers to the preparation of a budget from the starting so that the recording of expenses and
incomes can be done properly. In the context of Capital Joinery Ltd. It can be useful so that the
estimations can be done in the right manner.
Advantages-
 A higher-level of accuracy and efficiency can be maintained in the processes of the
organization through the use of this budget. Thus for the company this is useful in this
manner. Thus in this way advantage can be provided to a particular company and this can
help in maximizing profits.
 For the purpose of coordination and communication it is crucial that the use of this
budget is done properly. For the organization this can be very useful in this manner. It
can help them in properly organizing different things and making sure that the attainment
of the goals and objectives can be done accordingly.
Disadvantages-
 Preparing this budget requires higher manpower in the organization. Thus in this way this
is not helpful for the management of the organization. If this manpower is not present
difficulties can be created within the organization and can impact the operations.
 Preparation of this budget requires the application of higher-level skills. Thus in this
manner this can create a disadvantage for the company if its employees are not skilful in
the preparation of this budget. If these skills are not present then this can affect the level
of operations.
M3: Analysis of planning tools
Planning tools which have been discussed above can be useful for a manufacturing
company like Capital Joinery Ltd. because their use helps the company in ensuring that the
attainment of various types of goals and objectives can be done. Their use is helpful in the
control of expenses and expanding the range of revenues to ensure that the overall surplus can
be maintained.
12

TASK 4
P5: Comparison of organizations
Financial problem- It refers to a situation in which the financial position of the
organization is affected and due to this reason the organization's functions do not work properly.
Capital Joinery Ltd. Also faces certain financial problems and some of the problems which it
faces are explained as follows-
Improper absorption of overheads- The overheads of the company are not being
absorbed properly. Some of the departments of the firm are not reporting their expenditures on
time and thus allocation of the overheads is not done in the right way. This is not only leading
towards an increase in the overall costs of the company but also is affecting the level of overall
profits.
Lack of proper tracking of stock items- The stock items are not being tracked in the
right way in the organizations which is leading towards a loss of these items. This affects the
company as it not only increases the overall level of costs but also impacts the profits.
Techniques for solving financial problems-
 Balanced scorecard- It is a performance metric which can be used for the purpose of
identification and improvement in the functions and outcomes associated with them
(Tashakor, Appuhami and Munir, 2019). Therefore Capital Joinery Ltd. can use it so that
it is able to identify the departments which are not performing well in terms of overheads
so that rectification techniques can be used for their proper segregation according to
departments.
 ABC analysis- Through the use of this technique, the organizations are able to ensure
that they are able to identify the inventory items properly so that the inventory can be
managed properly as the different stock items can be segregated according to their
importance (Richardson, 2017). This can be useful in solving the problem related to
inventory of the company.
Comparison of organizations
Basis Tesco Sainsbury's
Financial problem Tesco is facing financial
problem of excessive job costs
Sainsbury's is facing financial
problem of inappropriate price
13

in the fulfilment of job orders. set for products and services.
Use of Management
accounting system
Tesco is making the use of Job
costing system for solving this
financial problem.
Sainsbury's is using Price
optimization system for
solving this financial problem.
Application of the system Tesco can apply this system by
identifying the job orders and
keeping a track on them
through exercising monitoring
and control on their inwards an
d outwards movement.
Sainsbury's can apply this
system by ensuring that it can
identify the prices through
mathematical and statistical
methods and techniques to
solve the problem related to
price.
From the above discussion, it can be said that the management of Capital Joinery Ltd. Can learn
from both Tesco and Sainsbury's so that the use of Management accounting systems can be made
for solving financial problems. Therefore the use of Cost accounting system can be made for
solving the problem related to overheads. Also by making the use of Inventory management
system the problem related to inventory can be solved by the company. The company must make
the use of Management accounting systems for solving financial problems because not only are
these systems useful in the overall analysis and interoperation of the financial statements but they
can also be used in ensuring that the overall goals and objectives can be achieved without
problems and issues. Therefore in this way it is recommended to the management of Capital
Joinery Ltd. So that the company can achieve goals and objectives easily.
M4: Analysis of response to financial problems
Financial problems can be resolved by making the use of appropriate techniques and
accounting system. Capital Joinery Ltd. Has to ensure that it identifies the problems quickly so
that steps can be taken for their resolution. By resolving these financial problems the level of
efficiency and effectiveness can be raised in the company. Also in this manner the achievement
of higher-level of productivity can be ensured. Thus the managers of the company have to ensure
that by identifying them they can take the required steps quickly which will be helpful in
ensuring their solution.
14

D3: Evaluation of planning tools
Planning tools are very useful for the companies because the managers need to make their
use for framing their short-term and long-term strategy for the future. In this way application of
the plans can be done in the right way. Thus, In this manner Capital Joinery Ltd. Can ensure that
by using these budgets they are able to attain a higher-level of efficiency and effectiveness as
through their use proper control can be managed on the level of expenses and thus the company
can progress towards the attainment of sustainable level of success in the future.
CONCLUSION
From the above report, it can be concluded that Management accounting is a process of
analysing and interpreting the given financial facts, figures and information so that the various
goals and objectives can be attained by managing the funds appropriately. By making its use the
management of the companies will be able to ensure that they take decisions in the future which
can be useful for the business. Its systems have different types of essential requirements which
can be used properly. Its reports allow the management to present the information clearly so that
actions can be taken accordingly. Techniques can be used by the management so that the
profitability can be determined. Planning tools can be used by the managers for creating plans to
be used in the future. Also, organizations are making the use of different types of techniques so
that the financial problems can be solved.
15

REFERENCES
Books and Journals:
Alyousef, H. S. and Mickan, P., 2016. Literacy and numeracy practices in postgraduate
management accounting. In Multimodality in Higher Education (pp. 216-240). Brill.
Baños Sánchez-Matamoros, J., 2020. Management accounting and rationalisation in the Army:
The case of Spanish Military Hospitals in the 18th century.
Brukhanskyi, R. F., Yazlyuk, B. and Bincharovska, T. A., 2018. Effective land management in
Ukraine using accounting and analytical support. Problems and Perspectives in
Management. 16(2). pp.241-251.
Cokins, G., 2016. The top seven trends in management accounting. Edpacs. 53(4). pp.1-7.
Cools, M., Stouthuysen, K. and Van den Abbeele, A., 2017. Management control for stimulating
different types of creativity: The role of budgets. Journal of Management Accounting
Research. 29(3). pp.1-21.
Cooper, D. J., Ezzamel, M. and Qu, S. Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research. 34(2). pp.991-
1025.
Culasso, F. and et.al., 2016. Management accounting and enterprise risk management. A
potential integration as a new change in managerial systems. Global Business and
Economics Review. 18(3-4). pp.344-370.
Englund, H. and Gerdin, J., 2016. What can (not) a flat and local structuration ontology do for
management accounting research?. Qualitative Research in Accounting & Management.
Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management
Accounting Research. 31. pp.10-30.
Jain, A., Jain, P. K. and Rezaee, Z., 2016. Value-relevance of corporate social responsibility:
Evidence from short selling. Journal of Management Accounting Research. 28(2).
pp.29-52.
NGUYEN, H. Q. and LE, O. T. T., 2020. Factors Affecting the Intention to Apply Management
Accounting in Enterprises in Vietnam. The Journal of Asian Finance, Economics, and
Business. 7(6). pp.95-107.
Nuhu, N.A., Baird, K. and Appuhamilage, A. B., 2017. The adoption and success of
contemporary management accounting practices in the public sector. Asian Review of
Accounting.
Phornlaphatrachakorn, K., 2019. Influences of strategic management accounting on firm
profitability of information and communication technology businesses in Thailand.
International Journal of Business Excellence. 17(2). pp.131-153.
Rahman, N. A. A. and Ramli, A., 2016. Entrepreneurial Orientation, Strategic Management
Accounting Practices, Innovation, and Firm Performance: Craft Industry Perspective. In
Proceedings of the ASEAN Entrepreneurship Conference 2014 (pp. 179-191). Springer,
Singapore.
Ravenda, D. and et.al., 2019. Money laundering through the strategic management of accounting
transactions. Critical Perspectives on Accounting. 60. pp.65-85.
Richardson, A. J., 2017. The Relationship between Management and Financial Accounting as
Professions and Technologies of Practice. The Role of the Management Accountant:
Local Variations and Global Influences.
16

Ruggeri, D. and Rizza, C., 2017. Accounting information system innovation in interfirm
relationships. Journal of Management Control. 28(2). pp.203-225.
Tashakor, S., Appuhami, R. and Munir, R., 2019. Environmental management accounting
practices in Australian cotton farming. Accounting, Auditing & Accountability Journal.
17