Management Accounting Project

This project explores the concepts of management accounting, including different systems, reporting methods, and planning tools. It analyzes how these tools can be used to address financial problems and achieve business success.

Management Accounting
1

Contents
INTRODUCTION...........................................................................................................................3
Management accounting system and their essential requirements..............................................3
Different methods of management accounting reporting............................................................5
Benefits of management accounting system and their application within an organisational
context..........................................................................................................................................6
Evaluation of various system and reports integrated with organisation process.........................8
TASK 2............................................................................................................................................8
Total Production cost and sales of January..................................................................................8
Various techniques to produce budgeted profit and loss statement.............................................9
Financial Report.........................................................................................................................11
TASK 3..........................................................................................................................................11
Explain Advantage & disadvantage of different type of planning tools which is used for
budgetary control.......................................................................................................................11
Analyse of various planning tool to prepare forecasting budgets..............................................13
TASK 4..........................................................................................................................................13
Comparison of companies with the use of different system to respond financial problems.....13
Management accounting can lead companies to attain success................................................15
Evaluation of planning tool to deal with financial problems.....................................................15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16
2

INTRODUCTION
Management accounting is defined as the process of making internal decision within an
organisation in order to attain the predefined goals (Bedford, 2015). In business scenario, the
process of collecting, analysing, recording and reporting useful fiscal information into final
account by the internal manager of company is defined as the management accounting.
Management of businesses gather, displays, quantity, mechanise and examine the composed
material that supports them to make strategies and approaches to flourish objective. It is a
scheme that is monitored by the administration for determination numerous monetary problems
that may rise within an organisation. Through the help of authentic, accurate and appropriate
information meaning full decision are made to attain the future goals. To better understand the
concept of relevant topic, ABC Ltd has been selected. The respective company is a medium size
enterprise that deals in manufacturing industry. Management of company use to prepare final
account so that actual measurement, analyses can be made at the end of financial year.
In this project, the importance of several management accounting system and reports
have been discussed with their essential requirements. Report also cover kind of costing
techniques such as marginal and absorption costing approaches to calculate net profit during a
year. Apart this different planning tool and their importance to company and how companies
adopt different accounting system in order to overcome financial problems have been described
in this report.
Management accounting system and their essential requirements.
In present era, management accounting has evolved with time and its concepts help the internal
and external stakeholder to acquire the beneficial knowledge about the company’s performance
during a year (Kastberg and Siverbo, 2013). As it is a systematic approach of recording and
maintaining beneficial information about companies performance within specific period of time.
Assorted system which helps managers in making financial and non financial decisions. There
are several system such as inventory management system, cost accounting system, prime
optimisation system and job costing system that makes better decision for manager. Main
objective of this accounting system is to identify cost occuring in production, then to make plans
and strategies to reduce cost.
3

Different type of management accounting systems and their essential requirement:
This system includes many methods which helps to the organisation. It provides all the
accounting reports to the managers, which help them in plan and strategy making. There are four
types of management accounting which are following:
Inventory management system: Inventory management system is a kind of system
which tracks the stock in warehouses and as well as it also check the availability of raw material,
assets etc. This system is very beneficial for all kind of organisation, specially for those which
are involved in manufacturing (Kolk and Perego, 2015). This is why because it tracks the
movement of raw material when it goes in production system and tracks till the selling of
product. In short it can be said that this system helps in supply chain management system. ABC
ltd follow this system of inventory management which will be beneficial for them because it
solve the problem regarding to stock management.
Price optimization system: Price optimization system helps an organisation in setting a
level of price which is suitable for both company and as well as for customers. It consists various
tools and techniques which helps in anlysis customer's respond on different pricing for products
and services. This system make price setting easy to the company. Management team of ABC ltd
use this tool in proper price setting. This system can help the company in to set a price which
will be beneficial in meeting company's goals and objectives. In addition it can also help to ABC
ltd to get competitive advantage over rivalry firms.
Job costing system: Job costing system provides a method of calculating cost of each
product's unit. This type of system is suitable in those organisations which produces different
kind of products and services. In those organisations it calculates the cost of each product's unit
individually and if cost is high of each unit then it helps in making suitable strategies for cost
reduction. ABC ltd follow this system and they are able to check that what is cost of their each
product's unit. This method can also help in cost reduction of company's products. It will help
company to get higher profit because if cost will be low then price will also down and this will
increase the selling of products (Mahesha and Akash, 2013. ).
Cost accounting system: Cost accounting system gives compeletly information about
the cost to the management which helps managers in making future plans and policies. This
system works in a particular manner first it record the cost occuerd in production then analyse it
and allocate to each product and if cost is high then this system gives advice to the top
4

management in cost reduction. ABC ltd use this system in cost management because this system
makes proper analysis of cost after the production. In addition it gives suggestion to the
managers by which they can make plans and strategies for future as well as for cost reduction.
Different methods of management accounting reporting
Management accounting reports are helpful in planning, decision making and in performance
measurement. Many critical decisions are taken on the basis of these reports. These reports are
prepared in an accounting period continuously. There are some different kind of reports which
are following:
Budget report- Budget report is a type of report which is prepared for internal
uses. In this report there are some targeted performance standards on the basis of these standards
the actual performance is compared with targeted performance. Main objective of this report is to
measure the performance. This report makes an estimation of income or expenses for a particular
project and it is prepared for a particular time period. It is important to know that this report
consists only financial data. Previous year's budget report helps managers in making future year's
report because it is an estimation. ABC ltd makes budget report to measure the financial
performance and to help in work according to report (McLean, McGovern and Davie, 2015).
Accounts Receivable Ageing Report: This report is generally prepared by those
organisations which make their transactions mostly in credit. If a customer makes transaction in
credit with organisation, then organisation will write about that transaction in this report. Overall
this report helps in identify to check about the account receivables of company. ABC ltd use this
report. This will helps company in checking about how much money is due by customers. It will
also help in making cash flow of company because it is related to the cash receiving.
Performance report: Performance report helps in evaluation of performance. It compare
the actual performance with targeted performance. It evaluate the performance of organisation
and as well as of individuals. This helps manager to take important decisions regarding to the
appraisal. If an emplyee's performance is above the standards then that employee will be
rewarded. It helps the manager to identify how many employees are able to get appraisal. ABC
ltd use this report and it helps them in accurate evaluation of employees. In addition it also
helpful for the company in improvement of efficiency of employees (Miller and Power, 2013).
Cost mangerial accounting report: Cost managerial accounting report is a report which
compare the total cost of production with profit earned after total sales. This report include all
5

type of cost which occurs in production like raw material cost, labour cost, electricity cost,
labelling and packaging cost etc. Further, it makes total of all the cost and after selling of all
products it compares total sales amount with cost. It shows that whether profit is earned or not. If
selling amount is more than cost then it will be profit and if cost is more then selling amount then
it will be loss to company. With the help of this report managers can check that organisation is in
profit or in loss. ABC ltd use this report in analysing about the profit and loss. This helps
company to make further strategies and plan if they are getting loss.
Benefits of management accounting system and their application within an organisational
context.
Manager of ABC Ltd applies different system so that meaning full result can be made to
the organisation which support in future growth and expansion of business. There are
essential benefits of each management accounting system that are discussed below:
System Benefits
Cost accounting system  It benefits executives to analyse and control the overall
cost involved producing goods within company.
It also supports managers to determine authentic amounts for
commodities that are offered for sales (Neubauer and et.al,
2012).
Inventory management system  With the assistance inventory system manager are able
to increase effectiveness and productivity of business by
preserving stock.
 This system support to surges level of transparent
information of inventory so that production process
keeps on going.
Job costing system  With the aid of this system managers determine the
effectiveness of specific work achieved within an
organisation.
 It delivers systematic evidence of cost such as labour
and expenses that are involved in specific job in ABC
6

Ltd.
Price optimisation system  This system helps an organisation to fix suitable price of
product so that company can attain profit in future
 The price system support to company to expand its
customer base by delivering best product at reasonable
price.
7

Evaluation of various system and reports integrated with organisation process
It has been evaluated from the above discussed reports and system and their benefits that
accounting report and system are very significant for each business firm to grow their business
and build global image. As these report and system advantage to reports and expand business and
grow profit during a specific year. All essential system and reports gives feature material to
regulate cost, total amount possessed by borrowers and actual or current economic situation and
status of company (Padovani, Orelli and Young, 2014). Manger of ABC Ltd uses budget report
in there organisational process as it is valuable in guessing entire cost; account receivable reports
support the management to strength the credit strategies and gathering procedure. Inventory
management report is suitable to path the standard accessible in storeroom and stock used in
entire supply business. However, performance report is mainly used to keep systematic record of
daily business operation performance and performance of employees working within ABC Ltd.
In last it has been critically evaluated that complete report maintenance to development the
productivity of company and improve presentation of business.
TASK 2
Total Production cost and sales of January
Budget – Absorption costing technique January
Production cost per
unit
Total
Direct Material 10 18000*10 180000
Direct Labour 20 18000*20 360000
Variable overhead 5 18000*5 90000
Fixed overhead 5
40 18000*40 720000
Total Cost of sales (January)
£
Cost of production 720000
Opening inventory 0
8

Closing inventory -80000
Cost of sales 640000
Various techniques to produce budgeted profit and loss statement
Absorption costing: This is defined as the most accurate manner or method of regulates
actual net profit and cost of goods. It is commonly known as total or full costing method that
gives best result at a specific period of time. It is a technique of estimating profit which
comprises each variable and fixed prices are assigned to cost focuses where they are accounted
for occurred in manufacture of goods that must be improved by selling different goods and
services. It comprises the subsequent mechanisms like indirect overheads, prime cost,
distribution and selling charges.
Marginal costing: According to this technique the whole cost elaborate in manufacture of
extra unit of product. With the proper analysing of marginal cost is to determine the finest opinion
for a business firm that support to attain the maximum profit. Marginal costing is a financial program
whereby adjustable charge are accused to cost units and the fixed cost aspects to the applicable
period is carved off in full against the input for that period. So in common it is recognized as flexible
costing also in which only variable cost are accumulated and cost accumulated and cost per units is
determined depending upon variable cost.
Absorption costing– Actual profit or loss statement Jan 2019
PER UNIT TOTAL
£ £ £ £
Sales 50 800000
Cost of production
Direct Material 10 190000
Direct Labour 20 380000
Variable Overhead 5 95000
Fixed Overhead 5 95000
9

40 760000
Opening inventory 0
Closing inventory -120000
Cost of sales 40 -640000
Standard profit 10 160000
Adj. For under absorption -5000
Budgeted profit 155000
Variable Costing - Actual profit or loss statement Jan
PER UNIT TOTAL
£ £ £ £
Sales 50 800000
Cost of production
Direct Material 10 180000
Direct Labour 20 360000
Variable Overhead 5 90000
Fixed Overhead 35 630000
Opening inventory 0
Closing inventory -70000
Cost of sales 35 560000
Contribution 15 240000
Fixed overhead production -100000
Budgeted profit 140000
Variable Costing - Actual profit or loss statement Jan
PER UNIT TOTAL
£ £ £ £
10

Sales 50 800000
Cost of production
Direct Material 10 190000
Direct Labour 20 380000
Variable Overhead 5 95000
Fixed Overhead 35 665000
Opening inventory 0
Closing inventory -105000
Cost of sales 35 560000
Contribution 15 240000
Fixed overhead production -100000
Budgeted profit 140000
Financial Report
BUDGET ACTUAL
£ £
Fixed overhead charged to production cost 90000 95000
Under fixed overhead charged to profit or loss account 10000 5000
Fixed overhead charged in the month 100000 100000
Fixed overhead transferred through closing inventory to
next month February 10000 15000
Fixed overhead charged 90000 85000
TASK 3
Explain Advantage & disadvantage of different type of planning tools which is used for
budgetary control
In present time, it is very important for an organisation to make proper use of planning tool
that help in improving the budgetary control process. Basically budgetary controlling process in
defined as the estimation of total expenses that can be incurred by companies in future time.
There are different types of planning tool that are used by management of ABC Ltd in order to
11

effectively manage the budgets. Some of these are discussed below with its advantages and
disadvantages:
Budgets: It is well-defined estimate of expenses and profits for a detailed era of time frame. An
economical budget is equipped by the executives and manager of an establishment through the
aid of earlier collected statistics and present marketplace drifts. It is an expressed document that
supports to accomplish organisational happenings in a proper manner to attain the budgeted
target (Soudani, 2012). Some of the key advantages and disadvantages to ABC Ltd are discussed
below:
Advantages:
 It supports to bring effectiveness, efficiency and improvement in the working of an
organisation.
 It set a benchmark to manager and motivates them to attain the predefined goals for
the manufacture unit in respective company.
Disadvantages:
 To set a specific budget is an expensive and time consuming activity that reduces
the productivity of ABC Ltd.
Manager should have sufficient skills set and professional experiences otherwise it will increases
expenses (Zoni, Dossi and Morelli, 2012).
Flexible Budgets: This is a kind of budgets that keeps on adjusting and flexes with the
changes in volume of various activities happens within an organisation. It is observed that these
types of budgets are more sophisticated and more beneficial to a business firm rather than static
budgets. There are various advantages and disadvantages of this budgets to ABC ltd that are
described below:
Advantages:
 With the support of this budget all kind of possible quantity of production of a
manufacturing activity can be covered.
 Manager can predict all kind of expenses at various level of operation and factors
can be measured and compared to make useful decision in ABC Ltd.
Disadvantages:
 It does not support to make prediction about future in a systematic ways as present
condition is not the same rest of the time.
12

 It reveals the confidential information that may create conflicts within ABC Ltd.
Zero based budgets: This types of budgets mainly helps an organisation to justify all
expenses and approved it for each new product to company. The concepts basically start from a
Zero base so that each business function of ABC can be analysed for its costs and needs.
Advantages:
 It helps to increase the inclement of staff at every level because lot of work is
required at each level to complete budgets.
 With the support of ZBB company is able to bring changes in business
environment.
Disadvantages:
 The main drawback is to emphasis short term benefits to the detriment of long term
goals.
 It also bring demotivated to worker as budgeting process requires more time.
Analyse of various planning tool to prepare forecasting budgets
In recent time, it has been determine that forecasting budgets is an essential process for an
organisation as it support to look in advance to and reduces expenses to increase profitability.
With the assistance of proper and accurate budgets manager are able to set a standard for future
and perform activities in order to attain them. Management use to maintain flexible budgets so
that changes can be made in future depending open the business operation. Zero based budgeting
support ABC Ltd to makes new budgets for each process so that future sustainability can be
achieved.
TASK 4
Comparison of companies with the use of different system to respond financial problems.
Financial problems: A situation that reduces the overall business performance of company is
termed as financial problems (Storey, 2014). There are large numbers of financial issues that are
mainly faced by an organisation such as improper utilisation of resources; improper management
of inventory, excess expenses that earning etc. as per the industry scope, size of commercial
scale, financial footing, faces monetary challenges may present them. Some of the basic financial
issues faced by ABC Ltd and the use of management accounting system to respond these issues.
13

Comparison
ABC Ltd XYZ Ltd
It is a manufacture company therefore there is
very important for the manager to keep a
systematic record of each and every raw
material used in production process, actual
goods produced in a specific period of time
(Strauß and Zecher, 2013). But recently the
management of ABC Ltd found that employees
are not using the available resources in specific
manner. Due to this the cost of maintenance is
increasing and wastage within company is
increasing day by day. As the cost of company
is increasing the management focuses to
resolve this issue as it reduces the overall
profitability and performance in current
financial performance. In order to resolve this
financial problem within a specific period of
time manager applies the concepts of inventory
management system. With the help of this
system management are able to maintain detail
information of amount of raw material
purchased in a particular time frame. They use
to make an effective plan through which
production manager and employees are guided
to use available resources so that overall
performance can be improved. This also help
the ABC Ltd to keep a record of total finished
goods produced in an accounting time frame.
On the other side the above mentioned
company is distributing company that use to
deliver finished goods of other companies or
directly to customer. The manager found that
there is a measure on-going problem within
organisation that is related to increasing staff
turnover (Takeda and Boyns, 2014). The main
reason of this issue is because of staff
inappropriate behaviour towards company
polices and standard. As the employees are not
getting any kind of motivation from manger
and there is salary issue so that they start
moving to other option. In order to resolve this
issue manager of this company apply the
approach and concept of Job order costing that
support to record the detail of each employees
working in XYZ ltd. As it is very important for
the manager to provide the basic salary to each
employees as per there working knowledge and
skills.
14

Management accounting can lead companies to attain success
It has been observed that management accounting is a systematic approach to makes final
accounts that support the internal department of an organisation to attain the set targets and
achieve set objectives. Management accounting also support an organisation to respond large
number of problems that hinder the performance and profitability. Different system brings
stability in business operation of ABC ltd so that productivity can be increased and financial
sustainability can be improved (Watts and McNair-Connolly, 2012).
Evaluation of planning tool to deal with financial problems.
Management of ABC Ltd formulates budgets to estimate and govern charge and upsurge the
total presentation of worker as well as of business firm. Proper use of planning tool shows an
important part to grip in dangerous condition and monetary difficult that may ascends in
upcoming time. Company uses altered accounting methods to resolution these difficulties.
CONCLUSION
From the above discussed report it has been concluded that management accounting is
useful process that involves preparing and delivering timely financial and statistical data to the
internal business manager of an organisation that makes ease for them to make short term and
day to day effective decision for the betterment of performance. Various system such as
inventory management help manufacturing companies like ABC Ltd to maintain and control
stock level so that actual production can be increased. With the help of cost accounting system
manager are able to analyse and reduce cost involved in various production activities so that
profitability can be improved. Several accounting report like performance report, account
receivable report includes detail of companies accounts receivables and analyse the actual
performance of employees. Marginal costing is considered to be valuable costing technique in
order to ascertain the net profit during a year. Planning tool like budgets, flexible and zero based
budgest are used by manager in order to make the process of budgetary control. It is also
concluded that with the support of variety of accounting system large number of financial
problems can be solved as it help to record and measure the overall performance.
15

REFERENCES
Books and Journals
Bedford, D. S., 2015. Management control systems across different modes of innovation:
Implications for firm performance. Management Accounting Research. 28. pp.12-30.
Kastberg, G. and Siverbo, S., 2013. The design and use of management accounting systems in
process oriented health care–an explorative study. Financial Accountability &
Management. 29(3). pp.246-270.
Kolk, A. and Perego, P., 2015. Social and environmental accounting. Wiley Encyclopedia of
Management, pp.1-6.
Mahesha, V. and Akash, S. B., 2013. Management Accounting Benefits: ERP Environment.
SCMS Journal of Indian Management. 10(3).
McLean, T., McGovern, T. and Davie, S., 2015. Management accounting, engineering and the
management of company growth: Clarke Chapman, 1864–1914. The British Accounting
Review. 47(2). pp.177-190.
Miller, P. and Power, M., 2013. Accounting, organizing, and economizing: Connecting
accounting research and organization theory. The Academy of Management Annals.
7(1). pp.557-605.
Neubauer, H. and et.al, 2012. Management Accounting Systems and Institutionalization in
Medium-Sized and Large Family Businesses-Empirical Evidence from Germany and
Austria. European Journal of Management. 12(2). pp.41-60.
Padovani, E., Orelli, R. L. and Young, D. W., 2014. Implementing change in a hospital
management accounting system. Public management review. 16(8). pp.1184-1204.
Soudani, S. N., 2012. The usefulness of an accounting information system for effective
organizational performance. International Journal of Economics and Finance. 4(5).
pp.136-145.
Storey, J., 2014. New Perspectives on Human Resource Management (Routledge Revivals).
Routledge.
Strauß, E. and Zecher, C., 2013. Management control systems: a review. Journal of Management
Control. 23(4). pp.233-268.
Takeda, H. and Boyns, T., 2014. Management, accounting and philosophy: The development of
management accounting at Kyocera, 1959-2013. Accounting, Auditing & Accountability
Journal. 27(2). pp.317-356.
Watts, T. and McNair-Connolly, C. J., 2012. New performance measurement and management
control systems. Journal of Applied Accounting Research. 13(3). pp.226-241.
Zoni, L., Dossi, A. and Morelli, M., 2012. Management accounting system (MAS) change: field
evidence. Asia-Pacific Journal of Accounting & Economics. 19(1). pp.119-138.
16

1