Management Accounting Systems and Techniques

This report discusses the meaning of management accounting and its different types of managing accounting systems. It also includes various methods used for managing accounting reporting and the calculation of income statement. The role of management accounting within each function of business is also explored. The report also highlights the difference between financial and management accountants and the disciplines where they overlap. Additionally, it covers the different types of cost reports and the benefits of using a management accounting system.

MANAGEMENT
ACCOUNTING SYSTEMS
AND TECHNIQUES

TABLE OF CONTENTS
TABLE OF CONTENTS.................................................................................................................2
INTRODUCTION...........................................................................................................................3
P 1 Management accounting and system of management accounting...................................3
P 2 Different types of cost reports..........................................................................................6
M 1 Benefits of management accounting system...................................................................8
D 1 Integration of management accounting and reporting.....................................................8
P 3 calculations.......................................................................................................................9
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is that branch of accounting which is helpful in discussing and
deciding and taking decision relating to the management of company. This decision is taken by
keeping all financial facts and information as base. The present report is based on company KEF
Ltd which is loud speaker manufacturing company with international distributor.
This report will carry the matter relating to examining the meaning of the management
accounting and also its different types of managing the accounting systems. It also includes
various methods which is used for managing the accounting reporting. Further it includes the
calculation by using the appropriate techniques of costing to identify the income statement of the
organization.
P 1 Management accounting and system of management accounting
The management accounting is a system that involves analysis of financial information
and statistics in order to take decision relating to the management of company (Alsharari and
Youssef, 2017). The person taking all decision relating to the management of the company by
analysing the financial information is termed as management accountant. The management
accountant plays a crucial role in success of the company which is discussed in the following
points- Long term and short- term planning- This is the most crucial role of the management
accountant of KEF Ltd because the major role is to forecast and set the plan for working.
At this role the management accountant establishes different goals and objectives for
working. Maintaining optimum cost structure- This is another role of management accountant of
KEF Ltd wherein they have to raise the funds and manage its application to different
areas. The accountant has to balance and maintain a mix of both debt and equity so that
the cost structure is maintained in optimum manner. Decision making- This is another important role of management accountant of KEF Ltd
wherein they have to take decision for the betterment of KEF Ltd (Ismail, Isa and Mia,
2018). They have to take decision like where to take money from, capital budgeting
decision, investing and many other decisions. Control- This is yet another crucial role which the accountant of the KEF Ltd has to
perform. This is the most important role because without any control nothing can be

managed in effective manner hence, they need to properly control all activities. Here the
accountant has to properly control the cost and other variables in order to manage the
overall organization in smooth and effective manner. Participation in management process- This is one of the major roles which the
accountant plays within KEF Ltd. Under this accountant performs the staff function that
is controlling the employees and along with this also has authority over the employees
and their management. Here the role of the accountant is to help the executives in
controlling the information and then helping them in using the information and preparing
the reports in clear manner. Advising- This is another role of management accountant which it plays in the control of
KEF Ltd (Järvinen, 2016). Here the accountant after the analysis of all the information
and facts and figures advices the management and board for improvement. These advices
can be used as these have been made after thorough analysis of the information and is
helpful in improving their profitability.
Role of management accounting within each function of business
The scope of the role of management accounting is very wide and cover all the aspect
which are necessary for the taking of decision by keeping in mind the financial information. This
scope includes the fulfilment of the objective of the company as all the decision under
management accounting are taken for the attainment of the objective.
The major functions of the KEF Ltd include planning, organizing, leading and
controlling. Without these functions the business cannot run in proper and effective manner.
Thus, it is very important for the company to apply all the business functions in proper manner.
In the same way, management accounting is also applied in the business for its effective working
and this also performs all the business functions for attaining success. The role of management
accounting within every business function of KEF Ltd is discussed in the following points- Planning- This is the first business function which is performed by KEF Ltd where the
company plans what to do. In this stage the management accounting of KEF Ltd is
responsible for the planning of different short- term and long- term plans for the effective
working of the company. Here the management accounting’s function is to plan all the
financial activities in form of budget so that very employee knows what and how they
have to use the resources and money.

 Organizing- This is the function of KEF Ltd where the company arranges for the
resources which are required to work for accomplishing the planned activities. Thus, the
management accounting also plays an important role within this business function of
KEF Ltd. The management accounting here helps the managers of KEF Ltd in providing
necessary information from different system such as cost accounting, inventory
management and others which are essential for the procurement of which types of
resources so that the work can be successfully accomplished (Jermias, 2017). Here these
systems will help the company in organizing for the resources as their will be list of the
things needed to perform any activity. Thus, management accountant of KEF Ltd will
assist in analysing the resources which are required to carry on the production. Controlling- This is the function of KEF Ltd wherein the monitoring of the activities take
place and if their activity is not matched with the standard performance then some
corrective measures are taken place. Thus, these help the management of KEF Ltd in
controlling all the activities in the direction of the success. There are many different types
of report prepared under management accounting which help company in controlling like,
inventory reports, cost report, budgets and may others. Like for instance, the cost report
will outline the cost of the product and also the past record of the cost will be there in the
report. Thus, this will help the company in controlling the cost as compared to the last
year. Leading- This is a business function where KEF Ltd tries to lead the company in way of
profit earning and the attainment of the business objectives. Here the management
accounting also plays a crucial role in leading the business activities as here it plays the
role of forming aims and objective through which the management leads the company in
that direction. The management accounting plays a role in forming aims and objectives
because they analyse all the information and they know in which direction they have to
develop the aims and objectives so that business grows.
Difference in financial and management accountant
The financial and management accountant are both part of accounting system but are
different from one another.
Management accountant Financial accountant
The work done by the management accountant The work done by the financial accountant is

is in deciding all the issues relating to the
management of the company.
recording of all the financial transactions and
then classifying and further posting them to
prepare financial statements in order to
calculate profit or loss suffered.
For management accountant all the information
whether be it financial or non- financial both
are necessary to evaluate for decision making.
But for the financial accountant the main focus
is only on the financial information as they
have to calculate profit or loss incurred by the
company (Novas, Alves and Sousa, 2017).
The management accountant prepares report
such as job costing report, sales report and
many other kinds of reports. These reports can
be prepared at any point of time.
The financial statements are prepared by the
financial accountant. These statements are
prepared only at the end of the financial year
which is usually one year but also it can be
prepared quarterly or half- yearly.
The reports of the management accountant
need not be get audited nor to be published.
All the financial statements prepared by the
financial accountant need to be audited and get
published.
Disciplines where both overlap
The management and financial accountant overlaps in the field of budgeting. This is
because the management accountant uses budgeting in establishing an estimation of the future
income and expenses which may occur in future. Also, the financial accountant uses the budget
to ensure that what sales they have estimated has been achieved or not.
Another disciple where they both overlaps is the costing aspect. This is because the
management accountant uses the cost to set the prices of the product and the financial accountant
uses those cost in order to calculate the profits by deducting cost from the income.
P 2 Different types of cost reports
The managerial accounting reports are the documents which are prepared in order to plan
and regulate all the business activities in proper and effective manner. There are many different
types of reports which are prepared by the companies for having effective control over the
working of the company.

All these costing methods are different form one another because they all deals in
different aspect like discussed below-
Job costing Activity based costing Inventory costing Batch costing
job costing is related
to the assigning of
cost to specific job
In contrast to this the
ABC analysis is
related to the
assigning of cost to a
particular activity
which is
manufactured in the
different aspect of
manufacturing
while the inventory
cost is related to the
inventory and how to
manage it.
Also, in comparison it
was found that batch
costing is also
different because this
type of costing is
applied when the
goods are produced in
different batches.
 Job costing- This is a type of system is used by KEF Ltd in which the cost is levied to a
particular job and the revenues are also attached to those particular job only. In business
there are different types of job and every job has its own particular cost which need to be
considered at time of cost calculation. Batch costing- This type of costing is used by KEF Ltd which is similar to the job
costing nut here the different batch of production are considered. Every batch within the
production has different cost and this needs to be identified on individual basis. The cost
is then identified for each of the batch and per unit cost is calculated (Batch Costing:
Meaning, Need and Types (With Calculations), 2017). Inventory costing- The inventory is the most important thing within the production
process of KEF Ltd. This is majorly because of the reason that without the inventory no
work of production can be done. Thus, the costing for inventory is very crucial for the
success of the company. This can be done in three different ways that is LIFO (last in
first out), FIFO (first in first out) and average cost (Yigitbasioglu, 2016).
 Activity based costing- This is a type of costing wherein all the activities are being
identified and cost to each activity is assigned to every product and services of KEF Ltd.
This method assigns more of the indirect cost to the direct cost. Under this there are many
different types of cost like direct, indirect, variable, fixed and others. The direct cost is

the one which is directly attached to the production like direct labour, material and many
other. Indirect cost is the one which is not directly applied to the production process like
administration cost, rent and others (Otley, 2016). On the other hand, fixed cost is the one
which is fixed at every level of production and the variable cost is the one which varies
with the quantity of production.
M 1 Benefits of management accounting system
Job costing- The major benefit of this costing for KEF Ltd is that this help the company in
having better control over the cost. This is majorly because of the reason that this provides an
idea of the cost as every job is having a particular cost so it is easier for the manager to assign
the cost. The job costing adds the value to the company because this help in properly
allocating the cost to individual job. This help the company in achievement of organizational
objective as all the jobs are being able to optimise the cost and this increases the profitability
of the company.
Batch costing- The major benefit of using this costing method for KEF Ltd is that here the
supervision is easier as the manager has to supervise all the identical cost and if there is some
flaw in one batch then it will be identical with another. The batch costing adds value to the
KEF ltd because of the reason that this help the company in differentiating the different
batches and assigning specific cost to them. This help in attaining the organizational
objective because this cut the cost of the batch which is not operating.
Inventory costing- The major benefit for KEF Ltd in using this costing system is that this
system helps in getting more information relating to the managerial planning and decision
making. This is because this help in deciding which inventory to use at what time. The cost
of stock can be reduced by avoiding the minimum order quantity and by reordering at that
point of time when the inventory has reached to zero. This method add value to the company
as the inventory is ordered only when there is requirement. Thus, this help in attaining the
organizational objective as cost of holding the stock will be reduced.
Activity based costing- The major benefit of using this method for KEF Ltd is that this help
in analysing accurate product cost as this method brings in accuracy at time of accessing the
cost in better terms. This adds values to KEF Ltd because it helps in identifying the type of
cost to be levied. Thus, this will help in achievement of organizational objective of
profitability as here the cost will be levied in proper manner and this will increase the profits.

D 1 Integration of management accounting and reporting
The management accounting and management accounting reporting are integrated with
one another because with this integration the reports will assist the management in taking good
decision. Thus, this integration will help the company in assisting management of the company
in taking decision.
P 3 calculations
Calculate income statement based on marginal and absorption costing
Marginal costing- This is the cost which is incurred with the additional production of one unit.
Under this method the variable cost is charged to the cost of the goods and the fixed cost is
completely written off (Schaltegger and Burritt, 2017).
Absorption costing- This is a method of costing under which the cost of the product is calculated
by considering all the indirect expenses and the direct cost as well. This costing method allocate
the fixed overhead cost to the product.
Marginal costing and absorption costing are both used by the company because of the
reason that both the costing method help the company in analysing the cost and the profits for the

company. But the absorption costing is preferred over the marginal costing because of the fact
that this costing applies to all the production cost. Whereas the marginal costing is the method
wherein the fixed cost is not considered and is completely written off.
Worked example of break- even analysis
The break- even analysis is a financial tool which is helpful in determining the stage
where the company is present in actual and whether it is profitable or not. This is a tool which
help in outlining the no profit or not loss situation for the company. This is the point for the
company wherein the total cost of producing the goods and services is equal to the total income
earned from the selling of the goods and services (Shields and Shelleman, 2016).
For instance, a company is selling laptops at the price of 50,000 and the variable cost is 49,000
and the fixed cost is 10,00,000. Now the breakeven point if 1 unit is sold is as follows-
Sales 50000
Less: variable cost 49000
Contribution 1000
Less: fixed cost 1000000
Profit/ (Loss) (999000)
If 100 units are sold then the break- even will be like
Sales 5000000
Less: variable cost 4900000
Contribution 100000
Less: fixed cost 1000000
Profit/ (Loss) (900000)
The break- even analysis is important for the company because of the fact that this help
the company in analysing the profit or loss incurred by the company. Under this method there are
two different types of cost taken into consideration that is fixed and variable cost. Thus, here first
the contribution is calculated by selling price less the variable cost. And then for ascertaining the
profit or the loss the fixed cost is deducted from it. If the result is positive then it is profit for the
company and if negative then loss in incurred. And if both are equal then it means that the
company is at break- even point.

Worked example of net profit calculation
The net profit or the net income is defined as the profit which remains after the deduction
of each and every expense from the total income. The calculation of net profit is very important
because of the reason that the company cannot just work in isolation it is very important for the
company to analyse how much it has progressed since it has initiated. This can only be possible
by analysing the profits which the company is earning (Uyar and Kuzey, 2016). If they are on
increasing trend then it means that company is on progress and if not then in situation of loss.
Net profit calculation is important for management accountant as this will help the accountant in
deciding that what they have to do with the extra profit whether to reuse it or to invest in other
sources.
For example, a KEF Ltd is having the total income of $100000 and the cost of goods sold
is $20000 and various other expenses are provided. Then the calculation of net profit will be cost
of good sole will be deducted from the total revenue and this will be the gross profit. Then form
the gross profit all the operating expenses and rest of the indirect expenses are deducted and the
remaining will be net profit if positive and if negative then loss.

Figure: calculation of net profit
Hence in the end it can be concluded that calculation of net profit is necessary as it
depicts the financial health of the company as it outlines the net income which the company is
earning. Thus, this is very important for the company to calculate the net profit for survival of
company. the calculation of the net profit will help KEF Ltd in knowing the level of profit
which it has earned and this will help them to identify their market position by comparing this
profit with that of the other competitors. Thus, this net profit comparison will help the company
in deciding how to increase the profit so that it can beat the competitors.
CONCLUSION
From the above summary it is concluded that management accounting is very important
for the success of the company. This is pertaining to the fact that this help the company in
effectively take the decision for company. The present report discussed about different
management accounting system like cost accounting, inventory, activity-based costing and many
others. further it discussed about different calculations for the betterment of the company like
marginal costing, absorption costing, break- even analysis and many other for analysing the
profitability of the company.

REFERENCES
Books and Journals
Alsharari, N. M. and Youssef, M. A. E. A., 2017. Management accounting change and the
implementation of GFMIS: a Jordanian case study. Asian Review of Accounting.
Ismail, K., Isa, C. R. and Mia, L., 2018. Evidence on the usefulness of management accounting
systems in integrated manufacturing environment. Pacific Accounting Review.
Järvinen, J. T., 2016. Role of management accounting in applying new institutional logics.
Accounting, Auditing & Accountability Journal.
Jermias, J., 2017. Development of management accounting practices in Indonesia. In The
Routledge Handbook of Accounting in Asia (pp. 104-114). Routledge.
Nespeca, A. and Chiucchi, M. S., 2018. The impact of business intelligence systems on
management accounting systems: The consultant’s perspective. In Network, smart and
open (pp. 283-297). Springer, Cham.
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.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014.
Management accounting research. 31. pp.45-62.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts
and practice. Routledge.
Shields, J. and Shelleman, J. M., 2016. Management accounting systems in micro-SMEs.
Journal of Applied Management and Entrepreneurship. 21(1). p.19.
Uyar, A. and Kuzey, C., 2016. Does management accounting mediate the relationship between
cost system design and performance?. Advances in accounting. 35. pp.170-176.
Yigitbasioglu, O., 2016. Firms’ information system characteristics and management accounting
adaptability. International Journal of Accounting and Information Management.
ONLINE
Batch Costing: Meaning, Need and Types (With Calculations). 2017. online. Available through:
<http://www.yourarticlelibrary.com/cost-accounting/batch-costing/batch-costing-
meaning-need-and-types-with-calculations/55833>