Management Accounting: Types of Systems, Methods of Reporting, Cost Analysis Techniques, and Financial Reporting

This report discusses the different types of management accounting systems, methods of reporting, cost analysis techniques, and financial reporting used by Capital Joinery Ltd. It evaluates the benefits and applications of these systems and techniques in the context of the organisation.

Management
Accounting

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Types of management accounting system with its requirement in a company.....................3
P2. Various methods used for management accounting reporting .............................................5
M1. Evaluating benefits of management accounting system and their application in context of
an organisation.............................................................................................................................6
D1. Critically evaluating management accounting system and management accounting
reporting are integrated in an organisational processes...............................................................7
TASK 2............................................................................................................................................7
P3. Techniques of cost analysis in order to prepare an income statement while using marginal
and absorption cost .....................................................................................................................7
......................................................................................................................................................9
M2. Applying range of management accounting techniques ....................................................11
D2. Producing financial reports that accurately apply and interpret data for a range of business
activities.....................................................................................................................................11
TASK 3..........................................................................................................................................11
P4. Explaining advantages and disadvantages of distinct types of planning tools used for
budgetary control ......................................................................................................................11
M3. Analysing use of different planning tools with their applications to prepare budgets and
forecasts.....................................................................................................................................13
TASK 4..........................................................................................................................................13
P5. Comparison between companies on adopting management accounting system to respond
financial problems......................................................................................................................13
M4. Analysing how management accounting leads organisation to sustainable success..........16
D3. Evaluating planning tools of accounting while solving financial problems of an
organisation to attain success.....................................................................................................16
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18
APPENDIX....................................................................................................................................20
........................................................................................................................................................21

INTRODUCTION
Management accounting is a system of preparing reports of operation that undertakes in a
business organisation. In other words management accounting is a condition of financial and non
financial informations which is used by management of a company. Management accounting
essentially focuses on all accounting information relating to cost of products or services that are
bought by companies (Abernethy and Wallis, 2019). In this report, Capital Joinery Ltd is the
selected company which is situated in London, UK. This company operates as a manufacturing
company which manufactures windows, doors, PVC doors and windows, etc.
This report consists of requirements of different types of management accounting system.
It also consists of different methods of management accounting report. The report includes cost
analysis method used in a company. It also includes advantages and disadvantages of various
types of planning tools used under budgetary control.
TASK 1
P1. Types of management accounting system with its requirement in a company
Management accounting is a process of identifying, measuring, evaluating and
communicating financial reports to top management of organisation which aids them in taking
decisions tactfully. Primary motive of this technique is to assist management of company in
performing its functions efficiently. It assists company in forecasting coming business
opportunities about investments, diversification and expansion of product line. Main distinction
between financial and management accounting is that former is used to prepare statements
helpful for stakeholders to realise profitability while latter focuses on providing reports useful for
managers to take effective decisions. It benefits Capital joinery in forecasting cash flows as it is
important to analyse the whereabouts of cost that company incurs in its operations as well as
revenue it generates. Use of management accounting in business practices helps in identifying
variances or discrepancies in employee's performance. Different types of management
accounting system used by Capital Joinery are as follows: Cost accounting system- Cost accounting system is a framework used by organisations
to estimate cost of their products or services in order to perform profitability analysis,
inventory control and overhead expenses control. It is important for an organisation to
know which product is profitable and which is not. It essentially involves job order and

process costing. Capital Joinery can use job order costing system as it helps small and
medium sized businesses that are engaged in production of specified products. If Capital
Joinery expand or diversify its product lines it can use the combination of job order and
process costing methods. Inventory management system- Inventory management system is a practice through
which an organisation can track its goods throughout its supply and distribution chain
includes production, logistics, sales etc. Any organisation that manhandles stock are
required to accurately control and track their inventory. This system aids Capital Joinery
in identifying number of components and ingredients it will need to assemble in order to
get a final product. It incudes perpetual and periodic inventory system. Capital Joinery
uses perpetual inventory system as it aids in tracking stock levels as soon as they are
purchased, produced, sold or returned. It is significant as it delivers up-to-date inventory
figures not causing any discrepancies in operations. Job costing system- Job costing system is a practice which involves accumulation of
information about associated costs with a specified job or service (Arunruangsirilert and
Chonglerttham, 2017). This information is very useful in determining validate estimating
system that allows to generate reasonable profits. These job cost are typically bifurcated
in three more segments namely, labour, materials and overhead. This job costing system
benefits Capital Joinery in comparison of pre-determined and actual costs. It also assists
in determining inefficiencies and reasons for excess cost in production which is a
essential requirement for company. Effective implementation of accurate job costing
system aids in improving profitability, employee scheduling and financial reporting. It
also assists finance and accounts department of company in back office workings and tax
filling.

Price optimization system- Price optimization system is a mathematical program which
aids an organisation in calculating how consumer demand varies at different price levels
in order to combine that calculations with cost and inventory information for
recommending prices that will generate profitability in business operations. These models
primarily focuses on three critical elements, namely pricing strategy, cost of product and
specific strategies that aids in increased profitability. Capital Joinery uses initial price
optimization model which aids in creating a stable base for products that have long life

cycle. Essential requirement of price optimization system for Capital Joinery is to
understand the perception of various customers in order to determine prices.
P2. Various methods used for management accounting reporting
Management accounting reports are used by organisation in planning their actions,
regulating, executing decisions and measuring performance (Bedford and Speklé, 2018). These
reports are prepared throughout the year according to company's preferences. Managers used this
reports in making critical decisions so they need to be carefully prepared and should be
authentic. Various types of management accounting reports which are used by Capital Joinery
are discussed below: Budget management accounting reports- Budget management accounting are vital for
measuring performance of company and its employees. It can be prepared for small
businesses as well as in large organisation on the basis of various departments. These
reports assists Capital Joinery in forecasting budget estimates for future which further
aids in integrating various efforts of employees for the attainment for common
organisational objectives. Accounts receivable ageing reports- Accounts receivable reports are crucial for
businesses which heavily relies on credit elongating. It aids organisation in recording
client's balances for specified period which helps in discovering defaulters and
identifying any issue or problem in collection process of company. These reports are
beneficial for Capital Joinery in analysing and reforming its credit policy which aids in
reducing bad debts and maintaining cash flows of company. Cost management accounting reports- Cost management report includes summarised
information about overhead, labour and raw materials cost. This aids organisation in
realizing managerial capacity for recognising cost price of products in comparison of
selling price. These reports aids Capital Joinery in providing exactly perfect
understanding of all incurred costs which is requisite for effective optimization of
resources. Performance reports- Performance reports are prepared to review and evaluate company's
achievements as a whole as well as employee's conduct in organisation. It aids
organisation in taking critical strategic decisions which further helps it in planning for
future. Capital Joinery uses these reports in comparing actual performance with pre-

determined benchmarks or standards and identify any gap between that. This further
assists in setting standards and demand actual performance on basis of those benchmarks.

Inventory and manufacturing reports- This reports are prepared by the companies who are
engaged in production of certain goods (Caglio and Ditillo, 2021 ). This provides
insights to managers of Capital Joinery in comparing different production line in order to
identify opportunities for making modifications in an organisation. Effective inventory
reports helps to identify reorder levels in order to decide procurement time of raw
materials. This reports also ensure to keep a check on perishable or obsolete products in
order to avoid any looses. It also helps in identification of different market trends.
M1. Evaluating benefits of management accounting system and their application in context of an
organisation
Evaluating benefits and application of management accounting system in context of
Capital Joinery Ltd is as below-
Management accounting system Benefits and application
Cost accounting system  Cost accounting system provides cost efficiency in
Capital Joinery Ltd.
 Cost-accounting helps Capital Joinery Ltd from
ascertainment of costs by adopting various costing
methods such as process costing and job-costing.
Inventory management system  Inventory management system provides greater
insights to Capital Joinery Ltd in tracking and
controlling its inventory.
 This accounting system helps Capital Joinery Ltd
in managing its stocks so that company does not out
of stocks as well as excessive stocks situations.
Job costing system  Job costing system increases profitability for
Capital Joinery Ltd as this system allows to assign
costs individually for every operations.

 Job costing system is applied in Capital Joinery
Ltd as company produces its products on basis of
consumer's own specifications.
Price optimisation system  This system provides financial benefits to Capital
Joinery Ltd by determining demands of products
with different price levels in market.
 Capital Joinery Ltd applies price optimisation
system to set price of its goods as per customer's
consideration.
D1. Critically evaluating management accounting system and management accounting reporting
are integrated in an organisational processes
In Capital Joinery Ltd organisation processes are interlinked with management
accounting system and management accounting reporting. For example, supply chain
management is managed by use of inventory management sytem and inventory and management
report. Inventory management system helps supply chain to monitor and manage its stock and
inventories available within organisation. This information is then used by manager of supply
chain of Capital Joinery Ltd to take decisions regarding production of goods. Inventory and
manufacturing report helps supply chain manager to monitor data regarding transfer of inventory
in warehouse, outlets, etc. This helps manager of supply chain to track its inventories.
TASK 2
P3. Techniques of cost analysis in order to prepare an income statement while using marginal
and absorption cost
Cost is a monetary value that is added to commodities and facilities that consumers as
well as producers purchase (Charifzadeh and Taschner, 2017). Every forces of production is
associated with a cost. Different type of costs that are associated in business operations of
Capital Joinery Ltd is as below- Fixed Cost- Fixed cost are usually pre-determined expenditure that are associated with a
business and remains same for a specific period of time. This cost do not changes as per
outputs being produced and performance of business. Capital Joinery Ltd pays fixed costs

such as depreciation, rent,salaries, taxes, etc. which are not usually part of its production
activities but still firm has to pay for it.

Variable Cost- Variable cost are cost that changes as per changes or fluctuations in
production levels. Variable costs depends on volume and changes in terms of volume
produced. Capital Joinery Ltd pays variety of variable costs such as raw material costs,
labour cost, manufacturing cost, sales commissions, etc. which occurs from
manufacturing and last to distribution process.
Cost analysis is a method of cost modelling which consists of comparison on costs
occurred in a business organisation.
Marginal Costing- Marginal Costing is a process where variable costs is considered as
product costs as well as fixed costs as cost of period (Collis and Hussey, 2017). Marginal costing
considers variable cost as cost of products. In Capital Joinery Ltd marginal costing is calculated
by using profit volume ratio. Marginal costing determines cost by cost of next unit. In marginal
costing, opening and closing stocks of Capital Joinery Ltd doesn't affects cost per unit.
Income statement through marginal costing of Capital Joinery Ltd are as below-
Absorption Costing- Absorption costing is a process which sets products costs while
considering both variable and fixed costs ( Vakhrushina and Et. Al., 2018). This method costing

is essential for reporting purposes. Reporting purpose consists of both tax reporting as well as
financial reporting. Capital Joinery Ltd calculates profit in absorption costing by considering
fixed cost as product cost which reduces profits of company. In absorption costing cost is
considered as per cost of each unit. In absorption costing, opening and closing stock of Capital
Joinery Ltd affects cost per unit as this costing emphasis on each individual unit.
Reconciliation statement:
Material variances:

LIFO (Last in first out):
AVCO (Average Cost):

M2. Applying range of management accounting techniques
Management of Capital Joinery Ltd adopts various management accounting techniques
such as marginal costing and absorption costing. Income statement of marginal costing of
Capital Joinery Ltd shows that net profit of month of May is pound 6500 and for June is pound
3375. While income statement of absorption costing of Capital Joinery Ltd shows net profit of
May is pound 6500 and company has a net profit of pound 3375 in month of June.
D2. Producing financial reports that accurately apply and interpret data for a range of business
activities
Financial reports are statements that records all financial activities that occurs in an
organisation (Endenich, Trapp and Brandau, 2017). Capital Joinery Ltd uses different financial
reports such as marginal costing and absorption costing. This financial reports shows profits of
Capital Joinery Ltd for months of May and June are pound 6500 and pound 3375.
TASK 3
P4. Explaining advantages and disadvantages of distinct types of planning tools used for
budgetary control
Budget refers to a financial report used in order to project income and expenses of future.
Capital Joinery Ltd prepares budget with objective to forecast its expenses and income of future
events.
Budgetary control derives in comparing actual expenses and income that is generated
with expected budget is been forecasted before (Ghasemi and Et. Al., 2017). Management of
Capital Joinery Ltd uses budgetary control in order to identify accuracy of expected income as
well expenses with actual income as well as expenses.

Planning control are models which helps management of an organisation to monitor and
manage its different operations undertaking in a business in relation to budgetary control.
Various types of budgetary control used by management of Capital Joinery Ltd are as follows-Cash Budget-
Cash budget is a kind of budget used to forecast cash inflows as well as outflows for a
particular period of budgeted time (Hariyati, Tjahjadi and Soewarno 2019). Capital Joinery Ltd
adopts cash budget to expect cash flows in its budgeted time period. Cash budget consists of four
sections which are receipts, disbursements, cash deficit or surplus as well as financing. Receipts
in cash budget derives of cash balance at beginning with collected cash from customers and
others. Disbursement includes all payments that are done in cash along with their purpose. Cash
deficit or surplus consist of distinguish between cash disbursement and cash receipts which are
listed as deficit or surplus in cash budget.
Advantages- Cash budget helps a company to avoid debt by spending cash that the
company has for its operational activities. Cash budget helps Capital Joinery Ltd to be more
resourceful by controlling its spending power while determining cash in hand. This aids in
eliminating wastages of cash from budget and operational processes of business.
Disadvantages- Cash budget limits spending power of an organisation which impacts in
shrinking its operational activities. Cash budget enhances danger of theft in Capital Joinery Ltd
as cash is one of the easiest asset that can be steal.Flexible Budget-
Flexible budget consist of a financial report that adjusts actual changes in capacity and
revenue levels (Taschner and Charifzadeh, 2020). Management of Capital Joinery Ltd adopts
flexible budget at end of its financial year in order to determine changes in expenses and income
in accordance of its estimated budget.
Advantages- Flexible budget is usually used by organisations where company operates in
an environment of variable cost. Capital Joinery Ltd uses flexible budget to measure its
performance in regards of its activity level. This budget also helps Capital Joinery Ltd to create
and develop budgets more effectively and efficiently.
Disadvantages- Flexible budget is tough to formulate as well as administer. Capital
Joinery Ltd faces issues in managing flexible budget ad many cost are fixed in nature and this

budget considers mostly variable cost. Accountants of Capital Joinery Ltd have to wait for end of
financial year as this budget cannot be prepared in mid of financial year.Operating Budget-
Operating budget is a kind of budget that focuses on expected revenue and expenses for a
particular period of time (Hutaibat and Alhatab, 2020). An operating budget developed by
accountants of Capital Joinery Ltd outlines funds of Capital Joinery Ltd that is needed by
company to run its business operations effectively and efficiently.
Advantages- Operating budget helps Capital Joinery Ltd to plan strategies to reduce its
expenses in order to generate more profits for business. This budget also helps Capital Joinery
Ltd to evaluate its performance over time by determining its revenue generated and expenses
occurred in a particular period of time.
Disadvantages- Like some other budgets, operating budgets don't tends to be always
correct and accurate due to unable to achieve its expected target determined by management of
Capital Joinery Ltd.
M3. Analysing use of different planning tools with their applications to prepare budgets and
forecasts
A business corporation adopts various planning tools and applications to prepare budget
for a period of time by forecasting expenses, revenues, etc. Capital Joinery Ltd adopts different
planning tools such as cash budget, flexible budget and operational budget in order to forecast its
budget for upcoming time period. Cash budget is used by Capital Joinery Ltd to forecast cash
inflows and outflows for a specific period of time. Operational budget is used by Capital Joinery
Ltd to estimate its revenue and expenses for a time period. Flexible budget is used by Capital
Joinery Ltd to analyse actual changes in revenue with its expected revenue and expense levels.
TASK 4
P5. Comparison between companies on adopting management accounting system to respond
financial problemsFinancial problems-
Financial problems are issues faced by an organisation in terms of funds, cash or finance
which creates stress in carrying out its business operations (Ismail, Isa and Mia, 2018). In aspect

of Capital Joinery Ltd, some financial problems that are faced by this company are analysed as
below- Lack of capital- Cash is an essential part that helps an organisation in carrying their
business afloat. In order to grow business, Capital Joinery Ltd will need a huge and healthy
amount of capital in order to invest in more bigger projects. Capital Joinery Ltd faces this
problem as it stops company to concentrate on growth efforts for long term such as relocating,
hiring or expanding its business with diversification process.
Improper cash flow management- Improper habits of bookkeeping is a problem that arise
in many small scale businesses (Kostyukova and Et. Al., 2018). Capital Joinery Ltd faces issues
in managing book of finance because of lack of resources within company.
Delayed payments- Late in clients payments also impacts as a financial problem in
Capital Joinery Ltd. Company receives this payments from its clients on a delayed basis. This
affects funds of business in carrying out business operations smoothly.
Management accounting approaches that are adopted by Capital Joinery Ltd are analysed
as below-
Benchmarking- Benchmarking is an approach of management accounting that consists of
practices used to compare procedures, policies, products as well as processes of a business
organisation with other firms operating with the same objectives (Massicotte and Henri, 2021).
In aspect of Capital Joinery Ltd benchmarking is adopted by its managers to identify and
compare its processes, policies, products, prices etc. with its competitors operating in market in
order to create strategies to sustain in market in long run. This approach helps Capital Joinery
Ltd in managing its cash flow by determining strategies or processes used by other firms which
helps them to manage cash flow effectively in their respective firms.
Key Performance Indicators- Key performance indicators is a method of analysing
company's performance with its business objectives. Capital Joinery Ltd adopts key performance
indicator approach in order to evaluate performance at different stages while achieving business
objectives. This approach helps Capital Joinery Ltd to create strategies to enhance performance
by analysing its past and current performance in comparison with its target objectives.
Financial Governance- Financial governance is a concept of managing financial
informations by a business organisation (Nielsen, and Pontoppidan, 2019). In other words
financial governance is a way by which management of an organisation collects, monitors,

manages as well as controls all financial informations that exists under that company.
Management of Capital Joinery Ltd adopts this method to control, manage, monitor and collect
its financial informations. This approach helps Capital Joinery Ltd to manage its financial
resources effectively and efficiently.
Comparison between various organisations while using different management approaches in
regards to financial problems are as below-
Basis Capital Joinery Ltd Bluehost Ltd
Financial problems Capital Joinery Ltd is facing
lack of capital financial
problem. Company has few
capital sources which leads to
shrink in business operations
as well as stops this company
to expand its business
operations further.
Bluehost Ltd is suffering from
financial problem while
managing cash flow. Improper
management of cash flow
makes this company to suffer
from financial issues.
Management accounting
approaches
Capital Joinery Ltd adopts
benchmarking approach of
management accounting in
order to evaluate processes,
policies, price and various
strategies implemented by
other companies operating
with the same interest. This
helps management of Capital
Joinery Ltd to develop its
strategies in order to cope up
with this financial issues.
Bluehost Ltd adopts key
performance indicator to
analyse its past and current
performance with desired
targets. This helps
management of Bluehost Ltd
improve its performance in
future by filling the loop holes.
Management accounting
systems
Management of Capital
Joinery Ltd adopts cost-
accounting system in order to
Management of Bluehost Ltd
adopts inventory management
system in order to manage its

manage its cost of production
as well as increase profits with
objectives to increase capital
in business.
operations such as production
of products, supply of products
etc. This helps company to
manage its financial problems
of cash flow with in an
organisation.
M4. Analysing how management accounting leads organisation to sustainable success
An organisation uses various approaches that leads to achieve sustainable success
(Pasch, 2019). Various management accounting approaches such as benchmarking and key
performance indicator that helps Capital Joinery Ltd to overcome financial problems and achieve
sustainable success in business. Benchmarking helps Capital Joinery Ltd to analyse and compare
policies, procedures, prices etc. with other firms working with same interest. This helps company
to create strategies to manage cash flow in organisation in order to functions smoothly. While
key performance indicators help Capital Joinery Ltd to analyse its performance with its business
objectives.
D3. Evaluating planning tools of accounting while solving financial problems of an organisation
to attain success
An organisation suffers with various financial problems while operating its business
activities (Rozhkova, Blinova and Rozhkova, 2017). Capital Joinery Ltd is suffering from some
financial problems such as delayed capital, lack of capital, etc. Capital Joinery Ltd adopts
various planning tools to resolve financial problems such as key performance indicator and
benchmarking. Utilizing key performance indicator Capital Joinery Ltd analyses its performance
to its desired objectives to achieve. In benchmarking Capital Joinery Ltd compare its processes
policies with other firms operating in market. This planning tools helps company to overcome
financial problems by developing proper effective strategies.
CONCLUSION
As per the report, it is concluded that management accounting is a procedure of creating
financial reports of business operations of a company. Management accounting reporting are
adopted by management of a company in order to plan, regulate, decision making as well as

measuring performance. Income statements is a financial report which includes income and
expenses of an organisation. Budgetary control is a statement of managing and controlling
income as well as expenses of an organisation.

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APPENDIX