Management Accounting: Types of Systems, Methods, and Techniques

This report discusses the principles of management accounting, various types of management accounting systems, methods used for management accounting reporting, and techniques for cost analysis and budgetary control. It also explains the benefits and applications of management accounting systems and their role in attaining sustainable success for businesses. The report focuses on eBay, an American multinational e-commerce corporation, and includes topics such as cost accounting, inventory management, job costing, and price optimizing systems.

Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK ..............................................................................................................................................3
P1 Explain management accounting and requirements of various types of management
accounting systems......................................................................................................................3
P2 Explain different methods used for management accounting reporting................................5
M1 Benefits and application of management accounting system...............................................6
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................7
Absorption costing ..........................................................................................................................7
M2 Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents.....................................................................................................8
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control. ......................................................................................................................9
M3 Analyse the use and applicability of planning tools for preparing and forecasting budgets.
.....................................................................................................................................................9
P5 Compare the manner in which the organisation is adapting management accounting system
to tackle financial problems........................................................................................................9
M4 Analyse the manner management accounting helps in attaining sustainable success for
business.....................................................................................................................................10
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Managerial accounting can be defined as the practice of identifying, measuring,
analysing, interpreting and communicating about the financial information for attaining the
objective of the business organisation. The management accounting is used by the internal team
of the business enterprise. The process consists of sharing the financial information and reports
such as invoice, financial statements, balance sheets to the management team of the business
organisation. The main function of the management accounting is to help the management in
making the necessary decisions related to business activities where there is no fixed structure or
format for it. The company which is taken into consideration in this report is the eBay which is
an American multinational e commerce corporation which facilitates consumer to consumer and
business to consumer sales through its website. The company was founded by Pierre Omidyar in
the year 1995(Khosiev and et,al., 2019). This report will include the various topic such as
definition of the management accounting with various types of management accounting system,
methods of using management accounting, calculation of the cost, advantages and disadvantages
of different types of tools, the financial problems in the organisation.
TASK
P1 Explain management accounting and requirements of various types of management
accounting systems.
The management accounting is referred to the practise of identifying, analysing,
interpreting and communicating of the financial information to the managers of the business
organisation which can help the managers to attain the goals of the business enterprise. Its main
aim is to guide directors of eBay about the internal scenario of organisation so that decisions
could be made with full knowledge. There are various principles of management accounting
which are discussed below(Mariina and Tjahjadi, 2020).
Principles of management accounting
There are some of the principles which are been followed by the eBay in order to
maintain its accounts;
 Relevance- The information which is provided in the accounting-book should be relevant
enough so that it can be used by the internal and external users. The company can take

care that the right decision can be only taken when the information provided by the
accounting department it is up-to-mark and there is no irrelevant content in the financial
statements.
 Principal of causality- This states that the company should only record those events
which are occurred in reality. This rule suggests that there is a relation between the cause
and the effect of any circumstances of the event. It is very important for the organisation
to record only those transactions which have been occurred and there is a proof of it.
Management accounting system along with its role
It is the system where there is involvement of recording, identifying, analysing and interpreting
the various financial information which can be beneficial in the decision making of the business
organisation. The system is responsible for providing the useful information to the external users
along with assisting in tracking cost linked with manufacturing of products and services. For the
eBay, the system help the company in analysing the cost of the different processing which is
conducted in the organisation and they can be controlled by the different departments and the
managers of the company(Aouni, McGillis and Abdulkarim, 2017).
The various types of systems in the management accounting are explained below :
 Cost accounting system- It is a method of recording inflow and outflow of cash in a
particular accounting period. In other words, all income and expenses which are realised
in cash, presently or lately are recorded in this. It helps the producers of the company in
tracking the flow of money at every single stage. Through this an optimal cost of product
can be ascertained to generate profits.
 Inventory management system- This system consists of organising all the elements of
stock by tracking its supply chain from one end of purchasing to the other end of the
sales. The company uses various techniques to manage its inventory in order to have the
benefit of not waste its products(Jarwal, 2018).
 Job costing system- It is a process of collecting information about the cost of
product(job) at every single stage, for instance, customised sofa. It ensures that firm is
able to ascertain the value of material which has been used for production and what part
has been scrapped. With the help of this technique, Prime furniture can communicate the
expense incurred on every specific unit manufactured on its demand and can also
determine its profit margin capacity in that project.

 Price optimizing system- It is an analytical method of calculating the impact of different
prices on the demand of customers. this also helps in determining the level of cost a
business organisation can charge from its customers to maximize its profits. This
technique takes into consideration of various surveys, inventories, history of good and its
price effect, sales etc. the company uses this tool to frame the structure of amount it can
charge in beginning, for promotions and the level of discount that can be offered. The
most important thing which is required to be kept in mind is the change in pattern of
demand along with the conversion of rate(Greenwood, 2020).
P2 Explain different methods used for management accounting reporting
These are considered as the reports which presents the complete picture. It is used by the
various business enterprises to analyse and interpret the various financial records in order to
make the right decision which can help in attaining the goals and objectives of the business
organisation. It is an important for the eBay company as it is helpful in determining the
performance of the various departments in the business organisation. The most important thing is
that the information present in these reports must be understandable. This makes the statement
easy for its users to read and interpret according to their need There are various types of
management accounting reports which are discussed below;
 Budget report- This is taken into consideration by the managerial department to
understand and control the all type of cost which is incurred in the specific project or the
task. This allows the company is critically evaluating the performance of the organisation
by comparing the planned budget with the actual expenditure and the results of the task
which have been accomplished. It also helps in taking the right actions in order to
achieve the goals of the organisation. On the basis of the historical data the budget is
been prepared but at the same time the company need to analyse the future and predict
the circumstances while preparing the budget(Shichkov, 2018).
 Job cost report- This provides the information about the cost incurred in the every step
of the production process which is then compared with the expected income earning of
the project. This kind of report helps the organisation is gaining the knowledge of the
profits earned by the various products and services of the company by identifying the cost
of every product. Further, it also helps in making the correct decision so that it can help
in making more profits. This technique is also used by the organisation to figure out the

cost which is incurred in the raw material, overheads, labour and the other various costs
through which an expected budget for similar product can be made in future
 Accounts Receivable Aging Report- This kind of report is made by the various
organisations who deals in providing credits to its customers. The main objective of this
kind of report is to provide information of the balances of the receivables and the number
of days in which the amount is need to be collected. This helps the eBay company in
identifying the defaulters and finding the solutions to the problems. So that, the business
organisation can take corrective actions to improve its debt collection strategy(Woods,
and Linsley, eds., 2017)
 Inventory and manufacturing report- This kind of statement is prepared by the various
organisations which are involved in the manufacturing process so that the process can be
carried out smoothly and effectively in the operations and production department within
the business organisation. It assists in assembling the data which is related to inventory
cost, labour cost and the other various cost involved in the manufacturing process of the
products and services. The eBay company practices this report in order to ensure about
the holding an optimum level of inventory within the organisation.
M1 Benefits and application of management accounting system
There are various advantages of the management accounting system for the eBay
company which are discussed below;
 cost accounting system- This help the managers of the company in declining the cost of
the products by identifying and controlling the unnecessary cost which is been occurred
during the process of production or the other various activities. It can be applied by
businesses to improve its efficiency by making plans for decreasing costs and bringing
efficiency in production process for reducing costs.
 Job costing system- It is taken into consideration by the company in order to detecting
the which are the one more profitable projects for the organisation. This will help the
company t focus on the task rather than carrying out unfruitful business activities. This
system is applied to check out the cost accrued on each job separately with details and
analysing its profits or losses(Bennett. and James, eds., 2017)

 Price optimising system- This technique helps the company in eliminating all the
activities which are wasteful for the company. This can help in controlling the cost and
increase in the profits of the company. This is used by the organisation a price which can
help in generating profits and which is acceptable by the customers point of view.
 Inventory management system- This helps the organisation in holding an appropriate
amount of stock which is neither too excess nor too short for the business organisation.
This is assist in saving money for eBay as the higher amount of stock kept by the
company can sometimes cause the loss of the products. It is utilised by the company t
reduce the lead time by improving its relationship with its suppliers(NAGY, 2017)
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs
Cost Cards
November
Sales = 70* 10000 = £ 700000
Direct Materials = £100000
Direct Labour = £ 150000
Fixed Overheads = £ 250000
December
Sales = 70* 8000 = £ 560000
Direct Materials = £100000
Direct Labour = £ 150000
Fixed Overheads = £ 250000
Inventory = £ 2000 units
Absorption costing
Profit as Per
absorption costing
£s November
£s
£s December
£s
Turnover 700000 560000

Less Full cost of sales 500000 400000
Direct Material cost 100000 100000
Direct Labour cost 150000 150000
Fixed manufacturing
overhead
250000 250000
Less:Closing Stock 100000
Gross Profit 200000 160000
Less: Under
absorption
0 50000
Profit 110000
Marginal costing
Profit as Per
absorption costing
£s November
£s
£s December
£s
Turnover 700000 560000
Less Full cost of sales 500000 400000
Direct Material cost 100000 100000
Direct Labour cost 150000 150000
Fixed manufacturing
overhead
250000 250000
Less:Closing Stock 100000
Gross Profit 200000 160000

M2 Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents.
The term cost can be defined as the value of the product which is been used by the business
organisation to produce a particular subject by identifying and applying the various factors. The
various factors can be efforts, time, resources etc. there are two types of cost which is direct and
indirect. The various managerial accounting techniques is explained below;
Marginal costing- This is the technique which is used in calculating the amount ODF
cost incurred on the production of every unit in the organisation. It is prepared with the view to
guide to the managers about the variations about the cost and the actions can be taken at the right
time by the managers within the business organisation(Narayanan and Boyce, 2019)
Absorption costing- This is a method in which the affect of the fixed and variable cost
are analysed separately. This takes in consideration the cost which is actually incurred in the
production of the products.
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.
The budget is described as a statement which present an expected expenses and revenue
on a specific project within a time period. It provide a base s per the action are framed in the
organisation. It also provide direction for pursuing any given task on the basis f its report only.
Budget of eBay make sure bifurcate company's limited resources as per the need of project and
tasks. There are different kind of the budget which are prepared by the eBay mentioned below:
 Operating budget- This budget forecast the plan for an expected income or expenses
which are related to the daily operational activities of a business. It include several cost
related to labour, electricity, rent, manufacture and many more along with the sales which
are made during a year. This budget help the respective company top compare their
actual outcome to budget ones. Therefore, it required an action to recover any types of
the discrepancies to taken on time(Fisher, 2018).
 Cash budget- This budget predict movement of the cash in business. During the ending
time period, the net cash balance is ascertained by deducting the cash outflow from
inflow. It assist the Prime furniture to manage their funds and ascertain that their cash
flow is acceptable or not.
Budgetary control

It is a process of determining a variation between the actual result and estimated framed
budget. In this, budget are prepared for future and compared them with actual performance to
find out variation. On the basis of budgetary control, the eBay prepare their plan in order to
rectify issues which create difference.
Different type of the planning tools used by the organisation for their budgetary control
Zero base budgeting- This budgeting include the development of a new budget from the scratch
every time. The company implement this tool in order to make allocation for the customised
project or task(Chen, and et.al., 2020)
 Advantages- It make sure that manager of the respective c0omapny forecast cost of the
project by using fresh data to grow the price with time.
 Disadvantages- It is time consuming system as it require to prepare fresh budget instead
of modifying existi8n one
Variance analysis- Under this technique, budget is prepared for every task separately and also
communicated to concerned authority, where the actual outcome is compared to desired result.
 Advantages- By forecasting risk in advanced the Prime furniture become proactive and
build a trust among its staff.
 Disadvantage- Change in currency value is ignored because of time of adopt fix same
stander for all project.
Responding accounting- This tool evaluate employee's performance based on standard made for
them. It create different section such as profit, cost and investment.
 Advantages- It aid the Prime furniture in knowing company's capital structure and check
which employee is useful or which should be replaced(Arora, and Soral, 2017)
 Disadvantage- It create the environment of a pressure for workers of the respective
company and impact the employees performance.
Flexed Budget for the actual activity
Particulars Budget Actual Variances Variances (%)
Sales 100000 122000 22000 22.00%
Less: Cost of
Goods sold
87500 114500 27000 30.86%

Direct Material 50000 60000 10000 20.00%
Direct Labour 25000 28500 3500 14.00%
Variable
Overhead
12500 15000 2500 20.00%
Gross Profit 12500 7500 -5000 -40.00%
Less: Fixed
Overhead
10000 11000 1000 10.00%
Net Profit 2500 -3500 -6000 -240.00%
M3 Analyse the use and applicability of planning tools for preparing and forecasting budgets.
There are various planning tools which are utilised by the eBay company for making
ensure about the efficiency in its operations and work. All the techniques assist the company in
creating an optimum budget keeping in mind that with the time the cost of the expenses tend to
grow and the use of the of budgets cannot be taken into consideration for every single time.
P5 Compare the manner in which the organisation is adapting management accounting system to
tackle financial problems.
The financial problems arises when the organisation is unable to pay the debts in the
short or the long time period. It can occur It can occur due to large fixed expenses, shortage of
liquid assets, insufficient sales or economic downfall. These problems needs to be addressed in
time to ensure smooth running of business(Coyne and McMickle, 2017)
Techniques for identifying the financial problems
There are various techniques which can be used y the organisation in order to identify the
financial problems which are discussed below;
 Key performance indicator- It is a method of indicating the effectiveness of the
business organisation in achieving the goals of the company. This technique help in
providing the right targets to the employees which can be later measured whether it is
achieved on the right time with the use of right resources.

 Benchmarking- It is utilised by the various organisations in order to measure the
performance by using the specific indicators, it can be cost per unit, time taken by cycle
etc. The company uses this technique by identifying the results which are brought up by
the other industries of the same field to its own results(Hansen, , Mowen, and Heitger,,
2021)
Some monetary problems which are faced by the organisation
 Unnecessary expenditure- The company is not able to handle its expenses properly
which are creating the problem of mainlining the monetary aspect for the business
organisation.
 Non availability of funds- The debt collection policy of the company is not efficient. It
is not able to collect payment from its debtors in time, on the other hand, its creditors
demands payment in time. This has decreased its liquidity position and also harming its
daily operational needs.
M4 Analyse the manner management accounting helps in attaining sustainable success for
business
With the help of the various techniques and tools of the management accounting the
company can analyse the areas where there is zero requirement of spending money and also help
in identifying the assets of the company which is not able to give value to the organisation. The
company utilised the KPI tool in order to analyse the performance of every department within
the organisation and how much they are effectively and efficiently workings in there particular
areas.
CONCLUSION
From the above report it can be concluded that management accounting is the practice of
recording, identifying analysing, and interpreting the financial information of the business which
can help the managers to take the important decision within the business enterprise. It is very
important for the eBay company to manage its accounting and the various other financial
information with the help of the certain tool in order to achieve the goals of the organisation. It is
very important that the organisation follow certain principle of the accounting which can help in

attaining the best results for the company. The budget is described as a statement which present
an expected expenses and revenue on a specific project within a time period. It provide a base s
per the action are framed in the organisation. It also provide direction for pursuing any given task
on the basis f its report only. Budget of eBay make sure bifurcate company's limited resources as
per the need of project and tasks. There are various benefits of the management accounting for
the organisation such as cost system, job costing system etc. The financial problems arises when
the organisation is unable to pay the debts in the short or the long time period. It can occur It can
occur due to large fixed expenses, shortage of liquid assets, insufficient sales or economic
downfall.

REFERENCES
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