PART 13 Introduction to Management Accounting Systems and Reporting

MANAGEMENT ACCOUNTING INTRODUCTION 3 TASK 13 PART 13 A) Discuss Management accounting and provide essential requirements of various management accounting system types. 11 CONCLUSION 11 REFERENCES 12 Books & Journals 12 1 INTRODUCTION Management Accounting refers to one of the method of accounting system in order to provide all financial as well asnon-financial information to the management team. In the present report various topics are going to be covered which includes different types of accounting system as well as accounting reports.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION.......................................................................................................................3
TASK 1............................................................................................................................................3
PART 1............................................................................................................................................3
A) Discuss Management accounting and provide essential requirements of various
management accounting system types........................................................................................3
B) Explain various methods used for management accounting reporting..................................5
C) Evaluate benefits of management accounting systems along with their application.............6
D) Critical evaluation of how management accounting systems and reporting is integrated
within organisational processes...................................................................................................7
PART 2............................................................................................................................................8
E) Analysis of different planning tools used in management accounting...................................8
TASK 2..........................................................................................................................................10
PART 1..........................................................................................................................................10
A) Calculate costs using appropriate techniques......................................................................10
PART 2..........................................................................................................................................11
B) Interpretation of income statements.....................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
Books & Journals......................................................................................................................12

INTRODUCTION
Management Accounting refers to one of the method of accounting system in order to
provide all financial as well as non-financial information to the management team. With the help
of this, managers will be able to take effective decisions for smooth functioning of the business.
It is quite different from other accounting system as it contains description about both monetary
and non monetary transactions (Songini, Gnan and Malmi, 2013). Apart from this, it is not
compulsory for the companies to implement this system. In order to understand the concept of
management accounting in detail a company is chosen which is Eymen Ltd. In the present report
various topics are going to be covered which includes different types of accounting system as
well as accounting reports. In addition to this, various financial statements are going to be
prepared in this report by using appropriate costing techniques. At last, various planning tools
and techniques are going to be covered in this report.
TASK 1
PART 1
A) Discuss Management accounting and provide essential requirements of various management
accounting system types.
Management accounting also known as managerial or cost accounting. It refers to the
method used by large number of companies in order to examining business costs so that they can
prepare internal financial accounts, reports and records. With the aid of these financial
statements, managers will be able to take effective decisions and attain organisational goals and
objectives in an effective manner. In general, it is the method through which all the financial as
well as non financial data is developed into required information for the whole organisation
(Salterio, 2012). There are various types of accounting system which plays very important role
within the organisation. Some of the basic and important types of accounting systems used by
managers of Eymen Ltd. are as follows:
 Cost accounting system- It is also known as costing system and product costing system.
It refers to the framework adopted by large number of firms in order to compute the final
cost of their products. It has been done for profit analysis, cost control and for inventory
valuation. Cost accounting system gave a base for estimating the cost and value of
different kind of activities conducted within the organisation. If the company do not use

this accounting system, it will be difficult for the organisation to estimate the overall cost
which is occurred while performing all the activities. Therefore, it is the most important
method used by managers in order to manage and eliminate the cost occurred in the
whole process. In addition to this, it is the method of accounting system help in resolving
various kinds of issues arise within the organisation (Novas, Alves and Sousa, 2017). It
has also been analysed that there are two important cost accounting system which
includes: Job order costing, Process costing. For instance, Eymen Ltd. use cost
accounting system in their organisation so that they will be able to control and manage all
the activities performed by the staff members. In this system, cost allocation is done
through traditional or activity based costing system.
 Job costing system- The job costing system includes procedure of accumulating required
information about the cost which is associated with a particular job of production and
services. It refers to a type of accounting system which help in order to determining the
cost involved in various business activities. It is the method which is beneficial for
companies in order to provide detailed information related to costs which helps in taking
decisions effectively (Rossing, 2013). There are three types of information which is
required includes; Direct Material, Overhead costs, Direct Labour. Therefore, it is the
accounting system which is very essential for the organisations to control the cost of
different jobs. In case of Eymen Ltd. managers of the company apply this accounting
system in their organisation so that they can evaluate the aim of examining the cost of job
which is assigned in various types of functions.
 Inventory management system- It is the another type of accounting system which is
related with effective stock management. It includes finished goods, raw material goods,
consumables, supplies and many more. Apart from this, inventory management system
aid the managers of company while taking decisions about manufacturing new products,
purchasing raw material and many more. Reason behind this is that on the basis of
effective inventory management system, managers will be able to know about their
current stock available in warehouse. Along with this, if they need more raw material
company can identify it in advance. In the present context of Eymen Ltd. Managers of the
company implement inventory accounting system in order to identify about their
available goods, stocks, raw material and take effective decisions according to the

requirements. By adopting this method, company gain various benefits which includes;
improve company workflow, develop inventory accuracy and many more.
 Price optimisation system- As per the above mentioned, price optimisation system is also
an accounting system used by companies in order to analyse product's price on an
effective level. Apart from this, with the help of price optimisation system, managers will
be able to identify the reactions of customers about various prices offered by company
(Bradbard, Alvis and Morris, 2014). If this type of the system is not available in
organisations, it will be very difficult for the management team of company to evaluate
right price of the products. Therefore, it is the most significant and essential for
companies to make right price for the products and services. For instance, managers of
Eymen Ltd. adopt price optimisation system within their organisation, so that they can
allocate required and right price of products and services according to their features.
B) Explain various methods used for management accounting reporting.
There are various kind of methods preparing the reports, which are being used by the
companies to manage their financial and non financial performance. Such as in the Eymen Ltd.
plc, they prepares different kind of accounting reports with the help of accounting systems.
Herein, below some types of accounting reports are mentioned below:
 Performance report- It is a kind of report that tracks and manage the performance in a
systematic manner. In this report, manager set the financial and non financial goals which
are needed to be achieved after that compare the actual performance with the standards.
So main purpose of the performance report is to control the performance of different
activities as well as of employees (Chan, Tong and Zhang, 2012). In the Eymen Ltd. plc
company, they prepare these reports so that they can evaluate the efficiency of their
activities and can take further decisions accordingly.
 Cost accounting reports- The cost accounting reports are prepared with the help of cost
accounting systems. In this report companies get the detailed information about cost of
different activities and accordingly can evaluate which activities are high cost consuming.
As well as on the basis of these reports, organisations can take better decisions about
minimising the cost. Basically, these reports are suitable for the manufacturing entities
because they are required to have detailed knowledge about cost of activities. Same as in

the Eymen Ltd. company, they prepare this report to get information regarding to the
cost of their different kind of activities (Clinton and White, 2012).
 Inventory reports- The inventory reports are kind of reports which are related to
providing information about quantity of raw material and finished goods available in the
warehouses. Due to this companies can aware about how much stock is available so that
they can purchase new material. Apart from it, this report is also useful in getting
information about various kind of overhead in the process storing the stock. Same as in
the Eymen Ltd. plc, they make these reports for the purpose of managing their raw
material and prepared products. This is why because on the basis of it, they can decide
whether they should purchase new material or not.
 Account receivable ageing report- This is a kind of report which is associated with the
providing detailed information to the companies about the total payables in the market as
well as about how many debtors are overdue. Apart from it, in this report companies can
get information about dates on which payment is due. So overall main objective of this
report is to help the companies in collection of amount from the debtors. In the above
respected company, they prepare this report for the purpose of getting information about
the total amount due in the market from different debtors.
C) Evaluate benefits of management accounting systems along with their application.
From the above mentioned, it has been clearly identified that there are different types of
management accounting system which is used by large number of managers in their
organisations (Nilsson and Stockenstrand, 2015). All these management accounting system
includes some benefits which are going to be discussed below:
Types of
management
accounting system
Benefits
Cost accounting
system
It is the kind of accounting system which is quite beneficial for the
company as it provides detailed information about regarding cost of
various types of activities. In case of Eymen Ltd., managers of the
company will be able to manage and control the cost of various

production and manufacturing functions by using this system of
management accounting.
Inventory
management system
This type of accounting system help the management team in order to
manage the stocks and raw materials which is kept by them in
warehouses. In the present case of Eymen Ltd. Managers of the company
implement this type of accounting system effectively so that they will be
able to take decisions in a proper manner. These decisions can be taken
related to purchasing of raw material, manufacturing of products and
services and many more.
Price optimisation
system
Under the type of accounting system, one of the type is price optimisation
system which will aid companies in order to allot effective and reliable
price of goods and services provided by the companies to their
customers. In the present context of Eymen Ltd., it is the most effective
and beneficial type as it provide assistance in order to fix the price of
goods and services.
Job costing system According to this accounting system, company will be able to evaluate
the cost involved in a particular job separately. It will aid in analysing the
cost occurred in advance. In case of Eymen Ltd., managers of the
company adopt this method in order to manage and control the cost
involved in job.
D) Critical evaluation of how management accounting systems and reporting is integrated within
organisational processes.
It has been analysed that management accounting system as well as management
accounting reports are interlinked with each other. Reason behind this is that with the assistance
of this, management team of the company will be able to create accounting reports in an
effective manner. In the present context of Eymen Ltd., managers of the organisation prepare
accounting reports which includes inventory reports, cost accounting reports, job costing report
and many more (Halbouni and Nour, 2014). Therefore it has been analysed that management
reporting and accounting systems are inter related and combined within organisational process.

PART 2
E) Analysis of different planning tools used in management accounting.
Benchmarking: Benchmarking is a process of major the performance of organisation to
another one. Managers of Eymen company are uses matchmaking They set a standard according
to the performance, quality, services and many other things. Through benchmarking they can
select a best company in whole industry. It is work like a internal improvement opportunity for
the organisation. Process of benchmarking is like they choose a product and services in own
department than set a standard for these (Bargate, 2012). Than they benchmark against the best
organisation after it they collect the information related to that project. Than they compare bothy
organisation on the basis of there data. Last step is they adopt the best one from both. Through
the benchmarking they improve the efficiency of the employees and helps to increase the
performance of organisation. batter perform ace also provide sanctification to the customers.
Benchmarking also helps to find overcomes weakness. Through this, manager can find the
competitor and there strategy.
Advantages:
 benchmarking improve the efficiency of the employees.
 It also helps to increase the performance of organisation.
 Benchmarking increase the customer satisfaction.
 Benchmarking also helps to find overcomes weakness.
 Through this, manager can find the competitor and there strategy.
Disadvantages:
 insufficient information is a issue in benchmarking. They can't set standard without
accurate information.
 It is also a costly process for small organisations.
Sometimes they find incorrect result of benchmarking through the incorrect comparison with
each other. It is happened because of poor benchmarking.
Cash flow budgeting: Cash flow budgeting is designed top evaluate the inflow and
outflow of cash in a business within a specific time period. It is used by the organisation to
managing the cash (Parker and Fleischman, 2017). Cash flow budgets consider many factors
like the accounts payable , account reliable, assets and many other things. Cash flow budgeting is

beneficial for organisation and sometimes it is not. So all advantages and disadvantages are as
following.
Advantages:
 major benefit of cash budgeting, if you can spend the cash than you can avoid the debt.
 If anyone using cash budget, than it is compulsory to know the ways how can save
money.
 When using cash budget, stay in touch with this. Check your financial statement , bills
and many other things.
Disadvantages:
 In this, they sets you limit. Its mean on a articular place you can spend money.
 There is very possibilities lose or misplace it.
Break-even analysis: It calculate the break even point of an organisation. At this point
an organisation can earn that cost which they spend on the project. It is based on fixed cost. It
show what you need to sell on the basis of timing. For calculating the break even point should to
be decide fixes cost revenue per unit (Englund, Gerdin and Abrahamsson, 2013). And there also
a another way to calculate break even point by decided fixed cost by contribution manger. Break-
even analysis is useful in various manner. Main use of this analysis is to underst6and the
business cost. It also useful to break fixed cost and variable cost. The advantages and
disadvantages of break even analysis are as following.
Advantages
 Break-even analysis effect on coast and change the probability.
 Through this analysis they can analysed relationship between fished cost and variable
cost.
 Analysed the profit and looses according to the sales.
 Also major the effected price in sales.
Disadvantages
 When assumed the sales and production than the result is mostly same.
 This is a time consuming process.
 It is not possible to aptly it on various product.
 It is not provide a valid result. It is only a assumption.

TASK 2
PART 1
A) Calculate costs using appropriate techniques.
Marginal costing method:- It refers to the method which is related with the preparation
of income statements. Under this type of method, it has been analysed that both fixed as well as
variable costs are considered on a different basis (Kraus and Strömsten, 2012). In this case, value
of the time period is taken as fixed cost and on the other hand value of unit is considered as the
variable cost.
Absorption costing method:- It refers to the another type of costing technique where both
cost which is fixed as well as variable are considered in an equilibrium way. Under this
absorption costing method, fixed cost is taken as the value or cost of unit and vice versa
(Wagner, 2015).
Income statement under absorption costing method for month of May & June:
Particulars May June
(in £) (in £)
Total sales 10.5 4200000 3780000
Less: Cost of Goods sold
Opening stock -
Variable production cost 1300000 1300000
Fixed indirect production
expenditure 600000 600000
Closing stock 4.75 - 190000
Total cost of goods sell 1900000 1710000
G.P. (Gross profit) 2300000 2070000
Selling & Distribution expenses - -
Administrative cost - -
N.P. (Net profit) 2300000 2070000

Income statement under Marginal costing method for month of May & June:
Particular May June
(in £) (in £)
Total Sales 10.5 4200000 3780000
Less: Cost of Goods sell
Opening stock - -
Variable production cost 1300000 1300000
Less: Closing stock 3.25 - 130000
Total cost of goods sell 1300000 1170000
G.P. (Gross profit) 2900000 2610000
Fixed indirect production cost 600000 600000
Selling & Distribution costs - -
Administrative costs - -
N.P. (Net profit) 2300000 2010000
PART 2
B) Interpretation of income statements.
On the basis of above stated income statements, it has been identified and interpreted that
in case of absorption costing method, organisation earn net profit which is £2300000 in the
month of May. Similarly in the month of June, they earn the net profit which is £2070000.
Therefore, it can be easily said that in June, there is decrease in the net profit. In case of
absorption costing method, company earn similar profit in the month of May which is £2300000
but on the other hand, its profit get decreased in the month of June and comes to £2010000.
Therefore, it is clearly identified that company should adopt absorption costing method.
CONCLUSION
As per the above mentioned report, it has been concluded that in an organisation,
management accounting system plays very essential role. By adopting various methodologies of
management accounting system, company will be able to attain their goals and objectives
effectively. Apart from this, it has been identified that Income statement is another financial

statement which is helpful for the company in order to examine the current position of an
organisation. It has also been examined that whether absorption or marginal method is beneficial
for the company or not as well as which one is the best method for them. It has been further
analysed that there are various advantages and disadvantages of using different planning tools.
At last it has been determined that reporting is another significant part of the management
accounting system. Reason behind this is that, it provide assistance in transmitting the
performance of company to the top management team of organisation.
REFERENCES
Books & Journals
Songini, L., Gnan, L. and Malmi, T., 2013. The role and impact of accounting in family business.
Journal of Family Business Strategy. 4(2). pp.71-83.
Salterio, S., 2012. Balancing the scorecard through academic accounting research: opportunity
lost?. Journal of Accounting & Organizational Change. 8(4). pp.458-474.
Novas, J .C., Alves, M. D .C .G. and Sousa, A., 2017. The role of management accounting
systems in the development of intellectual capital. Journal of Intellectual Capital. 18(2).
pp.286-315.
Rossing, C .P., 2013. Tax strategy control: The case of transfer pricing tax risk management.
Management Accounting Research. 24(2). pp.175-194.
Bradbard, D .A., Alvis, C. and Morris, R., 2014. Spreadsheet usage by management accountants:
An exploratory study. Journal of Accounting Education. 32(4). pp.24-30.
Chan, K. C., Tong, J. Y. and Zhang, F .F., 2012. Accounting journal rankings, authorship
patterns and the author affiliation index. Australian Accounting Review. 22(4). pp.407-
417.
Clinton, B .D. and White, L. R., 2012. The role of the management accountant: 2003-
2012. Management Accounting Quarterly. 14(1). p.40.
Nilsson, F. and Stockenstrand, A .K., 2015. Financial accounting and management control. The
tensions and conflicts between uniformity and uniqueness. Springer, Cham.
Halbouni, S. S. and Nour, M .A., 2014. An empirical study of the drivers of management
accounting innovation: a UAE perspective. International Journal of Managerial and
Financial Accounting. 6(1). pp.60-86.
Boyns, T., Edwards, J. R. and Nikitin, M., 2013. The birth of industrial accounting in France
and Britain. Routledge.
Ngwakwe, C. C., 2012. Rethinking the accounting stance on sustainable development.
Sustainable Development. 20(1). pp.28-41.
Bargate, K., 2012. The readability of managerial accounting and financial management
textbooks. Meditari Accountancy Research. 20(1). pp.4-20.
Parker, L .D. and Fleischman, R .K., 2017. What is Past is Prologue: Cost Accounting in the
British Industrial Revolution. 1760-1850. Routledge.
Englund, H., Gerdin, J. and Abrahamsson, G., 2013. Accounting ambiguity and structural
change. Accounting, Auditing & Accountability Journal. 26(3). pp.423-448.