Management Accounting Systems and Its Applications

MANAGEMENT ACCOUNTING
SYSTEMS AND ITS
APPLICATIONS

Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Management accounting and essential requirements of various type of MA systems...........1
Type of managerial accounting reporting methods................................................................3
TASK 2............................................................................................................................................5
Utilisation of absorption and marginal costing systems.........................................................5
TASK 3............................................................................................................................................8
Type of planning tools used in budgetary control..................................................................8
TASK 4............................................................................................................................................9
Using MA systems to resolve financial problems..................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting techniques refers the concepts and methodologies to organise the
management requirements in operational and functional way. These techniques assist the
management and control to manage the flow of information in more strategic and proactive way
(Drury, 2012). the report expresses the clear understanding of management accounting and
crucial requirement of diverse management accounting systems for KEF Ltd that is a medium
size manufacturing entity. the methods of accounting reporting also defined in the report in order
to extract the information form management accounting systems for strategic planning and
control. Cost accounting techniques are used in order to calculate profitability by using two most
of the running methods as marginal and absorption costing methods. Application of planning
tools in budgetary control presented in organisational context. Contribution of management
accounting systems to resolve financial problems for entities and how organisations are adapting
these systems in operations also executed with comparative examples.
TASK 1
Management accounting and essential requirements of various type of MA systems
Meaning of management accounting system
Management accounting is recognised as an information communicating method to
management and accountants of an entity (Chiwamit, Modell and Yang, 2014). The accounting
information remains essential for accountants and managers subject to form a new business
strategy and take sustainable strategic decisions for future. As per IMA (Institute of Management
Accountants), management accounting is considered as a professional way to present and
connect the accounting information to users. This contains following exercises as the reporting of
financial outcomes and assisting management control, management decision making and
performance management systems.
Difference between financial accounting and management accounting
Management accounting Financial accounting
Aggregation It is a detailed formation of gathering
information from different
departments of an entity.
It is a summarised form of presenting
information of entire organisation at
the end of each financial year
Focus areas Management accounting mainly Profitability, capital adequacy and
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focus upon managerial activities and
business operations.
financial statements are the key focus
area of financial accounting.
Standards There are no particular standards
available for management
accounting. Organisations have their
own set of rules and compliance
structure which is considered as
management standards of an entity.
Financial accounting requires to
comply accounting standards,
financial rules and regulations which
are formed internationally and
domestically.
Management accounting systems
Cost accounting system: this accounting system work on overall cost of entity like cost of
production for manufacturing organisations, cost of services provided to customers and cost of
administrations. The key characteristic of this accounting system is to bifurcate the expenditure
by their nature as direct, indirect, fixed and variable (Watson, 2015). The use of cost accounting
system in KEF ltd may assist the managers to divide the producing and administrative cost
according to their cost nature.
Price optimisation system: this accounting system assist management to analyse the
variation in demand when prices of products and serviced are changed. The figures are aligned in
a single database and inventories levels are compared parallel to collected figures. Considering
the demand and trend of particular products and services updated prices are recommended to
management. This accounting system mainly works on mathematical concepts and principles.
The management of KEF Ltd can implement this price optimisation system to vary the prices of
products (Chiwamit, Modell and Yang, 2014).
Inventory management system: This managerial system is one of the running accounting
system used by entities to manage the level of inventories and keep coordination between the
supply and demand. There are three type of inventories available to organisation as raw material
stock, work in progress and stock of finished goods. There are three methods available for
managing the goods properly as FIFO that refers the goods manufactured first will be sold first,
LIFO that refers the goods manufactured last will be sold first and a weighted average method in
which aggregate quantity of goods are sold and retained by organisation for selling and
manufacturing. All these methods also used in setting up the cost of closing inventories at the
end of financial year (Watson, 2015).
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