Management Accounting Systems and its Applications

This document provides an introduction to management accounting and its essential requirements. It explains different methods used for management accounting reporting and evaluates the benefits of management accounting systems. It also critically evaluates how management accounting systems and reporting are integrated within organization processes. Additionally, it covers the calculation of cost using different costing techniques and methods of evaluation. Furthermore, it discusses the advantages and disadvantages of different types of planning tools used in budgetary control.

Management
Accounting Systems and
its Applications

Table of Contents
INTRODUCTION...........................................................................................................................1
Task 1...............................................................................................................................................1
What is management accounting and its essential requirements of management accounting
systems.........................................................................................................................................1
Explain different methods used for management accounting reporting......................................2
Evaluate the benefits of management accounting systems and their application .......................3
Critically evaluate how management accounting systems and management accounting
reporting are integrated within organization processes...............................................................4
Task 2...............................................................................................................................................4
Calculation of cost by using different costing technique and methods of evaluation ................4
Task 3...............................................................................................................................................7
Advantages and disadvantages of different types of planning tools used in Budgetary Control 7
Analyse of different planning tools and their application for preparing and forecasting budgets.
......................................................................................................................................................9
Task 4 ..............................................................................................................................................9
Organisations are adapting management accounting systems to respond to financial problems.
......................................................................................................................................................9
Responding to financial problems, management accounting can lead organisations to
sustainable success.....................................................................................................................11
Planning tools for accounting respond appropriately for solving Financial problems to lead
organisations to sustainable success..........................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCE.................................................................................................................................13

INTRODUCTION
Management accounting is determined term which is uses to identify, measuring,
interpreting and communicating the informations in relation to a business which are important to
operate the business and get to know how much profits is earning by company. Management
accounting is varies from financial information that assist internal users to make effective
decisions and maintaining the performance (Taschner and Charifzadeh, 2020). The aim of using
management accounting is to improve the quality of information that delivers to management
regarding business operation metrics. In organization, accountant is playing important role who
analysis the information, income and expenses that are related to a business and helps to gain the
profitability. Such report is based on Volpi Ltd, that is medium size manufacturing organization
managing all income and expenses accurately by using accounting rules and policies which can
help to maintain profitability. This report covers types of accounting system and reports which
uses to operate business, preparation of income statement, tools for making planning and
strategies that can help to control and maintain the performance. This report also consider
comparison between organization and system that uses to respond properly.
Task 1
What is management accounting and its essential requirements of management accounting
systems
Management accounting is considered as presentation of analysis in relation to business
activities that can help to take internal business decision and increase the organizational
profitability. It is important for management to focuses on financial and non financial
information so decision can be made accordingly and maintain the activities.
Definition of management accounting: Management accounting is the application of
knowledge and professional skills in preparation of accounting and financial information for the
purpose of operating a business and increase the performance in business areas. It is suggested to
all business people that identify the needs, analysis the risk, planning and controlling the

enterprises informations which can help to manage the business and increases the productivity
(Nicolò, 2020).
The management of Volpi Lts is having good knowledge about accounting policies and
rules that can be uses to identify total cost and receipt the payments effectively. This also helps
to manage the business and increase the brand image by increasing profits. Different types of
management accounting systems are uses with their essential requirements are as defined:
Cost accounting system - The other name of cost accounting system is costing system
that mainly uses enterprises to estimate the cost of products and services which arises in
organization. Volpi Ltd is manufacturing organization that is using cost accounting system in
order to calculate the accurate cost of products and services that can help to maintain high
productivity and profitability. This is essentially required in all organization to estimate the cost
of their products and services which they are providing. By estimating it become easy to make
the future planning and being modification in higher cost by planning and controlling the
expenses (Costing accounting system and its essential requirement, 2020).
Inventory management system - The inventory management system is defined term and
process by which a business handling person can track the good and services which they are
providing. This is essentially required for recording and checking the entire business, supply
chain and purchasing to production to end sale activities so decision can be made accurately.
This also states number of component and ingredients that need to create the final product. By
using inventory management system Volpi Ltd is tracking their products in entire business and
managing all order by placing order to products in advance when they are going to out of stock
that can help to operate the business and manage the activities (Hutaibat and Alhatabat, 2019).
Explain different methods used for management accounting reporting
Management accounting reporting is defined as document and conclusion of income and
expenses which are recorded in accounts. This can help to analysis the financial information and
make decisions accordingly. All business enterprises is required to use the different accounting
systems and prepare reports accordingly which can help to maintain the good performance and
improve the organizational profitability. In Volpi Ltd, number of reports are prepared by
management by conducting an analysis and making right decisions. Description of different
managerial reports are as stated:

Cost accounting report – This report is mainly uses to compute the cost of products and
articles which are manufactured and can help to operate the business activities efficiently. For
organizations it is required to know the cost of company and prepare a report which can help to
manage the activities and increases the performance of a entire business. By preparing cost
accounting reports Volpi Ltd get to know cost prices of items and selling prices which can help
to generate the profitability. This report consider information regarding raw material, overheads,
labour and production cost so decision can take accordingly and maintain the effectiveness.
Account receivable aging reports – This refers management tool and strategy that
mainly uses by accountants for evaluating account receivables of an enterprise. As business
based on creditors who buys products in huge quality without paying amounts and make
promises to pay decided amount on a fixed time that can help to manage to operate and increase
the organizational sales. If companies are not allowing to give credit then it become difficult to
increase sales and manage their functions accurately. According to this, management provide the
products to customers on credit of 30 days, 60 days and 90 days which can help receive the
payment after completion of period and support to run the business. Volpi Ltd's management is
preparing the account receivable report by recording the unpaid amounts that can help to receive
payment. The management also get informations to state the financial health of company and
risk that needed to be handle (Ertl and et. al., 2020).
Evaluate the benefits of management accounting systems and their application
Management accounting system are beneficial for organization as it helps to provide the
information in relation to finance and manage the further activities which can help to operate and
continue the business. Volpi Ltd is using different management accounting system in their
enterprise whose benefits are as defined:
System of accounting Uses and benefits
Cost accounting system This system is mainly uses to get the how much cost is
bearing by organization and how they can be handled. Volpi
Ltd is taking the benefits of costing system by tracking the
cost of company and make efforts accordingly so all
activities can be performed effectively. This also helps to
disclose the profitable and unprofitable activities.

Inventory management system This system uses to keep track and record the inventory
which is available in organization and help to place the next
order so customers does not wait for products. Volpi Ltd is
manufacturing organization that is managing and
controlling the excessive inventory. This also helps to
manage the order which is placed by customers (Tekathen,
2019).
Price optimisation system This system is using for setting the prices of their
manufactured products and retaining the best customers.
The management of Volpi Ltd is benefited from price
optimisation system as they generate the profits and retain
their potential customers by delivering products at relevant
prices.
Critically evaluate how management accounting systems and management accounting reporting
are integrated within organization processes
In business organization process it has been evaluated that management accounting
system and reports are using to operate and continue the business activities so all functions can
be performed effectively. In Volpi Ltd management using cost accounting, price optimisation
and inventory management system that can help to manage the all activities and performance
effectively. Costing system used to estimate cost, price optimisation system used to set the prices
of their products and inventory management system uses to record the inventory which can help
to control the business activities and improve business profitability. Reports are uses to evaluate
the enterprise performance and deal with problems which can help to make right business
decisions and attain the decided goals and objectives (Ujamal, Tayles and Grant, 2019).
Task 2
Calculation of cost by using different costing technique and methods of evaluation
Marginal Costing - Marginal Costing is the cost accounting concept in which cost unit
includes all the adjustment of variable cost and against contribution also the fixed expenses are
to be written off .Direct material , direct labour , direct expenses and variable part of overheads

are to be considered at the time of calculation of marginal costing. In Marginal costing fixed and
variable cost are showing separately so that it became easy to understand and help managers to
take appropriate decisions.
Cost per unit
Marginal costing Cost per unit Total cost
Direct Material 20 400000
Direct Labour 30 600000
Variable Production Overhead 10 200000
Total production cost 60 1200000
Income statement under marginal
sales 1440000
Less: Marginal cost of sales 1080000
Direct Material 400000
Direct Labour 600000
Variable Production Overhead 200000
Closing stock 120000
Contribution 360000
Less: Fixed production cost 130000
Net profit 230000
Absorption Costing - This is the method of costing in which all the cost of direct
material , direct labour , fixed and variable overheads are included as manufacturing cost. It is
the best inventory valuation method. In simple words we can say that absorption costing is the
method in which cost centre include fixed and variable cost .
Absorption costing Cost per unit Total cost
Direct Material 20 400000
Direct Labour 30 600000

Variable Production Overhead 10 200000
Fixed production cost 6.19 123810
Total production cost 66.19
1323809.52380
952
Total cost of january 2523810
Income statement under absorption
sales 1440000
Less: Cost of sales 1191429
Direct Material 400000
Direct Labour 600000
Variable Production Overhead 200000
Fixed production cost 123810
Closing stock 132381
Gross profit 248571
Add: Under absorption cost 6190
Net profit 254761
If scenario changes:
sales price 80
Closing stock 4000
sold units 17000
Production 21000
Cost per unit
Marginal costing Cost per unit Total cost
Direct Material 20 420000
Direct Labour 30 630000
Variable Production Overhead 10 210000

Total production cost 60 1260000
Absorption costing Cost per unit Total cost
Direct Material 20 420000
Direct Labour 30 630000
Variable Production Overhead 10 210000
Fixed production cost 6.19 129990
Total production cost 66.19 1389990
Income statement under marginal costing
Sales 1360000
Less: Marginal cost of sales 1020000
Direct Material 420000
Direct Labour 630000
Variable Production Overhead 210000
Closing stock 240000
Contribution 340000
Less: Fixed production cost 130000
Net profit 210000
Income statement under absorption cost
sales 1360000
Less: Cost of sales 1125230
Direct Material 420000
Direct Labour 630000
Variable Production Overhead 210000
Fixed production cost 129990
Closing stock 264760
Gross profit 234770
Less: Selling and dist exp 0
Net profit 234770

Task 3
Advantages and disadvantages of different types of planning tools used in Budgetary Control
Budgetary control is the activity in which comparison is made between actual and
budgeted results and if it involve any deviation , appropriate actions must be taken to overcome .
Zero bases budget
Zero base budgeting is an approach in which with help of scratch, budget is prepared and
with zero base , every year all the budgeting begins.
Advantages:
It lowers the cost by following zero base budgeting method .It help Volpi Ltd, to prepare
their budgets easily . Focus on operations became possible because of discipled execution. Staff
involvement increased at all levels in organisation as a lot of work and information is required to
complete the budget. It respond to change in the environment of the business. Resources are
properly allocated effectively and efficiently in Volpi Ltd (Kibangou, 2019).
Disadvantages:
Volpi Ltd earn only short term benefits by following this method and the budgeting
process is also become too rigid it made difficulty for organisation to react to unforeseen threats
and opportunities. The employees of company feels demotivated due to large amount of time
spent. It became difficult to ranking different type of activities
Capital budget
Capital Budgeting is the process in which evaluation and analysis is to be done to earn
best returns by making investment. Capital budgeting also helps in deciding whether to invest or
not in a particular project. It involves understanding of risk with return (LE and Tran, 2020).
Advantages :
Liquidity of company also increase by using capital budget method. It also considered the
level of risk involved in cash flow projects. It helps in taking decision by organisation after
considering whether investment become beneficial or not. It involves less calculation which
helps to save time .
Disadvantages:

Future Cash Flow is to be ignored by Volpi Ltd. By using this method .Time value of
money also ignored by organisatio . It is also became difficult to express results in percentage.
Operating budget
Operation Budget involves revenue and expenditure related to day to day activities of the
business. Operating activities are the core area or portion where manager concentrates in this
method. At the time of preparing operating budget monthly or annual income and expenses are
considered.
Advantage :
As the limited resources are available in Volpi Ltd. So it must be allocated carefully and
efficiently . Operating budgets also helps to identify the actual cash inflow and outflow over a
particular period of time. This method also improves the efficiency of employees or managers of
Concern. because it involves detailed analysis .It also helps in finding areas where large funds
are needed to work. Optimum utilisation of resources requires in this activity by eliminating
obsolete operations (Bacho, Makarovych and Tsenkler, 2019).
Disadvantages :
Operating Profit is time consuming process and it also a costly to perform . It may also
creates conflicts in Volpi Ltd. because limited resources are available so it discourage innovation
of employees and managers of organisation.
Analyse of different planning tools and their application for preparing and forecasting budgets.
The planning tools can be used by the organization so that they are able to plan in a better
manner for the future. For the managers of Volpi Ltd. it is highly crucial that they properly plan
the use of these tools so that they take better decisions in the future time period. This enhances
their decision-making skills and abilities. Forecast of incomes and expenses can be made when
the managers make use of these tools. Therefore the management needs to ensure accuracy of the
financial information which will allow them to be able to frame plans in a highly appropriate
manner.

Task 4
Organisations are adapting management accounting systems to respond to financial problems.
Management accounting systems are using by organization to analyse the accounting and
financial information so profitability can be evaluated and managed properly. This is important
for entire business to conduct the analysis and get the problems in relation to finance that may
affect the business by reducing the productivity. Volpi Ltd is an organization that is managing all
activities and functions by using management accounting system appropriately. This
organization is facing the different financial problems that are as explained:
Bad cash flow management – When organization is not able to organise and arrange the
bookkeeping and financial informations then financial problem is faced by organization which
can reduced the organizational profitability. Managing of financial books and recording the all
financial activities is difficult for organization that can create the challenging situation for
business. This problem can be face by Volpi Ltd due to not monitoring and recording the
financial activities (Ferreira and et. al., 2019).
Late payment by clients – Business whether small and large there is need to get
payment on time and managing the activities appropriately. As its main basis is creditors who
buys product in bulk and create a bill receivable that is the evident of receiving payment by
clients. It can be difficult for Volpi Ltd, to continue the business activities in case of not or late
payment by customers. In other words, management are facing the problems in relation to late
payment by customers that affected the productivity and profitability.
Financial governance – This refers as the way in relation to organization collects,
manages, monitor and control the financial information which can help to manage the business
activities. This states how companies are tracking, managing and handling the data, compliance,
operations by disclosing the information which increases business profitability. In this, rules and
regulations such as credit policies are formulated by boards that can help to receive the payment
on time and maintain the all activities systematically (Warrad, 2019).
Tools which are used to identify the financial problem
KPI – This is defined as key measurable value that states how firm is achieving key
business objectives and how to evaluate organizational success at reaching targets. In other
words, key performance indicators is related to financial and non financial information that

determined how each activities can be managed by measuring and determining the financial
informations.
Benchmarking – This is another tool and strategy which can be used by organization in
order to operate the business and increase the organizational capabilities by comparing with
others. Volpi Ltd uses this solving the financial problems by comparing with other firm that
helps to understand what decision should be taken for minimising risk (Lebedev, 2019).
Comparison of organizations-
Basis Morrisons Waitrose
Financial Problem Morrisons is facing the
financial problem of excessive
costs which is leading towards
a decrease in its profitability
level.
Waitrose is facing the financial
problem of mismanagement of
inventory which is leading
towards higher maintenance cost
of stock items.
Management Accounting
System Used
Morrisons is making the use of
management accounting system
of Cost Accounting System
(Berry, Broadbent and Otley
eds., 2019).
Waitrose is making the use of
management accounting system
of Inventory Management
System.
Application of the system Morrisons can use the Cost
Accounting System to identify
the areas where its costs have
increased so that proper
techniques can be used for the
reduction of costs.
Waitrose can make use of
Inventory Management System
so that it is able to identify the
way through which stock can be
properly tracked and managed.
Thus from the above comparison, it can be recommended to the managers of Volpi Ltd.
that they should make the use of management accounting systems to solve the problems. They
can use Cost Accounting System to solve problem related to cash flow, Job Costing System to
solve the problem of late payment by clients. This will help in bringing more efficiency and
effectiveness within the systems of the organization.

Responding to financial problems, management accounting can lead organisations to sustainable
success.
Responding to financial problems can ensure success for an organization because by
identifying them the managers can make sure that they make the use of the appropriate
management accounting system so that they are able to solve these problems effectively and
efficiently. Improvement in the operations and processes can be brought by making the right use
of these systems. For the managers of Volpi Ltd. it is highly important that they are able to
identify their different problems by making their use which will ensure that the organization
progresses on the path of attainment of sustainable success in the future time period (Udalova
and et. al., 2019).
Planning tools for accounting respond appropriately for solving Financial problems to lead
organisations to sustainable success
By making the use of planning tools an organization is able to identify what can happen
in the future and make detailed outline of a specific approach to be adopted in the future time
period. The managers have a task to apply them in the processes so that efficiency and
effectiveness can be raised. These tools are helpful for keeping expenses in check and identifying
incomes in advance. Thus in this way the organizations are benefited because when they make
the use of these tools appropriately they can solve their financial problems and create different
ways to achieve sustainable success in the future time period (Suryaputra, 2019).

CONCLUSION
From the above report it can be concluded that management accounting is uses to get the
reputation and financial health of a company which can help to state how to continue the
activities. This involves different types of management accounting systems and reports which are
uses to manage the accounts and financial information and helps to operate the business
effectively. Cost accounting, inventory management and price optimisation are those system
which are uses to calculate exact cost, setting prices and tracking the inventory which can help to
analyse business activities. Planning tools such as capital, operating and zero base budget is
prepared to know the budget and states how they can be controlled. This also help to manage the
all activities and functions in relation to a business and increases the business performance. For
responding the problems there should be uses of accounting system and tools that can help to
identify the problems and states which tools are relevant to solve problems.

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Online
Costing accounting system and its essential requirement. 2020. [Online]. Available through:
<https://efinancemanagement.com/costing-terms/cost-accounting-systems>