Management Accounting Systems and its Applications

This study material provides an in-depth understanding of management accounting systems and their applications. It covers the different types of accounting systems, such as cost accounting, price optimization, stock management, and job order costing. The material also explains various management accounting reports, including budget reports, accounts receivable aging reports, performance reports, and inventory reports. Additionally, it discusses the benefits and drawbacks of planning tools in budgetary control and provides insights into comparing companies in sorting monetary issues.

Management
Accounting Systems
and its applications

Table of Contents
INTRODUCTION ..............................................................................................................3
MAIN BODY.......................................................................................................................3
Task 1.............................................................................................................................3
Task 2.............................................................................................................................6
Task 3...........................................................................................................................12
Task 4...........................................................................................................................13
CONCLUSION.................................................................................................................15
REFERENCES................................................................................................................16

INTRODUCTION
The field of accounting is too wide it is not limited till the recording of transaction
of financial aspects. Management accounting is one of the key form of accounting which
is linked to process of helping internal department of business entities by preparing
internal reports (Novas, Alves and Sousa, 2017). Under this accounting all types of data
are gathered and recorded in a systematic form. Main objective of this project report is
to explaining role of this accounting as well as its functions for business entities. In the
report KEF limited company has been chosen which is a medium sized manufacturing
business entity. The report covers detailed information about different types of MA and
reports. As well as various form of planning tools are also mentioned along with
importance of this accounting in sorting monetary issues.
MAIN BODY
Task 1.
Mean of MA and its types.
MA- As above discussed, it is a form of accounting which is aligned with process of
gathering monetary and anti monetary data from different transactions. After that using
this gathered data for preparing internal managerial reports. It consists vital range of
accounting systems which are mentioned below in such manner:
 Cost accounting system- It can be defined as a type of accounting system which
starts with process of making projection of future expenditures and costs. The
objective of this prediction of cost is to help finance department of companies in
order to do proper use of available resources and to minimise overall
expenditures (Chiarin and Vagnoni, 2015). It is essential for companies because
by help of this accounting system, managers can assess total number of
expenditures during a particular time period. As well as can evaluate variation
between actual and standard costs. In the KEF limited company, they apply this
accounting system which is helping them in order to control expenses which
occurs in operating different activities and operations.

 Price optimisation system- In this accounting system, a systematic process of
analysing market demand and situation is followed. Main objective of applying
this process is to evaluate customers' demand for a particular product. It is
essential for companies in order to set prices of products and services as per
market condition. In the aspect of KEF limited company, their sales department
applies this accounting system to set prices of manufactured items.
 Stock management system- It is a type of accounting system which is linked to
assess quantity of various form of material by help of techniques like last in first
out method, first in first out etc. This is essential for companies in order to track
various kinds of goods stored in warehouses such as raw material, finished
goods etc. In the KEF limited company, they apply this accounting system for
evaluating actual quantity of material on a daily basis so that accurate decisions
can be taken by managers.
 Job order costing system- This can be defined as an accounting system that
computes the cost of each individual output by help of assessing cost of job
(Maas,Schaltegger and Crutzen, 2016). It is being implemented in those
enterprises in which portfolio of products is higher. This accounting system is
essential for companies in order to minimise cost of job and activities under
control. In the KEF limited company, they apply this accounting system for
evaluating cost of activities separately and for minimising cost of job.
Various kinds of MA reports.
MA reports- These are types of report which are prepared by companies with an aim of
making effective planning, better decision-making and for measuring actual
performance. Accountant of KEF limited company produce below mentioned reports
such as:
 Budget report- It is a type of report which is prepared by help of different types of
budgets. Under this information regards to estimated income and expenses is
included along with the value of variation. It contributes to managers in order to
track monetary performance. In the KEF limited company, their accountants
prepare this report for helping managers by providing data of actual performance.

 Accounts receivable ageing report- This is form of report which is linked to
gathering key information about those parties whose amount is due. By help of it,
finance manager of business entities can evaluate information regards to those
customers whose payment is due. In the KEF limited company, their accountants
prepare this report which help to finance department in order to manage debts.
 Performance report- This is a kinds of report which is prepared by accountants to
provide an appropriate framework to managers in order to take decision about
progress and appraisal of employees (Dekker, 2016). Under it, information
related to actual and estimated outcome is included in a detailed manner. In the
above company, their accountant prepares this report for measurement of actual
level of performance.
 Inventory report- It can be defined as a type of report which is produced by
accountants containing information regards to quantity of various form of
material. Under this, information is added in accordance of making proper
analysis by using techniques like LIFO, FIFO and many more. In KEF limited
company, they use this reports' information in order to controlling manufacturing
activities.
Benefits of MAS:
Types of MAS Benefits
Cost accounting
system
This is aligned to process of estimating and tracking overall
costs and expenditures. In KEF limited company, this
accounting system is helping to their finance department in the
context of managing expenditures.
Price optimisation
system
It is related with process of setting prices of products and
services at an effective level. The sales department of KEF
limited company set prices of manufactured items as per the
information provided under this accounting system.
Stock management
system
Under this accounting system valuation of stock quantity is done
by help of different approaches. The production department of
KEF limited company, takes appropriate steps about new

production and purchasing of raw material by help of this
accounting system.
Job order costing
system
This accounting system helps in process of computing cost of
job and produced units. Same as in the above company, it is
helpful for managing overall cost of job.
Integration of MAS and MA reports with business process.
In the aspect of MAS various range of accounting systems are included such as
stock management system, price optimisation system etc. In the KEF limited company,
their production department is integrated to inventory management system as well as
sales department with price optimisation system (Bhimani, 2015). In addition, MA
reports are also aligned to business process. Like in above company, their accounts
department prepares strategies and policies by help of accounts receivable ageing
report.
Task 2.
I) Calculation of cost of production per unit.

(ii) Total production cost.
Absorption costing:

(iii) Total cost of sales for June.
£/unit Total
amount(in £)
Direct material 21.5 19000x21.5 408500
Direct labour 31.5 19000x31.5 598500
Variable Production
Overhead 16.5 19000x16.5 313500
COGS Per Unit 69.5 19000x69.5 1320500

(iv) Preparation of income statements.
There are mainly two types of techniques in order to prepare income statements
which are as follows:
 Marginal costing- It is a costing technique in that costs are classified into different
manner. Such as fixed cost as period cost and variable cost as per unit cost.
 Absorption costing- Under this technique, all types of costs are assumed that it
may be occurred in cost of production (Mohr, 2017). For example fixed and non
fixed cost both are absorbed in order to prepare income statements.

Working Note:
Fixed overheads absorbed on 18000 units (18000*6.5) = 117000
Fixed production overheads = 130000
Under absorbed the fixed cost= -13000
(v) If production units changed till 22000 units and closing stock remain of 2000 units.
Statement of profit or loss using marginal costing for June:

(vi) Suggestion to above company.
The accountants are not bounded to apply any specific costing technique to
prepare financial statements. They may use techniques as per the suitability, such as in
the above company two costing techniques are used which are absorption and
marginal. Apart from it, there are some other methods too such as ABC system, target
costing and many more. Herein, below comparison between ABC costing and
absorption costing is done in such manner:
Activity based costing system Absorption costing
The drivers of activity cost can be applied
for assessing cost objectives.
While the overheads rates are applied for
ascertain cost of products.
Under it, overheads are related to
activities.
On the other hand, in this overheads are
regarded to different production
departments.
All level of activities in the production cost
hierarchy such as unit level, batch level
etc.
In this only two level of activities are find
out such as facility level and level.

On the basis of above discussion, this can be stated that activity based costing is much
more better in compare to absorption costing technique.
Task 3.
Benefits and drawbacks of planning tools of budgetary control.
Budgetary control- It can be defined as a process of determining different actual
outcomes by help of budgeted figures for business entities for upcoming time period
(Hosseinzadeh and Davar, 2018). Basically, this technique is being used by companies
in order to controlling overall monetary performance of various kinds of aspects. It
consists range of planning tools and some of them are as follows:
 Operating budget – This is a type of budget which is prepared on an annual basis
and consists information regards to estimated operational expenditures & income
during a particular time frame. The main objective of this budget is to minimise
operational expenditures and to gain higher operating income. In the KEF limited
company, they prepare this budget for operating their operations and functions in
an effective manner.
Benefits- Main benefit of this budget is that it provides direction to business in order to
gain higher monetary success.
Drawback- It has some common drawbacks such as it consumes too much time and
cost.
 Capital budget- It can be defined as a type of technique which is related to
process of determining efficiency of any capital expenditure. Some common
example of capital expenditure are construction of building, purchasing of new
machinery etc. In KEF limited company, they make futuristic investment in
accordance of guidance of this budget.
Benefits- This is beneficial for companies in order to take wise decisions regards to long
term strategic investments.
Drawback- This budget's prediction for long term investments can be wrong in future
time period because of change in economical conditions.

 Fixed budget- This is a budget whose projected items can not be change even
change in sales volume & quantity (Hosomi, Scarbrough and Ueno, 2017). It is
simple to use and understand for users because this remain same for entire time
period. In the KEF limited company, they prepare this budget for long term
activities.
Benefits- It does not needed to be updated and due to which managers can focus on
rest of other crucial activities.
Drawback- Lack of flexibility is a key disadvantage of this budget because in some
cases managers need to update items of budget.
Use of planning tools to predict and forecast of budgets.
Under the budgetary control various types of planning tools are included which
plays a key role for making an accurate forecasting of budgets. In KEF limited company,
their finance managers gather key information from different planning tools like capital
budgeting, operational budget etc. By use of this information, it becomes easier to
prepare budgets in an effective manner.
Task 4.
Comparison of companies in order to sort monetary issues.
Monetary issue- It can be defined as a kinds of negative situation for businesses in
which they get unable to operate different types of operations. As a result financial
performance fell down. Some major monetary issues are as:
 Higher storage cost- The term storage cost occurs in process of keeping
materials in warehouses. If this cost incurs higher as compare to standards then
it may lead to a huge financial issue (Carlsson-Wall, Kraus and Lind, 2015). It is
so because business entities fail to keep control over various form of materials.
In the KEF limited company, they face this issue which is hampering their
revenues.
 Lack of sales revenues- It can be defined as a type of issue which occurs in
companies when efficiency of generating higher sales start to decrease. This is

considered as a serious concern for companies because its continuity may lead
to dissolution.
Techniques to find out issues:
 Ratio analysis- Under this method different types of financial ratios are
calculated and interpreted with an aim of finding actual level of issue. In the KEF
limited company, they calculates inventory turn over ratio for finding cause of
actual deficiency.
 KPI- It is a type of technique in that both financial and non financial performance
indicators are used to find out issues. Under financial performance indicator
different types of aspects are included like measurement of actual revenue,
expenditures etc. While in non financial indicators, supplier & company
relationship, employee relationship etc. are included.
Financial governance- It is a type of approach which is related to recording financial
transactions in a systematic manner with an aim of keeping a close eyes over monetary
performance. This can be used as a key alternative to sort financial issues.
Comparison:
Basis KEF limited company TPG processing company
Monetary
issue
In this company, the main issue is
regarding of higher storage cost of
materials. It is occurring in business
entities because of poor
management of stored inventories.
This company's issue is of lack of
sales revenue which is occurring
because of decreasing in number
of sales units. Due to this issue,
company's reserve funds are
decreasing in a significant manner.
MAS The company's managers have
implemented inventory
management system in order to
sort issue. It became possible
Their finance department has
applied price optimisation system in
order to revise current pricing
strategies. Under this accounting

because by help of this accounting
system their production department
decided to make purchasing of raw
material as per the assessed
quantity of material of warehouses.
system, they changed prices of
products and services as per the
market demand. By doing so, their
issue of lack of sales revenue has
been sorted.
Management accounting in respond to solve financial issues.
In the KEF limited company, their managers have used stock management
system in order to sort out issue of higher cost of storage (Alewine and Stone, 2017). It
indicates that this accounting contributes in for solving monetary issues. As well as their
competitor company also applying cost accounting system to overcome problem of lack
of sales.
Planning tools to respond against monetary issues.
Under the planning different types of budgets are included which helps in solving
financial issues. Companies can compute actual variances and find out the cause of
monetary issue. It shows that these planning tools are helpful for solving financial
issues.
CONCLUSION
On the basis of above project report, it has been articulated that companies can
gain higher volume of success only if their different departments are managed in an
effective manner. It becomes possible by help of management accounting. The report
concludes about role of different accounting systems such as cost accounting, stock
management system etc. In addition importance of various planning tools is also
concluded. Under mid part of report, financial calculations are done by help of given
data. As well as in the end of report, contribution of MAS in solving financial issues has
been concluded.

REFERENCES
Books and journal:
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.
Chiarini, A. and Vagnoni, E., 2015. World-class manufacturing by Fiat. Comparison with
Toyota production system from a strategic management, management
accounting, operations management and performance measurement
dimension. International Journal of Production Research. 53(2). pp.590-606.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability
assessment, management accounting, control, and reporting. Journal of
Cleaner Production. 136. pp.237-248.
Dekker, H .C., 2016. On the boundaries between intrafirm and interfirm management
accounting research. Management Accounting Research. 31. pp.86-99.
Bhimani, A., 2015. International comparative management accounting. Wiley
Encyclopedia of Management, pp.1-6.
Mohr, Z .T., 2017. A Framework for Cost Accounting Systems in Government. In Cost
Accounting in Government (pp. 25-49). Routledge.
Hosseinzadeh, A. and Davari, B., 2018. The impact of enterprise management systems
on management accounting in private companies of Iran. International Journal
of Economics and Financial Issues. 8(1). p.83.
Hosomi, S., Scarbrough, P. and Ueno, S., 2017. Management accounting in Japan:
current practices. In The Routledge Handbook of Accounting in Asia (pp. 109-
125). Routledge.
Carlsson-Wall, M., Kraus, K. and Lind, J., 2015. Strategic management accounting in
close inter-organisational relationships. Accounting and Business Research.
45(1). pp.27-54.
Alewine, H. C. and Stone, D .N., 2017. Accounting systems’ design matters: evaluability
and mode influence environmental performance judgments. In Advances in
Accounting Behavioral Research. (pp. 23-62). Emerald Publishing Limited.