Management Accounting, Systems and Techniques: Assignment

Management
Accounting, systems and
techniques

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1: Management accounting system and essential requirement of different kind of accounting
systems........................................................................................................................................3
P2: Different kind of methods of management accounting reporting.........................................4
M1 Benefit of management accounting system. ........................................................................6
D1. Management accounting system and accounting reports are integrated within
organisational processes..............................................................................................................7
TASK 2............................................................................................................................................7
P3: Preparation of income statements with the use of absorption and marginal costing method
.....................................................................................................................................................7
M2: Various types of management accounting techniques.......................................................11
D2: Critical analyse of data collected from income statements................................................11
TASK 3..........................................................................................................................................11
P4: Advantages and disadvantages of planning tools used in budgetary control.....................11
M3. Analyse the use of different planning tools and their application for preparation and
forecasting budgets:..................................................................................................................13
TASK 4.....................................................................................................................................14
P5: Adaption management accounting system to respond to financial problems.....................14
M4. Responding to financial problems, management accounting can lead organisations to
sustainable success....................................................................................................................15
D3: Critical evaluation to reduce financial issues.....................................................................16
CONCLUSION..............................................................................................................................16
REFRENCES.................................................................................................................................17

INTRODUCTION
Management Accounting is an essential part of management that help to prepare the
business cost as well as operations to make effective decision in order to attain the business goal
significantly. It include accounting information that help the firm to formulate policies in order
to assist day to day business activities and maximise the profit effectively (Rossing, 2013).
Along with that it carry both monetary as well as non monetary information that help in better
performance of business by formulating effective policies. For the better understanding of report
KEF manufacturing company has been selected which is small business and operate within UK.
This report cover following topics such as understanding on management accounting systems.
Determine proper technique to prepare income statement by using marginal and absorption cost.
Moreover, explain the uses of planning tools in management accounting. Further, compare
organisations on the basis of management accounting to respond financial problem.
TASK 1
P1: Management accounting system and essential requirement of different kind of accounting
systems
Management accounting system refer to the financial as well as non financial
information that help the manager to make effective business decision in order to perform day to
day business activity. The main advantage associated with management accounting is that the
management can prepare the effective plan and execute it effective for the better operations of
business. There are various management accounting system some of them are defined below:
Inventory management system: Inventory management system helps in proper
management of stock whether it is in form of raw material, semi finished or finished good
(Clinton and White, 2012). Here decision are made on the basis of purchase of new inventory or
the requirement of warehouse to store the inventory in order to minimise the chances of defects
that leads to wastage. Herein, KEF manufacturing company uses inventory management system
to track the stock and make effective decision.
Cost accounting system: This system helps the company to determine the overall
expenditure incurred to carry out various activity of business. It is an effective system as it helps
to minimise the chances of unnecessary expenditure that saves the cost and enhance the
profitability of firm. In relation to KEF manufacturing company uses cost accounting system to

manage the operations of business and make optimum utilisation of resources to control the
overall cost incurred by firm. Thus, it is critical for company to identify the exact cost incurred in
the manufacturing of product due to which the whole system is prepared on the basis of
anticipated amount.
Price optimisation system: It is an effective management accounting system that help
the firm to determine the best suited price of product. This determination is made on the basis of
customer reaction toward the various pricing level. In terms of KEF manufacturing company can
uses this system to identify effective pricing strategy and allocate suitable prices for the different
range of product and services. Thus, company finally lands up setting that price that can help the
firm to meet their objectives like expansion which leads to maximising the operations of
business.
Job costing system: Job costing system is a vital accounting system that help the firm to
determine different activities performed in a business as well as cost associated to carry on
various business activity. It gives brief information regarding the cost of job so that firm can
determine effective decision. In context to KEF manufacturing company, the manager can make
the use of this system to evaluate various cost and perform all the internal activities effectively.
Hence, these system are basically used by KEF manufacturing company to achieve the
desired result by managing the overall system effectively.
P2: Different kind of methods of management accounting reporting
Management accounting report emphasize on the internal information of business which
is received through financial accounting. It is basically used to conduct better planning, make
effective decision and regulate the internal performance. These report are generated via book
keeping and accounting method due to which these report need to be crafted effectively.
Moreover, different company chooses different method to manage the report in order to record
the financial and non financial information suitably (Songini, Gnan, and Malmi, 2013). Herein,
KEF manufacturing company can use various type of accounting report which is determined
below:
Inventory report: Inventory report are prepared to keep all the information associated
with stock. It also include the movement of inventory from one level to another so that company
can track the available stock and manage the flow of inventory. Herein, KEF manufacturing
company can manage physical inventory by using managerial accounting report that help to

manage the manufacturing process efficiently. Hence, it is a suitable method that include
managing the inventory waste and labour cost.
Performance report: These report are prepare to measure the performance of an
employee by setting the desired goal. So it helps to evaluate the key strength of an employee to
attain the benchmark as well as areas where they are lacking to perform effectively. In relation to
KEF manufacturing company usually prepare these report to attain the future decision by
evaluating the performance of an employee successfully. Moreover, it include benchmarking
system based on which employee progress is measured or tracked to enhance the profitability as
well as productivity of firm. Further, it is a detail statement that include annual performance
report which help the employee to determine their success in the completion of project by
adhering the budgetary control.
Job cost accounting report: Job costing report depict the expenses incurred by firm
while carrying on specific project. The firm estimate the revenue in order to evaluate the
profitability gained from the job. Further, these report are widely used in the business to
determine the high earning area and make progressive effort to manage the fund as well as time
of company. In context to KEF manufacturing company can analyses their expenses and manage
the area where business may incur huge expenditure.
Cost accounting report: Such report helps the business to examine the activities
associated with cash outflow. It provides the detail information regarding various activity and
minimise the expenses of business effectively to gain better result (Chan, Tong and Zhang,
2012). These report are effective for manufacturing firm as they get the detail information
regarding the operation done in various business activity to get planned result. Hence, cost
accounting report determine various cost associated with project, processes as well as product to
display the fair amount in financing statement. It further leads to indulgence in planning as well
as controlling activity that help in the preparation of desirable result.
Account receivable ageing report: These report are crafted to provide the detail
information regarding the debtors as well as total amount payable by the company. Along with
that this help the firm to manage the cash-flow and attain the purpose of company significantly.
Thus, it is a critical tool used by KEF company to extend the credit amount for the supplier as
well as customer without shopping the operations of firms. Although it is risky to pay credit but
at times company need to make credit transaction as well to maintain the smooth business

process. Hence, account receivable ageing periodically analyse the collection amount and
maintain the record of cash and non cash transaction.
M1 Benefit of management accounting system.
Different accounting system Benefits
Price optimisation system  In KFE manufacturing company this system is use to
examine the behaviour of customer against the price
fixed by company to specific product.
 With the help of price optimisation system manager are
able to increase overall operating profits by selling
goods at most desirable prices.
Job costing system  This system support manager of company to predict the
various expenses that are spend by organisation on
different valuable jobs that are part of manufacturing
process.
 Job order costing system are effective in determining the
most profitable jobs within company.
Cost accounting system  In KFE manufacturing company with the support of this
system management are able to calculate total cost and
other expenses that are incurred in various operation and
other activities so that future cost reduction decision are
made for betterment.
 By ascertaining the overall cost manager are able to
remove the unwanted expenses and maintain a reserve
for future contingency (Salterio, 2012).
Inventory Management
System
 Manager of KFE manufacturing company use this
system to increase the quantity and quality of goods so
that demand can be fulfilled on time.
 With the use of this system company is able to reduce
the cost spend on maintaining and storing inventory.

D1. Management accounting system and accounting reports are integrated within organisational
processes
In business scenario, management accounting reports and systems are equally
interrelated with each other in different ways. As it is also stated that accounting systems are so
much essential as it help to formulate vital accounting reports so that business decisions are
made to overcome uncertain condition within workplace (Novas, Alves and Sousa, 2017).
Managers of KFE manufacturing company set account receivable reports with the support of
price optimisation system which so that product at suitable price can be sold to large number of
customer on credit basis.
TASK 2
P3: Preparation of income statements with the use of absorption and marginal costing method
Marginal costing method: Marginal costing is an essential method that helps in
preparation of income system as it include variable cost which are categorised as product cost.
Whereas, within this method fixed cost is categorised as cost incurred within specific period.
Here profit is calculated with the use of profit volume ratio and is presented to outline the total
contribution made by company.
Absorption costing: Absorption costing method is different from marginal costing as it
categorise both variable as well as fixed cost as product cost. It is basically used for reporting
purpose in terms of tax as well as financial reporting. As fixed cost is taken within product cost
due to which the profit gets minimised (Boyns, Edwards and Nikitin, 2013).
Income statement under absorption costing method for month of May & June
Particulars May June
(in £) (in £)
Total sales 50 15000 25000
Less: Cost of Goods sold
Opening stock
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable production cost 3 1500 1140
Fixed indirect production 4000 4000

expenditure
Closing stock -4800 2122.4
Total cost of goods sell 7200 7957.6
G.P. (Gross profit) 7800 17042.4
Selling & Distribution expenses 4000 4000
Administrative cost 2000 2000
Sales commission expenditure 750 1250
N.P. (Net profit) 1050 9792.4
Absorption Cost per unit
Direct labour cost per unit 5 5
Direct material cost per unit 8 8
Variable cost per unit 3 3
Fixed indirect production
expenses per unit 8 10.53
Total Absorption Cost per unit 24 26.53
May June
Opening stock - 200
Units produced 500 380
Sold units 300 500
Closing stock 200 80
Income statement under Marginal costing method for month of May & June
Particular May June
(in £) (in £)
Total Sales 50 15000 25000
Less: Cost of Goods sell

Opening stock - 3200
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable Cost 3 1500 1140
Less: Closing stock -3200 -1280
Total cost of goods sell 4800 8000
G.P. (Gross profit) 10200 17000
Fixed indirect production cost 4000 4000
Selling & Distribution costs 4000 4000
Administrative costs 2000 2000
Sales commission cost 750 1250
N.P. (Net profit) -550 5750
Absorption Cost per unit
Direct Labour cost per unit 5 5
Direct Material cost per unit 8 8
Variable cost per unit 3 3
Marginal Cost per unit 16 16
May June
Opening stock - 200
Produced units 500 380
Sold Units 300 500
Closing stock 200 80
Calculation of material cost variances
As per the given data, three types of material variances calculated which are as follows-
 MCV(Material cost variance) = Standard material cost (SMC) – Actual material cost
(AMC)

 MPV (Material price variance) = (Standard price – Actual price) X actual quantity
purchased and used
 MUV (Material usage variance) = (Standard quantity – Actual quantity) X standard price
As per given data,
Standard Price = £10 per kg
Actual Price = 20900/2200 = £9.5 per kg
Actual quantity = 2200kg
Standard Quantity = 1000kg
MPV = (10-9.5)X2200= £1100 (F)
MUV = (1000-2200)X10 = £ 12000 (A)
MCV = (10X1000)-(2200X9.5) = £10900 (A)

Calculation of closing inventory of material using LIFO and Weighted average method:

Under Weighted Average method:
M2: Various types of management accounting techniques
In companies manager uses different techniques and accounting methods in order to get
more reliable results. By using most beneficial costing techniques possibility of acquiring much
sure and faithful outcomes can be increased so that better decision are made for future
improvement (Parker and Fleischman, 2017). With the help of marginal, Absorption or historical
costing manager are able to prepare financial statements that further provide detail information
about the financial status of company within an accounting period. Thus effective presentation of
entire performance to upper level manager in KEF manufacturing company are able to make
strategic decision for improving operation to grow profit in upcoming year.
D2: Critical analyse of data collected from income statements
From the above calculated net profit from different method, it has been identified that
there is a major difference in figure from both costing technique (Bradbard, Alvis and Morris,
2014). Such as from marginal costing method it is stated that net profit for the month of may is

equals to GBP 1050 and in the month of June it was GBP 5750. In other case absorption costing
is used to prepare the financial statement and determine the profit so GBP 2450 was for the
month of may and in June it was GBP 4750. There is a major difference because of treatment
fixed costs that is different in both method as in marginal costing all those fixed cost are
regarded as period cost.
TASK 3
P4: Advantages and disadvantages of planning tools used in budgetary control
An organisation uses various planning tools to effectively apply its strategies to
achieve its determined goals and to attain synergy. In the preparation of a financial
budget an organisation considers various budgets as tools to satisfy the financial needs to
various business processes (Wagner, 2015). These budgets can be departmental specific or
business specific based on the structure of the organisation, however most prevalent
budgeting techniques are introduced to provide a brief which are as follows:
Master budget : A master is formed with all the other budgets taken together
from various departments of an organisation. It can be considered as a merger of sectoral
budgets formed in an enterprise to finally form a big budget or master budget. It is
prepared for a fiscal year and could be compartmentalised into quarterly or half yearly
budgets to simplify its implementation.
Advantages
 It amalgamates all functional budgets under one head.
 It provides broader information useful for forecasting.
Disadvantages
 Its form is of a rigid budget making it hard to flex.
 Less adaptive.
Fixed budget : It is a type of budget which remains standard for the period it is
formed. It remains stagnant when the production level shifts (Kraus and Strömsten, 2012).
It is based on the target positioning of sales volume or production function which
generally remains static through out the period. It functions as stationary even if the sales
volume and production level may have shifted to different levels.

Advantages
 Helpful in measuring profit. It keeps the costs lower resulting in cost control.
Disadvantages
 The greatest negative is the lack of flexibility
 Can't allocate additional resources to underperforming areas
Capital budget : It is formed for the capital investments made by a firm such as
purchase of heavy machinery, plant, premises etc. which are of very strategic importance
to the business. All the losses and benefits occur are considered as capital losses and
capital gains. The primary goal is to create capital budget is to increase the overall
valuation of the firm for the stakeholders.
Advantages It gives precise information about the valuable investment decisions. Puts decision making in a pipeline which saves time & money to the enterprise.
Disadvantages
 Some features are impossible to quantify yet are instrumental in capital decisions
such as employee stance, management pursuit etc.
 Risk element & uncertainty of fair decisions always remains.
Incremental budget : It is a form of budget prepared based on the outcomes of
previous periods budget. The said outcomes are taken as a basis and incremental values
are added to the budget to form a new budget for the upcoming period. It is prepared on
the assumption that all departments shall continue to function on the current expenditure
level. In case any specific function requires additional resources the requirements are
duly met and the final incremental budget is prepared.
Advantages
 Provides consistency to the management processes. Any change can be easily addressed.
Disadvantages
 It can lead to budget slack which might have been over looked by the budget.

 At certain circumstances the budget can outdated owing to the unseen
developments.
Use of different planning tools and their application for preparing and
forecasting budgets :
The aforementioned planning tools are utilised by the firms as devices to monitor the
performance. The said tools gives quantitative aspects to the management to formulate
holistic visionary policies . Management is empowered to take robust strategic decisions
since they have customised set of financial data to rely on , and these tools paves the path
to attain fullest synergy for the organisation which in turn would be fruitful to all the
concerned stakeholders.
M3. Analyse the use of different planning tools and their application for preparation and
forecasting budgets:
Benchmarking, Key performance indicators and financial governance are most
common and widely used planning tools that act as guidance in preparation and
presentation of financial information. It also assist in forecasting and projecting figures
and values for preparation of budgets (Nilsson and Stockenstrand, 2015). Such tools
necessary for respective company as it has wide range of information and data, so
managing and presenting information is only possible by application of planning tools.
These tools provide framework for preparation of budgets and annual accounts in
effective manner.
TASK 4
P5: Adaption management accounting system to respond to financial problems
In the present scenario where businesses are attracted to a lot of risks inherent it will be a
strategically justified move to inculcate management accounting in the business processes. A
management adopting the system would help in weeding out the possible uncertainties which
may arise. By adopting a well structured management accounting plan will surely prepare the
organisation with the development of measure to cope up with financial risks. KEF plc being a
mid sized business house should prefer infusing the plan to ensure better liquidity position along

with increased market cap which would be a result of smooth functioning of systems. Some
possible problems which may arrive for KEF plc would be :
Loss of liquidity : Mid sized firms in early stage of their functioning require liquid assets
in the form of cash, current assets, bank deposits to fund their working capital requirements. KEF
plc being a mid sized early age firm could easily fall prone to these short comings if the
financials are not managed properly. To eliminate the possible defects in the financial position
KEF shall imbibe a well designed management accounting system with a perfectly structured
budget plan.
Poor cash management : Generally organisations fall prey to the problems of cash
crunch or poor cash management because of the menaces like insider trading, pilferage, tax
evasion , non compliance which can daunt the image of the organisation. These could lead to
serious regulatory smashes and KEF plc can easily encounter these issues with the help of
planned management accounting system which can reduce the possibilities of occurrence of such
events to miniscule level.
Some measures which can be taken by an organisation to control the financial shortcomings are :
Benchmarking : It is a management tool used by most organisations to examine their
performance by comparing their results with the best practices and standards chartered by
successful business houses. The benchmarks could be industry specific or sector specific
(Halbouni and Nour, 2014). There can be various benchmarks based on the firm positioning, its
market value and the benchmarks it is referring to. KEF plc being a Manufacturing firm can
consider six sigma or kaizen as benchmarks to evaluate their performance which are used by
business giants like Toyota and ford for years.
Key financial indicator : These are the 'key' components which delineates the financial
health of an organisation based on certain points which describes the financial health of any
organisation. Some KFI mostly used are net profit margin, current ratio, gross profit margin etc.
to study the behaviour of firms finances. KEF plc shall use these indicators to determine its
positioning in the open market segment to attract the maximum customer base.
Comparison between KEF and TPG processing company
KEF TPG
KEF is facing liquidity crunch because of its
improper cash management and shallow
TPG faces increased costing of its processes
because of inefficient management of costing

approach to balance cash to debt ratio hence is
in turmoil. It will affect it in the long run
(Englund, Gerdin and Abrahamsson, 2013).
to the functions. Increased costs have further
added into increased overhead expenses for
TPG
On the recommendation side KEF shall prefer
cost accounting system to delineate its cash
problem. Using cost accounting system
effectively can help the management with
identifying which factors are adding to
increased costs of the products which is
causing shortage of funds.
TPG should go for price optimisation system to
control its overflow of costs It would detect the
functions which support unhealthy increase in
costs. Also it can help TPG in increasing profit
margin per unit ratio.
M4. Responding to financial problems, management accounting can lead organisations to
sustainable success.
Nowadays every type of organisation such as KFE manufacturing company, are always
trying and focusing to expand business in profitable manner so that desired results can be
attained. But at the same time they faces various financial problems that hinder performance and
makes difficult for them to perform operation in profitable manner thus it is required to make
proper solution to these problems at definite time (Ngwakwe, 2012). In respective firm, manager
apply valuable accounting system to determine and remove the area of mismanagement of cash.
Thus it is stated that in the complex and dynamic business different planning tool such as key
performance indicators and benchmarking are used to determine the different issues and by using
financial governance they are able to resolve the different financial problems.
D3: Critical evaluation to reduce financial issues
In business situation, different planning tools are supportive to provide frame work for
manager to smoothly react to various financial issues arising in company (Bargate, 2012). For
example master budget is used in companies to analysis each department, that help managers to make
strategic decisions. Other planning tools like fixed budget, flexible budget etc. gives a elaborated
detailed framework which enable in systematically determination of major reason of financial
problem and make proper plans to resolve these issues.

CONCLUSION
From the above report it has been concluded that management accounting is an essential
part of business that help to make effective decision and perform all the roles and responsibility
effectively. The role of management accounting system is to determine effective decision on the
basis of financial and non financial data to manage the internal process of business significantly
and carry on routine function smoothly. Along with that the role of management report is to
serve the need of various activity whether it is associated with job costing or inventory to track
the operations of business. Moreover, amongst the absorption and marginal costing company
select the most suitable one with the purpose to minimise unnecessary cost. Further, there are
various planning tool associated with budgetary control each tool has its advantages as well as
certain disadvantages so business need to determine most effective plan on the basis of its
operations. Therefore, reporting is an essential aspect that help the top manager to determine the
performances and make strategy to accomplish the goal effectively.