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

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.