Management accounting systems and techniques Name of the university Student ID Question 1 Management accounting systems and techniques

Management accounting is the procedure involving analysis of operational and business costs for preparing the internal financial records, reports, as well as accounts that eventually assists the managers in making decisions for achieving the business goals. It helps the management in analysing the business needs while considering the events taking place around the business (Kaplan and Atkinson 2015) Role of management accountant Management accountant’s role is performing series of tasks for assuring the financial security of the organisation, essentially managing all the financial matters and hence assisting in driving the

Running head: MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
Management accounting systems and techniques
Name of the student
Name of the university
Student ID
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1MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
Table of Contents
Question 1........................................................................................................................................2
Answer 2..........................................................................................................................................4
Answer 3..........................................................................................................................................6
Answer 4..........................................................................................................................................8
Answer 5........................................................................................................................................10
Answer 6........................................................................................................................................12
Answer 7........................................................................................................................................13
Reference.......................................................................................................................................16

2MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
Question 1
Management accounting
Management accounting is the procedure involving analysis of operational and business
costs for preparing the internal financial records, reports, as well as accounts that eventually
assists the managers in making decisions for achieving the business goals. To be stated
differently, it involves making the financial as well as costing data useful through translating the
same into the valuable information for the officers and management in the organization. It helps
the management in analysing the business needs while considering the events taking place
around the business (Kaplan and Atkinson 2015)
Role of management accountant
Management accountant’s role is performing series of tasks for assuring the financial
security of the organisation, essentially managing all the financial matters and hence assisting in
driving the overall business strategy and management. Other functions performed by the
management accountant are as follows –
 Planning accounting function – accounting system in an organization is maintained that
must cover sales forecast, standard costs, profit planning, production planning, resource
allocation, capital budgeting, long-term as well as short-term financial planning. Further,
he is responsible for preparing required process implementing the effective plan.
 Reporting – management accountant is requested by top management to prepare reports
for root causes regarding unfavourable operations or event. Management accountant can
highlight real reasons behind the same and the responsible persons (Otley 2016)

3MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
 Controlling – management accountant is required measuring actual measuring along with
comparing the same with standard one. Based on comparison, reason of differences are
analysed and interpreted which in turn is submitted to top levels of management.
 Planning – management accountant are responsible for forecasting the future economic as
well as business planning, formulation of corporate strategies and managing strategic
accounting to achieve the business goals for the short term as well as long term period.
 Co-ordinating – management accountant consults with entire level of management to
frame the policy or action programme. These types of consultation bring the co-
ordination among the top management and account department (Maas, Schaltegger and
Crutzen 2016).
 Interpreting – information related to accounting are modified as well as presented to the
management with interpretation. Interpretation is made in number of phases. Major
purpose of the same is to provide the management with real reasons regarding the
operating results that can be understood by the management.
 Evaluation – management account is required to evaluate the efficiency of the
organization structures, policies as well as procedures adopted to achieve the goals. For
this purpose, he is required to consult with the functional manager as well as top level
executives.
 Tax administration – business organizations are required paying various types of taxes
including income tax, value added tax, local government, central government and state
government tax. Regarding this, management accountant is responsible for clearing all
the taxes and maintain records related to accounting (Chenhall and Moers 2015).

4MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
 Appraisal of the external effects – some changes may be there in the policies of central
and state government. At times, amendments may be there in existing policies. These
amendments and policies have impact on achievement of the business objectives. Level
of impact shall be analysed by management accountant.
 Asset protection – this is carried out through maintaining separate register for fixed assets
for each kind of fixed assets. Further, the management accountant can frame regulations
and rules regarding usage of these assets. In addition, insurance coverage can also be
taken for these assets.
 Economic appraisal – economic scenario of any nation is published periodically by
central government. It is required by the management accountant to make economic
appraisal as well as finding impact of economic status over business activities. In this
context, management accountant may prepare the report and submit the same before the
top management in addition to the comments (Kihn and Ihantola 2015).
Answer 2
Management accounting role and the part played under each business function are as
follows –
 Stewardship accounting – generally management accountants design frame-work
regarding costs as well as financial accountants along with preparing the reports for
regular operational and financial decision making.
 Control – management accountant evaluates the accounts and prepares various reports
including budgets, standard costs and interpretation of variance analysis, analysis of cash

5MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
and cash flow, performance evaluation, liquidity management and the responsibility
accounting for the purpose of control.
 Developing MIS – management accountant is responsible for preparing routing reports
and MIS that eventually assists in long-term and short term decision making. It further
assists the managerial personnel from all the levels in taking corrective action at
appropriate time (Kihn and Ihantola 2015).
 Capital structure – management accountant’s major role is to raise funds and application
of the same in proper manner. He is also responsible for deciding regarding maintenance
of proper mix among debt and the equity. Raining the funds through debt is considered as
cheaper as the same is deductible under tax. However, at the same time it is considered
as risky as the interest associated with debt needs to be repaid irrespective of the
profitability position of the entity.
 Management process – management accountant is in the pivotal position in any
organisation. He carries out the staff function and has authority over accountant and
different other employees. He is responsible for communicating the executives regarding
the business needs and using the information for achieving the same. Relevant
information is shifted by the management accountant from irrelevant to clear form and
presenting the same through reports to the management as well as external interested
parties (Bromwich and Scapens 2016).
 Decision making – necessary information is communicated by the management
accountant to the top level management for making short term decisions including lease
or buy, make or buy, optimum mix for the products, investment appraisal, capital
budgeting and project financing. However, management accountant’s job is limited to

6MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
delivery of required information in reliable as well as comprehensive form under
management’s decision making process. This means both management accountant as
well as reports of internal accountant cannot make decision for management (Bromwich
and Scapens 2016).
Answer 3
Management accounting is kind of accounting that is prepared keeping in view the
interest of internal users like managers and directors. It is prepared for a specific cost center like
sales, purchases, operating expenses and budgeting etc. It provides information related to finance
to the decision makers present within an organization. On the other hand, financial accounting is
kind of of accounting that helps in presenting the information related to finance to the external
users like shareholders. It is a specific type of accounting which includes recording, categorizing,
summarizing and presenting the accounting information. It helps in recording the transactions in
different financial statements like Balance sheet and income statement relating to the specific
period.
 The key difference among financial accounting and management accounting is that the
management accounting is used within management and financial accounting is prepared
for the outsiders (Richardson 2017).
 The financial accounting is grounded on accounting laws while management accounting
depends on the need of the user.
 The financial accounting is prepared periodically like quarterly or annually while there is
not such compulsion in management accounting. Management accounting is prepared as
per the need. It may be prepared monthly also.

7MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
There are some cases when the interest of users of financial and management accounting
can overlap each other. Management accounting is prepared by taking some assumptions and
estimations. The examples of such estimations are creation of provisions and reserves, recording
inventory on the basis of different stock ledger methods like Market value & FIFO, assigning
depreciation methods like straight line and written down value method. If the financial
accounting department found any discrepancies in using these information while preparing
accounting task, it may result in dispute between the two departments of accounting.
In some cases management tries to manipulate and interpret the financial information so
that when these information of management accounting will be used by financial accountants,
the financial statements may show reasonable and reliable view (Ionescu and Ionescu 2016). The
fair view of these statements can increase their compensations and the remuneration margin. The
interest of managers and financial accountants should be same to avoid any dispute of interest.
The preparation of any type of accounting should not be based on personal interest.
The dispute between the different accounting departments may arise if any department is
not following the code of ethics. The conflict may arise when the shareholders interest is
different from others. For example – the management is focusing on increasing production so
they have taken all estimations in accounting concerning their interest. But the outside parties
like shareholders and customers may prefer quality over quantity. This difference between the
ethical interests between the two may raise a conflict (Firmin et al. 2019).
The conflict of interest is a major concern for any organization. Every organization tries
to frame such policies and regulations that can reduce the chances of conflict of interest (Avdeev,
Nassiripour and Wong 2019). The dispute in the interest of financial accounting and

8MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
management accounting can be reduced significantly if the managers related to the concerned
departments follow their code of ethics reasonably.
Answer 4
Cost reports produced under management accounting
Job costing – report related to job costing is considered as the management tools and is used for
analysing the production or project performance against the forecasted or known standards. Wide
number of business users uses this approach as the major purpose of this report is identifying the
discrepancies as well as beneficial outcomes in form of the financial values. It can further be
used for reporting numerical as well as financial outcomes for production. It has various benefits
as follows –
 It helps to determine profitability of each job individually
 It offers basis to estimate cost of similar kind of jobs those are to be considered in future
 It offers detailed analysis in context of material cost, overheads and labour for each of the
jobs as and when needed (Collis and Hussey 2017)
 It helps in controlling the efficiency of plant through confining the attention to the costs
associated with individual jobs.
 Defective and spoilage work can be recognised with particular job as well as
responsibility for same can be fixed on the individuals.
Batch costing – it is similar to the job costing where cost is measured in accordance with the
units however on entire job and the same concept is applied with the batch costing. Here costs
including variable and fixed are directed directly towards the batch. It has various benefits as
follows –

9MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
 It helps in reducing the accounting work as costing is carried out in context of the product
batch for homogeneous jobs.
 As per this approach, it becomes easy and effective to supervise the time taken by
supervisor in constituting the unit batch. Hence, worker’s and supervisors idle time is
eliminated.
 Time loss on account of material transfer, tools and labour issues under batch costing are
eliminated (Collis and Hussey 2017)
Major difference among job costing and batch costing are as follows –
 Job costing is used while services rendered or goods are produced in accordance with the
orders of the customers. Conversely, under batch costing goods are produced in lot of the
similar units known as batches.
 Under job costing the product has independent identity as each of the jobs is different
from other whereas under batch costing products maintain their individual identity as the
same are manufactured under continuum.
 Under job costing, cost is ascertained after completion of each job whereas under batch
costing cost is ascertained for entire batch and thereby cost per unit is determined (Collis
and Hussey 2017)
Inventory costing – it is the method of assigning costs ton inventories. However, it is more than
simple definition. Generally the inventory costing does not include the expenses accrued after
making the sales. For instance, insurance, future carrying and interest cost are not taken into
consideration and freight-out and expenses associated with fulfilment. Costs of stock can be
reduced through following –

10MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
 Eliminating obsolete stock – holding large amount of inventories enhances the likelihood
that the stock that is expected to be sold in future now will take valuable space in the
warehouse and will cost more money as compared to the amount paid for the same
(Nisha 2015)
 Implementing just-in-time approach – just-in-time is the approach that helps in keeping
approximately no inventory I the warehouse and instead ordering required things at the
moment of requirement. It will eventually eliminate the inventory cost.
 Reducing lead times – it is the procedure for lowering the time taken for receiving the
purchase order. Shorter lead time is considered as better. Further it assists in keeping
lower safety stock that is less amount of obsolete stock for the future period (Nisha 2015)
Activity based costing – it assists in assigning the manufacturing overheads to the products in
more logical approach as compared to the traditional approach that allocates the cost on machine
hour basis. ABC approach allocates the costs to activities those are real cause for the overheads.
It then assigns the costs of the activities only to those products that are demanding activities
actually. Variable costs under this approach changes with the production volume whereas the
fixed costs do not change with the production volume. Semi variable costs on the other hand
include both elements of variable as well as fixed costs (Haroun 2015).
Answer 5
Preparing income statement under marginal costing absorption costing
A business sells toys and following information are extracted for the year closed on dated 31st
December 2019 –

11MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
Sales £ 100,000.00
Cost of raw material £ 24,000.00
Cost of direct labour £ 14,000.00
Manufacturing overhead - variable £ 9,000.00
Manufacturing overhead - fixed £ 7,000.00
Distribution and administration expenses - Variable £ 4,500.00
distribution and administration expenses - Fixed £ 5,000.00
Prepare the income statement for the year closed on 31st December 2019 as per marginal costing
and absorption costing.

12MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
Marginal costing is applicable to those costs to the inventory those are incurred while
each of the units produced individually whereas the absorption cost is applicable to all the
production costs for all the units produced. The entity shall use absorption costing as it considers
both variable costs as well as fixed costs. Further, it uses the gross profit approach which is
generally used by the analysts and investors whereas the marginal cost approach uses
contribution approach and consider only the variable costing (Shields 2015).
Answer 6
XYZ Restaurant sells pizza and expenses details are as follows –
Fixed cost Amount Variable costs per unit
Amou
nt
General labour £ 1,500.00 Flour
£
0.50
Rent £ 3,000.00 Yeast
£
0.05
Insurance £ 200.00 Water
£
0.01
Advertising £ 500.00 Cheese
£
3.00
Utilities £ 450.00 Pepperoni
£
2.00

13MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
Total £ 5,650.00 Total
£
5.56
In the above example, variable expenses per unit of pizza are £ 5.56. If the selling price per
pizza is £ 10, then contribution margin = (10 – 5.56) = £4.44
Hence, the break-even unit is calculated as follows –
Break-even unit = Fixed cost / contribution per unit
= £5,650 / £4.44 = 1273 units.
Hence, XYZ Restaurant is required to sell 1273 units of pizza to cover up the costs and
earning profit after that unit.
Break-even point is crucial as it assists the business owners in determining the units
required to be sold to start earning profit. In addition it helps in setting up the pricing policies for
the products. Hence, comparing the break-even among the entities under same industry is
considered to be crucial.
Answer 7
Computation of net profit
Net profit is the amount left over with the entity after making payments for all the
expenses. It is computed as (total revenue – total expenses) = net profit

14MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
Computation for net profit is important for the management accountant as the same helps
them to generate sufficient profit from sales and analysing whether the same is adequate to cover
up the operational costs of business. It is further important as the same indicates the financial
health of the entity.
Net profit helps the management accountant in taking different business objective as
follows –
 Dividend – it is not necessary that higher amount of revenue will lead to availability of
higher amount for distributing dividend. Hence, net profit is required to decide about how
much can be distributed as dividend
 Investment decision – from the availability of net profit the management can assess the
amount of retained earnings and availability of amount for further investment. If the

15MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
company does not have adequate amount of retained earning it will be able to make
further investment in any project or assets.

16MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES
Reference
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