Management Accounting System & Techniques

This report discusses the importance of management accounting system and various types of MAS. It also covers several methods utilised for management accounting reporting, advantages and disadvantages of different types of planning tools, and adoption of MAS to respond financial problems. The report includes a case study of Asda Limited, a retail sector company.

Management accounting
system & techniques

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1.Managerial accounting and various types of MAS: .........................................................3
P2. Several methods utilised for management accounting reporting: .................................5
M1.Several benefits of management accounting system along with their application within an
organisation:...........................................................................................................................6
D1.Integration of different MAS and managerial accounting reporting within an entity's
business processes:.................................................................................................................7
TASK 2............................................................................................................................................7
P3. Preparation of income statement using marginal and absorption costing techniques:.....7
TASK 3..........................................................................................................................................11
P4. Advantages and disadvantages of different types of planning tools:.............................11
M3. Use of planning tools and applications in preparing and forecasting budgets:.............13
TASK 4..........................................................................................................................................13
P5. Adoption of management accounting system to respond financial problems:...............13
M4. Role of MAS in responding several financial problems and maintain sustainable success:
..............................................................................................................................................15
D3. Planing tools used in solving financial issues:..............................................................15
CONCLUSION..............................................................................................................................15
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting system is a procedure by which an organisation represent its
financial information in such a way that helps such organisation in running its day to day
operations effectively and for other internal works. MAS also helps the an entity in planning its
future operations and take decisions accordingly to control the future business activities.
Managerial accounting is strongly recommended with providing valuable data to the
management and board of an entity to run its day to day business processes efficiently and
effectively. For better knowledge of such topic, an organisation named Asda is chosen which is
engaged in retail sector (Abdelmoneim Mohamed and Jones, 2014).
This report gives the important requirements of different types of managerial accounting
system as well as various method that may be used by the an organisation for reporting purposes.
A company may utilised several planning tools for its budgetary control are also stated in this
report in detailed manner. A comparison between two organisations regarding adopting the MAS
for resolving its some financial issues.
TASK 1
P1.Managerial accounting and various types of MAS:
Management accounting: As name suggest, this is such type of accounting that helps
the management staff of an entity in taking several important decision and assist them in making
new policies that will consider in planning its future operations. An effective planning may be
made by including several methods and concepts of management accounting.
Management accounting system: It is an internal system that an entity implement in its
business environment to assess its ongoing business processes and providing various tools to
shape its future operations as company want. For this, an organisation shall have option to adopt
and implement any type of MAS as various types are available. Some of types of managerial
accounting system are as follows:
 Inventory management system: As name suggests, such type of MAS is very helpful for
company in controlling its inventory related cost and related aspects. It provides the way
through which an organisation like Asda Limited may value its inventory (both raw
material and finished goods) in accurate manner to show its correct financial position.
Such MAS type also helps the company in ordering its inventory requirement in optimum

manner so that cost may be reduces related to its inventory. This system provides the
various methods for inventory valuation. It includes FIFO, LIFO, weighted average
method and so on, company may utilise any one of them according to its requirement and
its business nature (Bagautdinova, Kundakchyan and Malakhov, 2013).
 Cost accounting system: Such system is utilised by manufacturing firm like AsdaLimited
to oversee its manufacturing process to identify non value added activities and plan to
eliminate such activities to control its cost in effective and efficient manner. It helps the
management in producing cost effective products along with maintaining same quality
that such company is providing before implementation of such system. In calculating
correct costing of its product, a company may implement various techniques which
includes standard costing, relevant costing, budgetary control and so on.
 Job costing system: After implementing such system, company is able to identify its cost
related to specific job very easily in all respect. As a result, an organisation like
AsdaLimited may enable to reduce its cost which is not generating any value on
completion of its task. It is generally used in those organisations where various items
produced are different from each other. Due to this, separate job cost records are required
to be kept for each item or job. For example, constructions of custom designed buildings,
production of various type of machines as per customer specifications.
 Price optimisation system: This is a system that is used by the company to finding an
optimal price for its products. This is determined by trial and error approach, which
means that company sets different prices to a product to see the attitude of the customers
for regarding different prices for the same product. Thereafter, manufacturing
organisation like AsdaLimited select that price at which company's product has highest
demand. This is most effective method for finding the best suited price for its various
products. Under this, to calculate a price of a product, organisation often apply various
price strategies.
P2. Several methods utilised for management accounting reporting:
An entity in doing its day to day business uses management accounting system, as a
result, it requires to report related information for management staff. For this, various method of
managerial accounting reporting is used, which are as follows:

 Budget report: It is an internal report which is used by the company's management
staff to assess its actual business performances with its estimated budgeted
projections. In other words, it may be said that with the help of this report, company
assess that how close the actual results with the estimated figures.
 Account receivable ageing report: In this, company produces report that help the
company in managing its debtors (i.e. its accounts receivable). It means that such
report provides information about total time given to the debtors for making payment
and also provides information of those debtors that has not make payment to the
company within due date. Under this, an organisation record all the information
regarding amount of transaction as well as the several dates on which such
transactions are undertaken. AsdaLimited by the help of this report manges its
accounts receivables in very effective and efficient manner.
 Cost accounting report: It may be said that such report helps a lot to a
manufacturing organisation in assessing various costs related to its several business
activities. Such report provides the information which helps in controlling its costs
and also helps in cost reduction. AsdaLimited make this report to find the cost of its
products (i.e. smoothies and juices) and for its raw material and related charges.
 Inventory management report: An organisation requires to make such report as this
provides the information regarding its inventories whether kept in warehouses or at
its place of business. Such report provides information that how an organisation may
arrange its several inventories in systematic manner. AsdaLimited company uses this
report to manage and find its raw material requirement such quantity of fruits, sugar
and so on along with their prices.
 Performance report: As the name suggests, this can be characterized as a kind of
reports related to the provision of performance data for different operations in an
organisation. Management staff generate such report of AsdaLimited, which allows
them to evaluate the efficiency of all their business operations and working staff
engaged in different operations related to manufacturing of different types of fruit
juices. This report makes a major contribution in supervising and controlling the
performance of company related to several business activities (Bloomfield, 2015).

TASK 2
P3. Preparation of income statement using marginal and absorption costing techniques:
A company may prepared its income statements by following management accounting
system that provides two methods for its preparation. These methods are absorption technique
and marginal technique and detailed knowledge of such techniques are as follows:
Absorption Technique:
This is very old technique for calculating the cost of products and preparing the income
Statements that's why it is also called traditional costing method. Under this, an organisation
shall required to consider all the cost whether variable cost or fixed cost, as a result, cost of
finished goods includes fixed production cost along with all variable production cost.
Marginal Technique:
This consider only relevant costs which is actually responsible for production of goods of
an organisation. Therefore, cost of goods sold includes only variable production cost and fixed
production cost are considered as period cost. In other words, it may be said that ascertainment
of relevant cost is known as marginal costing in which are classified in fixed and variable costs
(Mitchell, Greenwood and Freeman, 2015).
Absorption costing
Profit as Per absorption costing £s £s
Turnover 3200000
Less Full cost of sales 2920000
Direct Material cost 1600000
Direct Labour cost 800000
Fixed manufacturing overhead 200000
Variable manufacturing overhead 320000
Gross profit 280000
Less Non-production cost 500000
Variable selling expenses 400000

Fixed admin and distribution cost 100000
Budgeted Profit -220000
TASK 3
P4. Advantages and disadvantages of different types of planning tools:
Budget: It is a statement prepared by the company to provides direction to its future
business operations which is prepared based on its past business performances. Budget can be
prepared for any business operation to to enhance effectiveness and efficiency of such operation
to obtained desired results.
Budgetary control: It may be defined as management efficiency to implement various
budget for its business operations. It can be said in other words as a process for managers to set
financial and performance related objectives with the help of budget. After actual operations are
finished, it shall be compared with budgeted figures and if any deficiency is identified in actual
results, management staff of an organisation like AsdaLimited provides corrective action to
remove such deficiency (Demski, 2013).
The various planning tools used in budgetary control along with their benefits and limitations are
as follows:
Cash budget:
This budget helps the company in managing its cash requirement in running day to
business operations. It provides the future requirements of cash that business organisation need
to operate its business operations. Accordingly company arranges its cash for future business
operations by providing arrangement either through internal sources (converting current assets
into cash etc.) or through external sources (taking term loan, cash credit etc. for short period
time). Company can prepared cash budget department-wise i.e. as per cash requirements of
individual departments or can be be prepared cash budget for whole company's cash requirement.
But this budget have some limitations along with some benefits which are as follows:
 Benefits: It helps company in tacking records of its cash inflows and cash outflows
which helps company in maintaining effective cash management.

 Limitations: Cash budget is not good in a case where huge monetary amount is required
to prepared this budget along with time consuming process. In some cases, cash budget
does not provide correct results if it I manipulated by the manager by showing excessive
expenses and at same time showing revenue at reduced level (McLaren Appleyard and
Mitchell, 2016).
Operating budget:
Such budget is prepared by company to estimate its future incomes and expenses related
to its business operations and this is generally prepared for one year period. By preparing this, an
organisation like AsdaLimited can control its future business operations. A manufacturing firm
may use this budget in its production process to evaluate the effectiveness and efficiency of its
manufacturing process. It is basically a budget that helps in estimation of what an organisation's
future income and costs will be. Few limitations along with benefits are as follows:
 Benefits: It assist the AsdaLimited, in assessing its day to day operation's cost and
incomes. The other benefit of using such budget is that this help the company in
identifying the weaknesses that a company has in its business operations to
overcome such weaknesses.
 Limitations: Such budget changes frequently if there is any change in business
operations, hence, AsdaLimited need specialised team to consider these changes
in its operating budget.
Master budget:
This budget is very popular as this budget is widely used by companies because as name
suggests, it includes all the budgets. AsdaLimited uses this budget for overseen overall business
operations and accordingly take estimate for future business operations. Master budget helps the
company in taking crucial decision regarding company's current business activities. Some
disadvantages along with its benefits are as follows:
 Benefits: It is utilised to find any possible incidents that indicates some danger to
the company in upcoming time. The main role of such budget in an organisation
is that it helps in establishing co-ordination in different departments of an entity.
 Limitations: A company prepared such budget based on some specific
assumptions, as a result, in some circumstances, master budget does not give

accurate results due to application of such specific assumptions (Malinić and
Todorović, 2012).
TASK 4
P5. Adoption of management accounting system to respond financial problems:
An business organisation faces various types of financial issues while doing day to day
business organisations. Such issues shall required to be solve out by the company with the help
of several techniques as provided by management accounting system. If these financial problems
doe not get solve within the time then it may take form of financial crises and may be caused for
close down the business. Before understanding the various method for solving out such issues,
the term financial issues are required to be understandable, which is as below:
Financial problems: It may said that it is related to the monetary problems, it means that
company has not enough funds to run its business operations effectively and efficiently. Some of
the financial problems related to a business organisation are as follows:
 Increasing in expenses: Due to this, it can create problem regarding financial issues,
as an organisation has high operating cost but in relation to such operating revenue
is not more.
 Higher storage cost: This means that company has incurred high cost in holding and
storing its inventories. This create problem regarding shortage of cash for carrying
out other business activities (Kanellou and Spathis, 2013).
Finance governance: It is a process by which an organisation like AsdaLimited
gathered, analysed and evaluate the financial data of companies in a systematic manner. In other
words, it may be said that this structure acts as a supervising strategies in respect of resolving
monetary problems.
There are various methods are available to find financial issues as mentioned above,
some of are as as follows:
 Ratio analysis: It is a process by which an organisation's various ratios are interpreted
and compared with other company or with other years ratio in same company. These
ratios includes debt equity ratio, current ratio, assets turnover ratio and so on. It is
useful in identifying the various financial issues that are existed in business
environment of an organisation.

 Benchmarking: This helps the company in doing comparison of its plans and goals with
other entity's strategies in same sector. Because of this, enterprises can easily discover
the precise economic problems and can make changes accordingly. Further plans and
policies can also be made to solve the issues.
Difference between two organisations:
Basis Asdalimited Pepsi
Financial problem This business faces the financial
issue of high storage costs. the
complete cost of storing raw
material and finished products is
constantly growing. As a result,
AsdaLimited faces the problem of
shortage of cash.
They face the financial issue of
high spending (operating
expenses). As a result, funds of
Pepsi are continuously falling and
due to lack of resources, they are
having trouble running their day-
to-day operations.
Management
accounting system
Due to above mentioned financial
issue, an efficient MAS needs to be
applied. Therefore, such may
implement inventory management
system. Because of such system,
inventories of such company will be
managed effectively as well as its
holding costs can be supervised and
controlled.
The above mentioned issues can be
solved by applying cost accounting
system in such organisation. This
system provides the proper way to
control and supervising its
operating cost. It helps in
eliminating the non value added
activities that are not useful for the
company and automatically its
operating cost may get reduced.
CONCLUSION
From the above report, it is concluded that MAS has huge impact on success and
survivability of an business enterprise, therefore, it is recommended that every manufacturing
organisation shall compulsorily required to implement various types of managerial accounting
system. It is also concluded that company shall required to use various methods of reporting of

management accounting and required to integrated these methods within organisational business
processes. Absorption and marginal techniques are essential techniques that may be utilised by
the company to determine correct cost of its products. Company may use any planning tools in
controlling its business operations by forecasting its future operations with the help of budgetary
control.

REFERENCES
Books and Journal
Abdelmoneim Mohamed, A. and Jones, T., 2014. Relationship between strategic management
accounting techniques and profitability–a proposed model. Measuring Business
Excellence. 18(3). pp.1-22.
Bagautdinova, N., Kundakchyan, R. and Malakhov, V., 2013. Development of management
system of manufacturing companies on the basis of management accounting elements.
Bloomfield, R. J., 2015. Rethinking managerial reporting. Journal of Management Accounting
Research. 27(1). pp.139-150.
Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International
Higher Education.
Demski, J., 2013. Managerial uses of accounting information. Springer Science & Business
Media.
Kanellou, A. and Spathis, C., 2013. Accounting benefits and satisfaction in an ERP
environment. International Journal of Accounting Information Systems. 14(3). pp.209-
234.
Maher, M. W., Stickney, C. P. and Weil, R. L., 2012. Managerial accounting: An introduction to
concepts, methods and uses. Cengage Learning.
Malinić, S. and Todorović, M., 2012. How does management accounting change under the
influence of ERP?. Economic research-Ekonomska istraživanja. 25(3). pp.722-751.
McLaren, J., Appleyard, T. and Mitchell, F., 2016. The rise and fall of management accounting
systems: A case study investigation of EVA™. The British Accounting Review. 48(3).
pp.341-358.
Mitchell, R. K., Van Buren III, H. J., Greenwood, M. and Freeman, R. E., 2015. Stakeholder
inclusion and accounting for stakeholders. Journal of Management Studies. 52(7).
pp.851-877.
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