Analysis of Management Accounting Systems

This assignment provides a comprehensive analysis of management accounting systems, covering topics such as budget efficiency, cost control, lean accounting, and strategic management techniques. The study reviews various research papers and articles from reputable sources, including journals like Management Accounting Quarterly, Asian Review of Accounting, and Critical Perspectives on Accounting. It also examines the development of management accounting at Kyocera and the rise and fall of EVA™ systems. The assignment aims to provide a detailed understanding of management accounting systems and their applications in various industries.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
Management accounting system.............................................................................................1
Management accounting reports.............................................................................................2
Benefits management accounting system and their application in the context of company. .3
Management accounting systems and management accounting reporting is integrated within
organisational process............................................................................................................4
LO 2.................................................................................................................................................4
Appropriate techniques of cost analysis to prepare an income statement..............................4
Management Accounting techniques and financial reporting documents..............................7
Financial reports which applies to interpret many business activities...................................8
LO 3.................................................................................................................................................8
The Merits and demerits of different types of planning tools used for budgetary control.....8
Use of different planning tools and their application for preparing and forecasting budgets10
LO 4...............................................................................................................................................11
Compare how organisations are adapting management accounting.....................................11
Determination of management accounting can responding to financial problems to lead
organisations to sustainable success.....................................................................................12
Planning tools responding for accounting to solving financial problems to lead organisations
to sustainable success...........................................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
In present time, management accounting plays a key role in organization and therefore
decisions makers in the organization must understand how to create and use good management
accounting information (Hasniza Haron, Kamal Abdul Rahman and Smith, 2013) . Management
accounting is the process of measuring, analysing, interpreting and communicating information
to managers for the pursuit of an organization's goals. It is different from financial accounting
because the management accounting providing information to managers for decision making
process while financial accounting is providing information to outsiders of the organization. In
presented report selected medium size company Merlin Financial Consultant is a financial
consultancy which in founded in 1988. They have developed due to the trust instil in their
clients. They are provided all the help or information relating to financial plans for the following
years and help to protect assets and standard of living. The report has been covered different
types of management accounting system and their application. In addition, management
accounting reports and cost analysis through marginal and absorption cost technique. Apart from
use of planning tools in budgetary control and their application to solve financial problem to lead
sustainable success.
LO 1
Management accounting system
There are various types if management accounting system that are used by different
organisations in order to operate business in appropriate manner. For all the companies these are
beneficial because it can help to form strategic decisions for the betterment of the company. In
Merlin Financial Consultant various types of systems are used by managers to determine that
organisation is performing well or not. Detailed description of all of them is provided below:
Cost accounting system: This system is used by business entities to analyse the cost
which is involved in their operating activities in order to determine total expenses that are faced
by them to deliver a service. In Merlin Financial Consultant cost accounting system is used by
the managers to keep track record of cost which is faced by them while supplying consulting
services to its customers. It is very important for the company because it can help to estimate the
profitability by identifying the unrequested costs. It is also used to record all the activities that
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are performed by the organisation to render its consulting services (Laine, Paranko and Suomala,
2012) .
Inventory management system: All the activities that are related to transportation of
inventory of the organisation are considered as the part of this system. In Berlin Financial
Consultant it is implemented by the management in order to keep a track record of stock of its
clients. There are three different types of inventory management systems that are used by
organisations according to their requirements. These are LIFO, FIFO and AVCO. LIFO last in
first out in which recently acquired inventory is used for the manufacturing activities first. FIFO
is first in first out in which earlier received material is taken out for the production process first.
AVCO is average cost method in which material is used on average basis for manufacturing
process. The managers of Merlin Financial Consultant use all of them for different clients in
order to provide them best financial advice. It is very important for Berlin Financial Consultant
because it can help to keep record of all the services that are provided to all its customers.
Job costing system: It is a system which is used by business entities to record the jobs
that are performed by them according to specification of customers. In Merlin Financial
Consultant it is used by managers to analyse the cost which is involved in service delivering
process of the company. It is very important for the business entity because it can help
management to analyse cost of each job which is performed by the company in a specific time
period (Klychova, Faskhutdinova and Sadrieva, 2014).
Price optimisation system: This method is mainly used to determine customer's reaction
towards different prices that are set by companies for their products or services. Management of
Berlin Financial Consultant this system is used by managers to set best suitable price for its
financial services so that it can attract large number of clients. It is very important for the
enterprise because it can help to set attractive and appropriate price for its consulting services.
Management accounting reports
Management accounting reporting: Large as well as small organisations use various
types of management accounting reports in order to keep detailed information of business. These
reports are used by companies in planning, decision making and performance measurement.
These reports are prepared by different departments to show performance of their particular
section and it will help to manager for decision making process. With the help of these reports
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manager can prepare effective policies and strategies. The manager of Merlin financial
consultant produce many reports, they are as following -
Accounting Receivable Agin Report – Accounts receivable agin report is produced by an
organisation to know cash in flow and outflow of an organisation. With the help of this report
know condition of
Budget Report – The budget report are prepared for analysing and compare performance
of a business and also employees. Through this report generate performance of whole small
business and different sections of large organisation. Every company prepare their budget for
understand financial data and statistics of a company. These reports are create on the basis of
standards and it will compare actual and standard performance. Budget reports are prepare by
marling financial consultant for estimate overcome incomes and expenses in following years.
Through this report they can evaluate performance of the employee and how much amount spend
on particular employee. It will help to manager for taking important decision making in the
subject to company and employees (Maskell, Baggaley and Grasso, 2016) .
Performance Report – Performance management report prepared by company for review
the performance of each employee which are related to organisation. A management department
take many critical decision on the basis of performance of employee and it will help to appraise
of them on time to time. Marlin financial consultant prepare performance report of their
employees to measure performance and monitor their performance to know who need training to
develop their performance and give rewards to efficient employees.
Cost Managerial Accounting Report – Cost managerial accounting report is a report
which is described about production cost. In production cost includes labour cost, raw material
cost, packaging cost, electricity cost and labelling cost. This report is preparing to know total
amount of cost and total selling amount after than it is compared to know profit of each products.
Apart from, the report is presented calculation of each product and it is showing cost of total
number of units produced by company. The manager of Marlin financial consultant is preparing
report to know cost of every clients and how to maintain their records and collect from
customers.
Benefits management accounting system and their application in the context of company
Inventory Management System: The main inventory for a financial service organisation
like Marlin are its services provided by the business and software utilized for such services.
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Through this, Marlin would be able to achieve Cost-efficiency and accuracy in providing final
services to its clients.
Cost Accounting System: If the company is experiencing a phase of low frequency of
clients, it may reduce its selling price of service to provide adequate consultancy service. Also,
this would help in measuring efficiency for current as well as future periods by analysing how
the business performed using various software (Malmmose, 2015) .
Price Optimization System: Automating manual work such as well as assisting business
to spot buying behaviour among clients would help the business reduce costs and enhance price
optimization for Marlin financial consultant.
Job Costing System: Application of this system will help Marlin to compare costs of
previous job with current job also, determination of future pricing strategies can be done through
this system.
Management accounting systems and management accounting reporting is integrated within
organisational process
Through various management techniques and tools, management of Merlin Financial
Consultant can easily integrate the same into its operational process. This would lead to enhance
outcomes of business activities and manage entire reports more appropriately.
LO 2
Appropriate techniques of cost analysis to prepare an income statement
Absorption Costing – It is a cost method of managerial accounting which is related to
manufacturing of a particular product and it is required for generally accepted accounting
principles (GAAP). There is consisting of direct cost (wages), direct material and overhead costs
and it is used in producing a good.
Marginal Costing - It is a method of costing where is marginal cost like variable cost
and fixed cost are charged amount of cost units of the relevant periods after than getting
contribution. It will show effect on profit of changes in volume or types of result which is
differentiation of variable and fixed cost.
Income statement by absorption costing method
Particular Amount
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Sales 250000
Less: Cost of Sales 140000
Gross profit 110000
Less: Selling and administrative expenses 60000
Income 50000
Working notes*
Calculation of cost: 250000
(25*10000)
Calculation of cost of Sales: (50000+30000+20000+40000)= 140000
(Direct material + Direct labour + Variable manufacturing overhead + Fixed manufacturing
overhead)
Calculation of Selling and administrative expenses: (30000+30000) = 60000
(Variable selling and administrative expenses + Fixed selling and administrative expenses)
Income statement by marginal costing method
Particulars Amount
Sales 250000
Less: Marginal cost of sales 130000
Contribution 120000
Less: Fixed cost 70000
Net income 50000
Working notes* -
Calculation of marginal cost of sales: (50000+30000+20000+30000) = 130000
(Direct material+ Direct material+ Variable manufacturing overhead+ Variable selling and
administrative expenses)
Calculation of fixed cost: (40000+30000)= 70000
(Fixed manufacturing overhead + Fixed selling and administrative expenses)
Interpretation – From the above calculation it has been recommended that there is applying
absorption costing method so after then getting net income is 50000 as well as with the help of
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marginal costing method through net income 50000. In the method of absorption costing cost of
sales is calculated through a particular formula which is Cost of sales = Direct material + Direct
Labour + overhead. From sales less amount of cost of sales then get gross profit which is 110000
and sales is 250000. From gross profit less fixed cost then get net income. In marginal costing
method cost of goods sold calculated as well as absorption costing but after less amount of cost
of goods sold from sales there is getting contribution which is 70000. After then from
contribution less amount of fixed cost which is identify as net income 50000 from marginal
costing method. Since same units of production are same in both costing method so profit are
same which is sold by the company.
Income statement by absorption costing method ( When 5000 units of radiators are sold)
Particulars Amount
Sales (5000*25) 125000
Less- Cost of Sales 140000
Gross loss (85000)
Less- Selling and administration expenses 60000
Net Loss (145000)
Working Note*
Calculation of sales (5000*25) = 125000
Calculation of cost of Sales: (50000+30000+20000+40000) = 140000
(Direct material + Direct labour + Variable manufacturing overhead + Fixed manufacturing
overhead)
Calculation of selling and administrative expenses: (30000+30000) = 60000
(Variable selling and administrative expenses + Fixed selling and administrative expenses)
Income statement by marginal costing method (When 5000 units sold)
Particulars Amount
Sales (5000*25) 125000
Less - Marginal cost of sales 130000
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Contribution (5000)
Less - Fixed cost 70000
Net loss (75000)
Working Notes*
Calculation of sales(5000*25)= 125000
Calculation of marginal cost of sales: (50000+30000+20000+30000) = 130000
(Direct material + Direct material + Variable manufacturing overhead + Variable selling and
administrative expenses)
Calculation of fixed cost: (40000+30000) = 70000
Interpretation- From above numerical it has been recommend that while taking 5000 units of
radiators in selling, then there is a loss of (145000) in the absorption costing and in marginal
costing loss is of (75000)
Financial reporting document with labour and material variances:
Budgeted Actual Variance
Units 1000 1100 100 F
Hours 3000 3400 400 (A)
Unit per hours 3 3.09 0.091 (F)
Labour 15000 17680 2680 (A)
Labour rate per unit 15 16.07 1.07 (A)
Labour rate per hour 5 5.2 0.2 (A)
Actual
Units 1000
Material used Kg 2200
Actual Material cost 20900
Material cost per kg 9.50
Material cost per unit 20.9
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Budgeted material cost per unit of the product 2kg at £10/kg
Budgeted material cost per kg ( £ 10/2) 5
Budgeted Material cost 11000
Variance (Actual- budgeted) 9900(A)
Management Accounting techniques and financial reporting documents
As per the above accounting technique, the company has analysed actual position through
absorption costing method and marginal costing method. The management accounting
techniques provides estimation to predict accurate regarding to business. There is mentioned
different types of management accounting techniques in the context of marlin financial
consultant, some of them are given below -
 Financial Planning – It is a plan which is related to decision policy of finance or money
uses. With the help of this plan company know about uses of different sources of money
and this particular plan follow by the company. It is important technique because through
this effectively uses of finance. Marling financial consultant can apply this tool to make
upcoming future plans (Cheng, 2012).
 Historical cost accounting – With the help of this technique company get past data and
information about the cost. It is important method for management because on the basis
of this method management can take effective decision. The marlin financial consultant
can use this method to make various types of decision which is related to previous data.
Financial reports which applies to interpret many business activities
Financial reports are very important part of organization because it is presented
performance of the business in numerical forms. In financial reports are including cash flow
statement, income statement, balance sheet etc. it is important to prepare because without these
reports can not interpret of business activities. When a business can analysing the performance
and shows in meeting to outsider of company so through this report can present financial
information and performance of a company. Marling financial consultant interpret their financial
report to know profit and loss and make further statements (Holsapple, 2013) .
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LO 3
The Merits and demerits of different types of planning tools used for budgetary control
Budget – A budget is a financial plan which is related to particular accounting period,
often one year. It is also known as formal statement where includes revenues, sales volumes,
costs and expenses, resource quantities, cash flows, assets and liabilities. With the help of budget
top management can predict about performance of company and control business activities to get
organisational goals and objectives.
Budgetary Control – It is a process for managers where set performance and financial
goals with budgets. After then compare standard budget with actual budget to set performance
according to business activities. It is important tool of a company to control costs and maximize
profits (Abdelmoneim Mohamed and Jones, 2014) .
Scenario Tool
It is a management tool that is creating to allow organizations to analysis the effective of
strategies, policies, tactics and plans under a scope of achievable future environments. Scenario
planning tool allows to an organization to plan about the uncertainties which is depending on
future enabling and react with greater speed and confidence. It is using as effective planning tool
to get budgets in a challenging situation by using spreadsheet. Budgets are mainly prepared
through planning and budgeting software to provide future results regarding to investments. With
the help of this tool marling financial consultant can prepare their budget to analysing financial
information that provides a idea for future investment perspective.
Advantages – The advantages of scenario tool to makes easier to prepare budgets by
collecting different resources which is related to financial information. The company has facing
many problem when preparing budget like cost, time and resources. It can solving to numerous
variable of an organization size, time frame of the scenarios, teams of those partnering. In the
regarding time the tool taking around 6 to 12 months (Takeda and Boyns, 2014) .
Disadvantages – In theoretical way it is easier but in practical point of view it is typical
to apply in an organisation. There is not simple to using various types of plan and system in
order to know financial information. Many times it can show inaccurate outcomes which is based
on complex formulas.
Contingency Tool
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This is crucial tool is a planning of a action which is designed to help an organization to
react in effective way with important future event or situation that may or may not happen.
Sometimes contingency planing tool can use as plan B which is referred to as alternative plan.
When company have not any plan or Plan A does not working properly so that time the company
has applied this plan in effective way. In simple words, a plan does not complete without any
expectation so it is important to every company has prepared for contend to unexpected losses. In
marlin financial consultant had maintain final accounts of restaurant but after some times the
restaurant had closed and did not pay amount of maintain books so company has marked as bad
debts.
Advantages – With the help of this planning tool take effective decision quickly
wherever a company should move ahead or not with spending activity. It is helping to reduce
upcoming risks and losses which is coming any time. In the context of Marlin financial
consultant, this planning tool helping to know unexpected problems. The company has prepared
budget in effective through contingency planning (McLaren, Appleyard, and Mitchell, 2016) .
Disadvantages – The disadvantages of this planning tool it is reactive not proactive
because it is based on assumptions. There is difficult to experiential examination because it can
include many provisions. In Marlin financial consultant accountant need to aware about
upcoming losses and expenses which may be occur or not as a result accountant can not get
actual budget.
Forecasting Tool
The forecasting planning tool helps to management to attempts to face many uncertainties
regarding to the future. It is relying mainly on data from the past and present and evaluation of
trends. This tool mainly depended on assumption with definite assumptions which is based on
management's experience, judgement and knowledge. It helps to generate future predication to
estimate of future growth in particular accounting period. In Marling financial consultant the
manager can predict about upcoming income and expenses to maintain data of clients so for this
control business activities to fulfil requirement of the budget (Zoni, Dossi and Morelli,2012) .
Advantages – The particular planning tool provide assurance about result of future in the
subject to business. It can provide appropriate financial information and it will bring effective
resources which can help to estimate accurate bright future of an organisation. In the company of
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Marlin financial consultant, through this planning tool prepare budget in effective way and
estimate accurate financial data from future perspectives.
Disadvantages – Many times it can not provide right information because external factors
can show impact on business policies so estimation will go wrong and create problem regarding
to financial data and information. It can create problem to interpret data for marlin financial
consultant.
Use of different planning tools and their application for preparing and forecasting budgets
It has been analysed that in every organisation for forecasting of budget applying
different planning tools which can help to know upcoming performance of the company. The
company has applied different planning tools such as forecasting tool, scenario tool and
contingency tool. It is important for company to control the budgets and provide help in decision
making process. When marlin financial consultant used contingency tool then minimize the loss
of production, the plan has help to quickly take steps to address a problem and solve by
management. Apart from forecasting tool can get future information through this tool and it can
help to predict future expenses and incomes for maintain forecasting budgets. With the help of
this too company can compare performance of actual and standard data basis. When company
can adopt scenario tool so they can prepared excel spread sheet to describe about future results. It
can also show near by results to provide help in effective decision making (McLaney and Atrill,
2014).
LO 4
Compare how organisations are adapting management accounting
Financial Problem – Financial problems is described as situation where money become
reason of stress. Many peoples are facing hard financial times and it can shows impact on mental
health. These problems also influence of efficiency and profitability of a company. These are
creating problem to achieve required results. The Marling financial consultant can face many
finical problems which can affect to formulating several effective strategies. There is detailed
financial problems faced by company -1. Spending More than earning – Many times company can not predict about the future
changes so it will create problem and company can spending money more than earning.
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When Marling financial consultant can not maintain accounts of particular client and find
huge of errors so that time create financial problems.
2. Lack of money management – Management of the money is very important because in
any company. Such strategies are implemented by different businesses to manage the
monetary system. In the context of company, many managers can face continuous loss
regarding to solving issues.
Financial Governance – It is a financial tool which provide help to a company for
collect manage, monitor and control their financial information. With the help of this tool solve
different financial problems which can identify in company. For reduce problem of lack of
money management for this record all transaction and predict overcome risk and expenses and
prepare strategies for this to manage money quantity. Money can invest on those resources which
is important for company (Bromiley, and et.al, 2015) .
Management Accounting Approaches – It is used as accounting techniques to solving
financial problems of company. There is discussed about techniques which can help to identify
different financial problems and accounting approaches applied on it -
1. KPI – Key performance indicator helps to measuring performance of a company in order
to achieve organisational objectives. It is described as business tool which is used by
managers to trace different factors which can influence of growth of a company. In the
Marlin financial consultant can compare result with budgeted results to solve financial
problems.
2. Benchmarking – It can use to compare operations and performances of a company with
other company. It can help to improve performance of a company in effective way and
know reasons of issues. The Marling financial consultant can apply this for know actual
performance of a company.
Marling Financial Consultant Bright star consultant
Problem – The financial problem to lack of
money when can not prepare accounts on time
and getting any errors regarding to results.
There is problem faced by company to that
customer have different perception regarding
to accounting maintain books of accounts and
they wants to different theories.
Approach – For solving to problem of marlin For this finial problem the company have
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the company can apply KPI which can measure
in financial and non financial indicators.
applied benchmarking
System – There is company can apply system
is cost accounting system where is maintain
report of a company (Walker, Fleischman and
Johnson, 2012) .
The company has used Price optimization
system which is helping to know price of
different customer according to their
requirement.
Determination of management accounting can responding to financial problems to lead
organisations to sustainable success
Management accounting helps to an organisation for accomplish sustainable success to
respond regarding to financial issues. The marlin financial consultant can use KPI and
benchmarking to identify different financial issues which can create problem for the growth and
success of a company. KPI is helping to know financial and non financial indicator to measure
performance regarding to financial information. In benchmarking through compare performance
from another company and it will help to identify those issues which become barriers in
organizational sustainable success (Grabner and Moers, 2013).
Planning tools responding for accounting to solving financial problems to lead organisations to
sustainable success
In the present scenario, it is important to solve financial problems with the help of
different planning tools. The marlin financial consultant apply various planning tools such as
forecasting, contingency and scenario tool to reduce problems and help to organisation for
achieve sustainable success (Thomas, 2016) .
CONCLUSION
As per the above discussion it has been concluded that, management accounting is
essential part of any organisation and their several system implement to know track record and
control cost in effective way. Such managing accounting reports which are presented actual
position of the company and related to each department and it can support to overall performance
regarding to business operations. For analysis the performance and know gross profit and net
profit of a business to apply marginal costing method and absorption costing method during to
accounting year. The company has prepared budget with the help of different planning tools such
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as contingency, forecasting and scenario tool. These tools are beneficial for a company and
management accounting system help to over come from financial issues.
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