Management Accounting: Types of Systems, Reporting, and Budgetary Control

This report discusses the different types of management accounting systems, reporting methods, and budgetary control used by Morrison's, a UK-based retail organization. It covers cost calculation for profit and loss accounts and the advantages and disadvantages of different types of budgetary control. The report includes information on cost accounting, job costing, inventory management, and price optimization systems. It also discusses the use of management accounting reports for decision-making and cost reduction. The report includes a fixed budget, cash flow budget, and operational budget.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Management Accounting and the use of various management accounting systems...................3
Various methods used for management accounting reporting....................................................5
TASK 2............................................................................................................................................6
Cost calculation for formulation of profit and loss account........................................................6
TASK 3............................................................................................................................................9
Advantages and Dis-advantages of different types of budgetary control...................................9
TASK 4..........................................................................................................................................10
Management accounting system and their use for responding the financial issue....................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is defined as a process of recording, summarising and
classifying all financial transactions related with the organisation. This includes formulation
ledger, trial-balance and journal in an manner that is easily understand and analysis by the
stakeholders of the organisation. In simple terms, management accounting is a process of
summarising all financial details and statements of organisation which relates with future
economic and non-economic activities that take place in the market. The main role of the
management accounting is to support the internal management of an organisation for formulate
effective and appropriate decisions for business. Morrison's is selected as an organisation for this
report which is a UK based retail organisation that manage store among different areas.
Moreover, this report will highlights on different types of management accounting systems
which are adopted by management and how management accounting techniques applied in the
organisation. Use of different planning tools among the management accounting process and the
comparison among two organisation for identify and understand the techniques through which
they respond towards financial problems.
TASK 1
Management Accounting and the use of various management accounting systems
Management accounting is a action based process which is used for formulating the
managerial accounts as well as reports which are developed by the financial manager. This report
are utilised by the manager for control and handle routine or daily operations of organisation.
Management accounting include the translate of financial data into comprehensible collection of
monetary data that is used by management for effective decision-making.
Morrison's is identified as one of the leading supermarket and retail organisation of UK
which offer a large variety of products. Therefore, with effective management accounting system
management and authorities of Morrison's generate competitive-edge or advantage to make
appropriate decisions for organisation.
TYPES OF MANAGEMENT ACCOUNTING AND THEIR USE IN ORGANISATION
With engage of effective management accounting system an organisation develop
organised framework which support managers for make sound and reliable decisions for
business. Some types of management accounting system are mention as follow:

 Cost-accounting system- This is also known as the product costing system which helps
to generate an effective framework that is used for estimate and forecast the future cost
which is incurred by organisation. Morrison's and other retail organisation utilise cost
accounting system for analyse the future cost and profitability of business. Along with
this cost-accounting system also forecast cost of engaged workforce, cost of direct-
material, cost of inventory, etc. which helps to analyse the estimated cost of products.
 Job Costing- The term job costing is used to determine cost of each manufactured unit
and all those organisation which is engaged among manufacturing of single units are
benefited by job costing accounting system. One of the most appropriate method of job
costing system is to estimate the separate cost engaged in job of manufacturing. Along
with this business which manufacture units take order according to the delivery of
products so budgets are prepared according to the number of product units.
 Inventory management system- The inventory management system is explained as a
management accounting system that maintain and monitor the inventory of organisation
including both number of raw-materials and finished products. Along with this an
effective inventory management system maintain the number of stocks which is require
for finished products. Along with this inventory management accounting system is ideal
for Morrison's because this helps to maintain number of inventories within the
organisation.
 Price-optimisation system- This system is identified as a method of determining the
price of different products. In the context of Morrison's manager utilise the price-
optimisation system because this helps to allocate the price of certain products and also to
analyse how buyer will react on those prices. Moreover, with an appropriate price-
optimisation system this is easy for management to calculate their profits because the
price-optimisation method help to decide ideal price of products which is not too high
and also not so less.
Use of Management Accounting System
Management accounting system such as price-optimisation is used by management
among all departments and this refers it is implemented among all sections of the Morrison's. So
with use of effective management accounting system all financial information is utilised in
proper manner in order to generate appropriate decisions.

 Job-costing and process costing- This system is implemented for analyse the cost of
specific process and units. On the other side, product costing is to determine cost of
manufactured products.
 Inventory management system- It is ideal and appropriate for all types of organisation
instead of their size and industry. This is because inventory is engaged among all
business that exists in market.
 Cost-accounting system- This system enable the flexibility among the accounting report
so it is changed according to the fluctuations that exists in business. It also facilitates the
organisation to accomplish goals with decided budget.
Various methods used for management accounting reporting
Management accounting report are formulated or prepared for support the internal
management of an organisation. This is used by the manager for make right decision and
efficient functions of business. Also the management accounting report contains information of
economic and non-economic activities that will be implemented in the future. It is also important
for the organisation to formulate various reports because this helps manager to accomplish
decided goals and objectives in minimum time-period by determining policies, budgets and
strategies according to the financial reports. Some reports that are effective and useful for the
Morrison's are mention as follow:
 Budget Reports- Each department and area of an organisation formulate budget so that
employees or workforce perform work according to the decided expenses. Moreover,
budget report also aids the authorities of Morrison's for enhance their revenue by
managing funds and achieving objectives in a controlled monetary amount. Also, this
report set the standards for workforce and departments related with company objectives
which is required to achieve. Moreover, budget report are formulated in initial period so
all functions are performed according to the decided cost.
 Account Receivable Report- Financial manager of Morrison's prepare the account
receivable report in order to identify the number of debtors which an organisation have in
the current period. This reports monitor and check the number of companies regarding
when amount is received and which debtors are not paying the amount on decided due-
dates. Also, account receivable report keep record of bad debts related with company and
this helps to collect the cost or amount in the upcoming period.

 Job-cost report- Within the job cost report all estimation related with company revenue
and total cost which is incurred to produce the batch of product is considered as job cost
report. Further, this report assist internal management that helps to estimate total
profitability of business related with particular job function. In simple terms Morrison's
utilise job cost report to compare total revenues with total cost which is incurred for
produce particular product. Manager use this for select those project that are profitable
and it leads to identify minimum amount of funds which is required for complete project.
INFORMATION GATHERED FROM MANAGEMENT ACCOUNTING REPORTS
Decision-making- Managerial report assist internal management in the decision-making
process and managerial report also provide whole information related with financial and non-
financial transactions of business. It also provide information about the economic and non-
economic activities of market that is useful among future. On the other side, manager consider
all information to formulate policies of company and defining objectives so no hindrance or issue
exists at the time of business operations.
Cost-reduction- The managerial accounting report aids management to formulate all
those objectives and policies which are not impacted in the future. This relates with future
operations of business that in turn reduce the cost of problems if any issue occurred in the
decision-making process of business. From the perspective of Morrison's this is identified that
cost-reduction is identified as a major technique which minimise the management problems and
this helps to increase profits for business.
TASK 2
Cost calculation for formulation of profit and loss account
COST- Morrison's invest an amount to offer the products so expense which occurred
within process of production is considered as cost. This is related with the customers and it also
consists of providing the efficient services at an affordable amount. It also refers to the amount
that relates with production process and it helps to produce products which are sold to customers
at right price. All the cost which are made under management accounting consists of perform all
work according to final units of business.
Marginal Costing- This cost relates with the organisation and it incurred when
management decided to go for additional production. Also, the cost refers to additional expenses

that occur when management add one single unit of product. The marginal cost also include
variable cost of production which is incurred in the process of formulating additional unit
because fixed cost remain same so this is not included in marginal costing. This is beneficial for
produce the additional products until marginal revenue is more than marginal cost.Marginal
costing method -
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 * 16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Absorption costing- With induce of absorption costing method an organisation involve both
fixed and variable cost. The profitability related with absorption costing is less because this
engage both factors of costing so this is difficult to match the profits expectation of authorities
with use of absorption costing.
Absorption costing method -
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales + 3300

selling and administrative cost = 1 * 600 + 2700)
Net profit/ operating income 15675
a. The number of products to be sold to break even
Break-Even:
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. The break even point in terms of sales revenue
sales per unit 40
variable costs VC = DM + DL 28
contribution 12
fixed costs 6000
Profit volume ratio PVR = Contribution /
sales * 100 30.00%
BEP in sales 20000
c. The number of products that need to be sold to make profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12

Sales 1333.33
d. The margin of safety if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
The cost-accounting method which include absorption as well as marginal costing both are
adopted by respective organisation for calculate the net-income and profitability of business.
Along with this net income that is calculated through utilise the marginal costing method is
higher as compare to the absorption costing method and this is because of change in both fixed
and variable cost. Managerial accounting techniques such as historical costing and standard
costing both are used by Morrison's for perform their work because this is related with their
suitable or high production capacity.
TASK 3
Advantages and Dis-advantages of different types of budgetary control
Internal management formulates different types of budgets and all of them work for
achieve similar motive that is to maximise or enhance organisation efficiency. Some of the most
appropriate budgets which are useful for the Morrison's and other retail business are operational
budget, cash-flow budget, operational budget and master budget. A brief explanation of all this
budgets are mention as follow:
OPERATIONAL BUDGET
The operational budget of an organisation engage all factors which is related with revenue and
cost of the business. In simple terms, operational budget include daily operational cost which is
considered for manage company operations. Further, administrative and overhead cost both are
required by the management because this helps to ascertain right cost of business products.
 Advantage- The merit of operational budget is that this include both cost and revenue
which is included in daily operations. This helps for manage and minimise the expenses
that incurred in future.

 Dis-advantage- The time-period required for operational budget is more and this will
delay in completion of project.
CASH FLOW BUDGET
The cash flow budget aids the respective organisation to manage all cash related transactions
related with company operations and functions. The main purpose of cash flow budget is to
record and analyse regular or routine outflow as well as inflow of cash that helps to manage
organisation operations and functions. Therefore, to manage and fulfil daily cash requirements
manager of the Morrison's formulate an effective cash flow budget from only those factors where
high probability of repayment exists.
 Advantage- This budget helps the management for maintain sufficient amount of cash
within the organisation and it aids management to perform all operations with no
barrier.
 Dis-advantage- To maintain the cash inflow and outflow is a complex task for
business because of various small transactions.
Fixed Budget
The fixed budget are formulated at initial period of a year and this is used for record the cost and
expenses of organisation specifically, those which are fixed in nature. Fixed budget are rigid in
nature and this refers that budget are not modified if an organisation increase their production in
the upcoming future.
 Advantage- With develop an appropriate fixed budget this is easy for the Morrison's to
measure the growth as well profitability because expenses are done within decided
limits.
 Dis-advantage- One of the major dis-advantage of fixed budget is that they are complex
to modify so if there is a change in the future needs than this is complex for
management to modify the budget.
Application of planning tools to forecast prepare and analyse budget
Morrison's manager utilise different types of planning such as cash-flow, operational flow, fixed-
budget, etc. All of them are utilised by management for prepare and forecast budget because it
will helps to analyse the actual expenses and cost of business. So this aids management to
arrange funds that is required to perform operations and functions in future. This also considered

that formulation of financial reports is one of the most important and significant factor for
business to manage and control their business operational cost.
TASK 4
Management accounting system and their use for responding the financial issue
KPI- KEY PERFORMANCE INDICATOR is identified as one of the most appropriate
and effective tool which is used for compare and measure the actual performance of organisation
with the expected performance. In simple terms, KPI supports the Morrison's manager for
compare existent results and outcomes with the pre decided standards of business. Along with
this internal management of an organisation analyse variations of company so it will helps the
management to take essential actions which are required to rectify the issue. KPI is also used at
different stages as it helps to evaluate the capability and success of business for accomplish the
selected objectives and goals.
Balance Scorecard approach- With the use of balance card approach this is easy for
management to align all activities of business according to the objectives. Also, it aids
organisation for formulate policies that is useful for each activity. Moreover, balance scorecard
approach also arrange training sessions for workforce and this aids employees to perform work
according to the decided task that helps to perform work as per effective and efficient manner.
Perspective of balance scorecard approach are as follow:
 Customer and stakeholder- This is an obligation for each business and it helps to
operate in market that provide the good quality of products or services to customers. It
also aids to enhance the overall profits of the business.
 Financial perspective- The main motive of each business is to generate strong financial
position through generate budgets that are essential to improve their profits. When
manager allocate funds according to decided budget than the probability for increase
revenue from projects is increased.
Compare between the ASDA and Morrison's
Basis ASDA Morrison's
Problems ASDA management face
financial problems and this
relates with the inappropriate
In context of Morrison's
management face problems and
this refers that the manager face

formulation of budget. Due to
this it is difficult for perform
work with decided cash.
difficulty to generate budgets as
per decided method.
Method to solve The current department of ASDA
focus on KPI methods to solve
the problems because this helps
for perform all work according to
the decided cash.
To solve the Morrison's problems
this is identified that management
and authorities considered towards
the induce of benchmark methods
because this helps to engage all
activities in an organised manner.
CONCLUSION
From the basis of above report, this is concluded that management accounting supports
an internal management of the organisation to formulate the effective and appropriate financial
decisions for business. With implement of the appropriate decisions this is easy for managers to
improve their financial capability through completing work according to the decided financial
positions and trends. Moreover, project also define about the budgets and it assist manager for
set right performance standards for workforce and departments through develop policy according
to the business goals. In the last, comparison between two organisation to understand
management accounting system and their role to solve financial problems of business.

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