Management Accounting Systems and Techniques

This report provides an explanation of management accounting systems and their essential requirements. It also explores different methods used in management accounting reports. The report includes the calculation of cost analysis techniques and the preparation of income statements using both marginal and absorption costs. The benefits of management accounting systems and their integration within organizational processes are evaluated.

Management Accounting
Systems and Techniques

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Explanation of management accounting and essential requirements of various types of
management accounting systems:................................................................................................3
P2 Explantation of different methods that are used in management accounting reports:............5
M1 Evaluating benefits of management accounting systems along with their application in an
organization:................................................................................................................................6
D1 Critical evaluation of management accounting systems and reports and its integration
within organizational processes:..................................................................................................7
TASK 2............................................................................................................................................7
P3 Calculation of techniques of cost analysis with preparation of income statement by utilizing
both marginal and absorption costs:............................................................................................7
M2 Application of management accounting techniques for producing financial reporting
documents:.................................................................................................................................11
D2 Producing financial report which accurately applies and interprets data for business
activities:....................................................................................................................................11
TASK 3..........................................................................................................................................12
P4 Explanation of advantages and disadvantages incorporated with various types of planning
tools that is used for budgetary control:.....................................................................................12
M3 Analysis of different planning tools and its application in preparing or forecasting budgets:
....................................................................................................................................................13
TASK 4..........................................................................................................................................14
P5 Comparison of adaption of management accounting as a response to financial problems of
an organization:..........................................................................................................................14
M4 Analysing response of management accounting in context to financial problems which
leads to the success of an organization: ....................................................................................16
D4 Analysing affect of planning tools of accounting on solving of financial problems which
ultimately leads to success of entity:.........................................................................................16
CONCLUSION..............................................................................................................................17

REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting system refers to a technique of preparing, analysing and
interpreting financial informations and developing report for the same. Motive of analysing
finance related information states internal use by management for the purpose of efficient
strategic planning and enhanced decision making (Alsartawi, 2018). Application of management
accounting systems and techniques is vital for understanding financial data of an organization
and incorporating appropriate strategic management in business. Basis of this report is analysis
of management accounting techniques and systems of Capital Joinery Ltd. It is a medium-sized
enterprise that is based in UK. Entity deals in manufacturing industry. It manufactures doors,
windows etc.
This report consists demonstration of management accounting systems. Various
techniques of cost analysis are calculated and income statement is prepared with the use of
marginal as well as absorption cost. Further, various tools of management accounting is
explained. Along with it, different ways of calculation of management accounting in relevance
with financial problems are compared.
TASK 1
P1 Explanation of management accounting and essential requirements of various types of
management accounting systems:
Management Accounting can be explained as a practice of identification and
interpretation of company's financial information and further communication of interpreted data
to the managers of company. With the motive of enhance management activities in an
organization and pursuing organizational goals (Beckford, 2020). In context to Capital
Budgetary, intention of this implementing management accounting practice is incorporation of
adequately informed decisions in business and assisting internal planners of company.
Management accounting systems indicate internal system of firm that measures as well
as evaluates deals of financial accounting in an organization. It is an effective system for
providing critical information to the mangers of Capital Joinery Ltd. which ensures value making
for stakeholders. Following are various types of systems of management accounting along with
its essential requirements:

 Cost accounting systems: This framework is used by organization for the purpose of
estimating costs incurred in business at several stages of production. It tracks the cost
involved in converting raw materials into finished goods. In this system, utilization of
raw materials by crediting the its account and similarly, it debits the account of goods in
process (Busco and Quattrone, 20Management Accounting Systems & Techniques18).
Essential requirement: Application of this system in Capital Joinery Ltd. Enables firm to
analyse its profitability. As, it helps firm in identifying and monitoring cost and eliminate
unnecessary or irrelevant expenditures which ultimately leads to improvement in profit generated
by company. Hence, cost management activity is critical for profitable operations. And in this
way, this system also enables cost control activities in enterprise. Implementation of such control
activities enhances organizational structure of an enterprise as required information is adequately
provided through this platform. It also guides in context to management style that should be
persuade for productivity enhancement. Inventory management system: It states tracking of inventory related activities in an
organization. It monitors supply chain of company as well as entire procedure of
purchasing to selling products. It is a technology that monitors and maintains stock
products, raw or supply materials and finished products in Capital Joinery Ltd.
Essential Requirement: Implementation of inventory management system in Capital Joinery
Ltd. Provides opportunity for entity to ensure optimization of inventory. Inventory optimization
refers to maintenance of right or required amount of inventory in firm. Further, it provides
platform for barcode scanning which assembles easy identification and tracking of products.
Utilization of this system provides stock notification facilities to firm which leads to avoidance
of extra cost and wastage of time incorporated with under stocking or over stocking activities
(D'Ancona and et.al., 2019). This system of management accounting is useful for gathering
information about position of stock which guides through adoption of effective style of
management for improvement of profitability and reduction of costs. Job costing system: This process accumulates information related to cost associated with
production or service activities in firm. That indicates estimation of expenditures or cost
of business in accordance with different operations of company. Three essential
information is track with the use of this system, that is, direct materials, direct labour and
overhead.

Essential requirements: It enables Capital Joinery Ltd. To track performance of various business
activities. It ascertains providing necessary information to management to evaluate the
performance and productivity of various departments (Chandra, 2020). It provides flexibility of
an organization for calculation of indirect costs. And, also system of job costing implements high
level of accuracy in directing specific cost types towards its appropriate accounts. This tool
ensures tracking of expenditures in relation to each job or activity of Capital Joinery which
suggests organization about adoption of organizational structure which is best suited for
increasing efficiency of company. Price optimization system: This system is utilised for setting price of products of
company. It evaluates variations in customer demands at various price level.
Essential requirement: Combination of this data with information related to cost incurred in
producing goods helps management of Capital Joinery Ltd. in recommending or setting optimum
price that matches expectations of both company and customers as well as improves profit.
Information requirement of customer expectations and variation in demand in context to change
in price is helpful for management to set adequate price for increment in sells of company
products.
P2 Explantation of different methods that are used in management accounting reports:
Management accounting reports showcase the financial status of an organization. It
involves collection of financial data which helps in monitoring of business operations. This
reports present them in a way that financial information of company can be understood and
interpreted effectively(Davis and Davis, 2019). It helps business in making informed decisions.
In relevance to Capital Joinery Ltd., preparing reports of management accounting helps
organization in improving its financial performance. As it provides platform for regular
monitoring and analysing for monetary information.
Various types of management accounting reports and its utilization is described below:
 Accounts receivable reports: This report records information about amount of fund that
firm have to receive from debtors as well as time period taken by company for collecting
the same. Preparation of accounts receivable report in Capital Joinery Ltd. Plays a vital
role as firm has to extend credit to its customers for maintaining and enhancing customer
relationship. But if amount is not timely received by an organization that cash flow in

business will be hindered. Hence, constant monitoring of receivable activities sets alarm
for company and ensures timely collection of receivables.
 Performance reports: It reviews performance of staff members in firm, hence,
ultimately it reviews performance of enterprise. This report assures comparison of
estimated performance of company with the actual performance. Applying this tool in
Capital Joinery Ltd. Ascertains managers in identifying any loopholes in firm and prepare
strategic plan efficiently for enhance of enterprise's performance (Drechsler, 2019).
 Budgetary reports: This includes forecasting of company's expenditures and expected
revenues. This tool provides opportunity to implement cost control activities in business.
For the purpose of preparing budgetary report, organization utilizes data of expenditures
incurred in previous year and further evaluates business situation. It is crucial for
measuring performance of Capital Joinery Ltd. As it lists down the sources of expenses
and earning for business and caters unforeseen situations. All this activities is utilised to
set a benchmark for activities of company and enhance monitoring of its performance at
various levels.
 Report of cost managerial accounting: It computes the costs related to manufacturing
in an enterprise. In this report, raw material costs, overhead costs, labour costs and other
similar expenditures are recorded, along with information about level of output produced.
Preparation of management accounting report in Capital Joinery Ltd. Offers opportunity
to managers to evaluate capacity of business by comparing cost of producing with its
selling price. It states the clear picture about profit margin of company.
 Job cost report: it showcase the specific expenses of different projects or activities of
business. It helps Capital Joinery Ltd. In identifying areas of high earning so that firm can
direct its focus more to that areas. It will result in improvement of efficiency of an
organization. Further, it also provides chance to company to rectify performance of low
earning areas.
M1 Evaluating benefits of management accounting systems along with their application in an
organization:
Management Accounting Systems: It refers to a system that firm internally uses to track
data related to finance along with its affect or influence on business (Hanif, Rakhman and
Nurkholis,2019).

Price Optimization System: While pinpointing benefits of this system it can be noted
that it leads to maximization of profit generated in Capital Joinery Ltd. As it evaluates cost
incurred in production of unit hence, enables firm to set appropriate selling price.
Cost Accounting System: Efficiency of Capital Joinery Ltd. is improved by
encouragement of cost control measures. Further, cash flow management is another merit that
firm gains by utilization of this system.
Job Costing System: It enables firm to evaluate costs in accordance with different
process or activities of business. Hence, core competencies or high profitable sectors can be
identified.
Inventory Management System: It helps Capital Joinery Ltd. In managing inventory
properly and avoiding losses due over or under stocks.
D1 Critical evaluation of management accounting systems and reports and its integration within
organizational processes:
Management accounting systems provides platform for tracking transaction of finance in
company. And, management accounting reports ensure proper monitoring and administrating of
financial information. This advantageous for Capital Joinery Ltd. as improves controlling
activity of organizational processes. Further, management can analyse coordination among
various activities with its result or impact on business. Any problems which may arrive can be
solved on advance by altering any hindrances in company. This improves the regulation of
activities related to business. On the other hand, while noting its disadvantages it can be revealed
that it is a effort taking and time consuming process. As just notifying data is not enough,
management needs to interpret it for achieving desired result. Along with it, even a slight
mistake in recoding financial information have huge impact on its result on decision making of
business (Ittner and Oyon, 2020).
TASK 2
P3 Calculation of techniques of cost analysis with preparation of income statement by utilizing
both marginal and absorption costs:
Marginal costing: It refers to costing technique that evaluates cost involved in
production of one additional unit of output. It also provides relationship between output
generated by Capital Joinery Ltd. along with its variable costs.

may June
sales 25000 20000
- marginal cost of sales
variable manufacturing cost 2000 1600
direct material 6000 4800
direct labour 4000 3200
total marginal cost of sales 4000 3200
contribution 21000 16800
- fixed cost
fixed selling 1000 1000
fixed production overhead 2000 2000
fixed administration 3000 3000
net profit 15000 10800
Absorption costing: It is a method of managerial accounting that identifies both fixed
and variable costs associated with production of outputs in business. It captures all costs of
Capital Joinery Ltd. that is associated with manufacturing. Hence, it tracks profit of an
organization in an accurate form (Kaur and Lodhia, 2018).
may June
sales 25000 20000
-marginal cost of sales
variable manufacturing cost 2000 1600
fixed selling 1000 1000
fixed administration 3000 3000
direct material 6000 4800

direct labour 4000 3200
total marginal cost of sales 16000 13600
gross profit 9000 6400
-fixed production overhead 2000 2000
net profit 7000 4400

Reconciliation Statement:
Profit/ loss under absorption costing 7000 4400
add/less closing stock 8000 6400
profit/loss under marginal costing 15000 10800
profit/loss under marginal costing 15000 10800
Material Variances:

LIFO (Last In First Out):
Date Receipt Issue Balance
Quantity
Unit
cost Amount Quantity
Unit
cost Amount Quantity
Unit
cost Amount
01/06/20 balance 10 35 350
01/06/09 15 38 570 15 38 570
01/06/15 12 38 456 3 38 114
10 35 350
01/06/20 10 32 320 3 38 114
10 35 350
10 32 320
01/06/23 10 32 320 3 38 114
10 35 350
01/06/27 3 35 105 3 38 114
7 35 245
01/06/30 2 35 70 3 38 114
5 35 175
27 951 8 289
Average Cost Method:
Date Receipt Issue Balance
Quantity
Unit
cost Amount Quantity
Unit
cost Amount Quantity
Unit
cost Amount

01/06/20 balance 10 35 350
01/06/09 15 38 570 25 36.5 912.5
01/06/15 12 36.5 438 13 36.5 474.5
01/06/20 10 32 320 23 34.25 787.75
01/06/23 10 34.25 342.5 13 34.25 445.25
01/06/27 3 34.25 102.75 10 34.25 342.5
01/06/30 2 34.25 68.5 8 34.25 274
M2 Application of management accounting techniques for producing financial reporting
documents:
Standard costing and historical costing are two management accounting techniques used
by managers. Former is a predetermined or forecasted cost, while later is the actual cost that is
related to past (Kerzner, 2019). Such techniques helps Capital Joinery Ltd. to measure its
efficiency and provides benchmark for future operations.
D2 Producing financial report which accurately applies and interprets data for business activities:
While interpreting financial data for Capital Joinery Ltd. it can be noted that, with the use
of marginal costing firm is showcasing the net profit of 14500 in May and 10400 in June.
Further, by applying absorption costing organization generates profit of 6500 in May and 4000 in
June. For inventory valuation, two techniques were utilized, that is, LIFO and Average Cost
Method. Former states inventory of amount 289 with quantity of 8, while, later states inventory
amount of 274 with the same quantity. Hence, Capital Joinery Ltd. Should apply Last In First
Out method of inventory valuation.
TASK 3
P4 Explanation of advantages and disadvantages incorporated with various types of planning
tools that is used for budgetary control:
Budgetary control is system of preparing the budget for future period and required to
compare with actual performance of values. Capital joinery Ltd. use this budget to identify the

objective of company and preparing the plan to achieve the desired objective through
coordination of different activities of respective departments and helps in defining the roles and
responsibility in the company. Following are the planning tools for budgetary control :
Zero based budget – This refers the method of preparing the budget with Zero base and
considering the all the actual expenses which are to be incurred and re-evaluating all the
expenditure of cash flow and simplifying everything from scratch (Khosa, and et.al., 2020).
Some of the advantages of this budget that uses in planning tools are-
It helps in proper allocation of resources in every department as it is based on actual
figures rather than historical values and also help in show clear and precise picture of cost
estimated value to the comparison of desired performance that helps in saving in cost of Capital
Joinery Ltd. It aids in adjusting the budget as per our needs through adding and subtracting the
values which help in customize the budget from favourable perspective. It is effective method of
cost saving in large context as it enable to identify each expenditure and expenses value,
accordingly.
There are certain disadvantages of this planning tools are-
It is time consuming budget as it require an individual to monitor whole budget each
month and it require maintenance time to time. It requires proper financial skills to manage the
budget successfully because things will go wrong if someone has not significant skill- set.
Activity based budget – This budget use in identifying and creating blueprint in advance
by analysing each activities carried out by department. Capital Joinery Ltd. use this budget to
scrutinized the cost of each activities that is incurred focus on reducing through proper
anticipation.
There are certain advantages of activity based are-
It helps the company in improving overall business process and analysing the activities
which increase the cost in the business. Through this budget company able to align with annual
budget as there goals are similar.
Some of its disadvantages of Activity based budget-
This is budget sometimes leads to expensive for company as quite difficult to implement.
Company require to make assumption during the process and when this take time, it leads to
inaccuracy in cost.

Operation budget – This budget helps in plan day to day operating activities which
include meeting the debt obligation, managing the cash that where it need to spend and not
according the requirement of budget. Capital Joinery Ltd used this budget to control the day to
day cost of operating activities and make sure there is sustain growth in company (Warren, and
Farmer, 2020).
Some of its advantages are-
It helps in reallocating the resources in right place to meet the requirement in short term
and long term obligation. It also aims in building flexible budget and allow the company to take
financial decision as per situation.
Following are the disadvantages are-
It does not provide accurate information about final conclusion as it consider many
variable expenses that leads to error in budgeting.
M3 Analysis of different planning tools and its application in preparing or forecasting budgets:
Budget is a management accounting tool that indicates planning and controlling of firm's
resources. Main purpose of preparing budget in Capital Joinery Ltd. Is formulation of adequate
strategy for attaining decided objectives of business. Zero based budget, Activity based budget
and Operations budget are some planning tools that is used for forecasting budgets. Zero based
budget technique suggests starting from zero, that is, previous data is not analysed while
preparing this budget. While, activity based budget categorizes activities on the basis of their
costs and its results forecasted. Additionally, daily business activities are analysed in operations
budget.
TASK 4
P5 Comparison of adaption of management accounting as a response to financial problems of an
organization:
Financial problems:
It refers to a situation where firm is not able to manage funds in business, that leads to
occurrence of several issues in operations of business (Warren and Jones, 2018). Management
accounting practices plays an essential role in coping up with problems of finance in an
organization. While evaluating financial problems faced by Capital Joinery Ltd., following issues
were identifies.:

 Problems related to cash flow: It indicates insufficiency of cash flow for running day to
day operations in an organization. Hence, it is vital for organization to prepare cash flow
statement and evaluate it regular to avoid such complications in business. In the case of
Capital Joinery Ltd. Can face issue of improper management of funds as firm has not
effectively monitored and analysed financial transactions of business (Modell, and et.al.,
2018).
 Excessive expenditures: This indicates incurring high expenditures in firm without
ensuring the magnitude of revenue that firm in earning. Problem of high expenditure can
be faced by Capital Joinery Ltd. because firm is engaging into high general costs, that
indicates unnecessary expenses such as over purchase of stationary, high utility bills etc.
Identification tools for financial problems:
Following tools or techniques permit enterprise to identify various problems related to
finance that firm is facing:
 KPI: Key Performance Indicators is a measurement tool which demonstrates
effectiveness of business in achieving its objectives. Hence, it is a success evaluation tool
of management. Application of KPI in Capital Joinery Ltd. Empowers firm to identify
areas of improvement and evaluates whether business activities are directed towards
achievement of goals set by management. Overall, it monitors the performance of
business. With the purpose of identifying financial problems in Capital Joinery Ltd.,
management is applying technique of KPI or Key Performance Indicator.
 Benchmarking: It refers to comparison of actual performance of business with set or
standardized performance. Purpose of pertaining this tool in Capital Joinery Ltd. Is
identification of improvement requirements and development of performance
enhancement plans (Putra, 2019). Benchmarking tool is applied in Howden Joinery for
identifying issue of excessive expenses. As, this tool enables tracking of actual
profitability or performance with decided one.
Financial Governance:
Financial Governance can be defined as a way of gathering, managing, monitoring
as well as administrating information of financial transactions of an organization. It
controls data of funds which leads to management of performance of company. Effective

financial governance leads to mitigation of risks and chances of adverse outcomes in
business. Key for efficient financial governance indicates creating of proper policies for
interpretation of financial data and providing sufficient information related to finance to
management. It ensures accomplishment of long and short term goals of business by
adequate planning (MohammadRezaei and Mohd‐Saleh, 2018).
NESTLE CADBURY
Firm is facing the issue of improper regulation
of cash flow due to irregular monitoring of
financial information. Cost Accounting system
is the best suited framework for solving the
issue of cash management in an organization.
Reason is that this tool provides adequate track
record of costs that business bears. This
enables management to overview business
activities and eliminate any unnecessary
expenses of company.
Organization is facing problem of high
expenditures in business due to lack of proper
tracking systems of costs incurred in company.
Price Optimization System ensures
identification of various costs that incurs in
business for producing and selling products of
company. Hence, it provides opportunity to
avoid any unwanted cost so that cost price of
products decline and profit margin improves.
Another issue that Nestle faces is that payment
in not received on decided timeline which
leads to hindrance in liquidity of an
organization. This problem can be solved by
implementing job costing system which helps
in tracking expenses of business activities and
maintaining liquidity.
Inventory of Cadbury is not managed properly
which hinders its business operations and leads
to increment in cost of inventory management.
This issue can be resolved by applying
inventory management system. This tracks
inventory position and ensures its optimum
management.
Above comparison states that cost accounting system is an appropriate tool for solving
problem of cash flow mismanagement in Nestle and issue of high expenditure in Cadbury. this
problem was identified with the utilization of KPI which is a performance indicator that business
uses to identify any loopholes or hindrances in an organization (Rosenthal, 2019).

M4 Analysing response of management accounting in context to financial problems which leads
to the success of an organization:
Management accounting suggest regular tracking of financial data in business which
ensures eradication of financial issues that business is expected to face. Incorporation of
adequate management accounting practices in Capital Joinery Ltd. permits management of firm
to understand data related to finance more appropriately. This improves controlling of business
operations and identifying key financial problem areas. Hence, problems of working capital
mismanagement, improving expenditures, high risk of bad debts etc. can be eliminated by firm.
D4 Analysing affect of planning tools of accounting on solving of financial problems which
ultimately leads to success of entity:
It is essential for entity to identify financial problems arising in business and implement
alteration in rules and regulation of enterprise for solving such problems for ensuring long term
sustainability of business. Account based, operations and zero based budget are some planning
tools of accounting. Capital Joinery Ltd. is facing problem of mismanagement of cash flow,
which was identified with the use of performance indicator, that is, KPI. Implementation of
planning tools assures eradication of such problems.
CONCLUSION
This report concludes that management accounting reports and system plays an essential
role in analysing business activities and formulating strategies for an organization. It also helps
in management of risk in entity that improves its sustainability and enhances decision making of
managers. According to this report, management accounting systems are of various types, that is,
cost accounting system, inventory accounting systems, job costing systems, and profit
maximization system. Further, different methods of management accounting reports are
performance report, budgetary report, inventory management report, cost accounting report and
accounts receivable report. Marginal and absorption are two cost analysis techniques of
management accounting. Further, budgetary control tools holds various pros and cons. In
addition to it, financial problems of firm can be tackled with the use of management accounting
systems.

REFERENCES
Books and Journals:
Alsartawi, A. M., 2018. Online financial disclosure and firms’ performance. World Journal of
Entrepreneurship, Management and Sustainable Development.
Beckford, J. A., 2020. Religious organization: a trend report and bibliography (Vol. 21). Walter
de Gruyter GmbH & Co KG.
Busco, C. and Quattrone, P., 2018. Performing business and social innovation through
accounting inscriptions: An introduction. Accounting, Organizations and Society. 67.
pp. 15-19.
Chandra, P., 2020. Fundamentals of Financial Management|. McGraw-Hill Education.
D'Ancona, C., and et.al., 2019. The International Continence Society (ICS) report on the
terminology for adult male lower urinary tract and pelvic floor symptoms and
dysfunction. Neurourology and urodynamics. 38(2). pp. 433-477.
Davis, C. E. and Davis, E., 2019. Managerial accounting. John Wiley & Sons.
Drechsler, C., 2019. Management Accounting Practices in the Republic of Ireland-Where to?.
Controlling. 31(S). pp. 25-26.
Hanif, H., Rakhman, A. and Nurkholis, M., 2019. The Construction of Entrepreneurial
Accounting: Evidence from Indonesia. Reference to this paper should be made as
follows: Hanif, H, pp. 104-117.
Ittner, C. D. and Oyon, D. F., 2020. Risk Ownership, ERM Practices, and the Role of the
Finance Function. Journal of Management Accounting Research. 32(2). pp. 159-182.
Kaur, A. and Lodhia, S., 2018. Stakeholder engagement in sustainability accounting and
reporting. Accounting, Auditing & Accountability Journal.
Kerzner, H., 2019. Using the project management maturity model: strategic planning for project
management. John Wiley & Sons.
Khosa, A., et.al., 2020. Current issues in PhD supervision of accounting and finance students:
Evidence from Australia and New Zealand. The British Accounting Review. 52(5). p.
100874.
Modell, V., and et.al., 2018. Global report on primary immunodeficiencies: 2018 update from
the Jeffrey Modell Centers Network on disease classification, regional trends, treatment
modalities, and physician reported outcomes. Immunologic research. 66(3). pp. 367-
380.
MohammadRezaei, F. and Mohd‐Saleh, N., 2018. Audit report lag: the role of auditor type and
increased competition in the audit market. Accounting & Finance. 58(3). pp. 885-920.
Putra, Y. M., 2019. Analysis of Factors Affecting the Interests of SMEs Using Accounting
Applications. Journal of Economics and Business. 2(3).
Rosenthal, C., 2019. Accounting for slavery: Masters and management. Harvard University
Press.
Warren, C. S. and Farmer, A., 2020. Survey of accounting. Cengage Learning.
Warren, C. S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.