Management Accounting Systems and Techniques

This document provides an in-depth analysis of management accounting systems and techniques. It covers the examination of management accounting, its comparison with financial accounting, and evaluation of different systems. The document also explores the application and benefits of management accounting system and its integration with reporting. It is relevant for students studying management accounting or related subjects.

Management
accounting systems and
techniques

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
P1. Examination of management accounting as well as its comparison with financial accosting
and evaluating different systems.................................................................................................1
P2. Detailed analysis of reporting of management accounting methods that are most
commonly used in the current market.........................................................................................3
M1. Identification of the application of the management accounting system and its benefits in
the long run..................................................................................................................................4
D1. Examination of the integration of both management accounting system with reporting of
management accounting..............................................................................................................4
TASK 2............................................................................................................................................5
P3. Preparation of income statement and other important terms with the help of cost analysis
techniques by using absorption as well as marginal costing.......................................................5
M2. Applying relevant and appropriate techniques that are related with management
accounting for reporting financial documents.............................................................................8
D2. Evaluation of the above report and interpretation of the statistics that are related with
activities of business....................................................................................................................9
TASK 3............................................................................................................................................9
P4. Detailed examination of the planning tools of budgetary control with its advantages and
disadvantages...............................................................................................................................9
M3. Analysis and evaluation of the application of planning tools for preparing as well as
forecasting budgets....................................................................................................................10
TASK 4..........................................................................................................................................10
P5. Evaluation of different firms that adapt to the system of management accounting so as to
respond appropriately to various financial problems.................................................................10

M4. Analysis of management accounting that helps business to sustain in the market by
solving financial problems in a rational way.............................................................................11
D3. Identification and evaluation of the tools of planning that helps a firm to solves problems
regarding financial aspect so that it can be successful in the long run......................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is one of the most important as well as essential part of each and every
organisation that is working in the market irrespective of the industry in which it is operating
(Amir and Chaudhry, 2019). It is defined as a process of identification of all the factors that
affects the operation of a firm so that appropriate and required measures can be taken after a
detailed analysis and evaluation of all the aspects that impacts its working. Capital Joinery
Limited is a firm that is established in the year 2008 and operates in the UK and deals in
providing various products and services that possess a lot of value in the current market situation.
In this report there is a detailed examination of management accounting and its related terms that
are of great importance. Apart from this the report also covers different costing systems,
budgetary control, advantages and disadvantages, costs, etc. Further comparison and evaluation
of the above mentioned firm with its competitor is also included in this report.
P1. Examination of management accounting as well as its comparison with financial accosting
and evaluating different systems
Management accounting is a process in which included identification and analysis of each and
every factor which affects the business either directly or in an indirect way so that necessary as
well as appropriate measure could be taken and that too well within times so that it can add to the
value of the firm in the long run. These decisions possess a lot of importance for every firm as it
has the capability to increase the sales and then subsequently profits of the firm but at the same
time it can damage and disrupt the working and the market value of the firm if it is not used in a
correct manner (Riccio, 2017). Capital joinery Limited is a company that is operating in the
business of mostly providing services to its customers and though the company was formed in
the year 2008 only but it has captured a larger share of market within a limited period of time
because of the quality of service that it provides to its prospective buyers and customers. Thus it
becomes very important for the firm to take management decisions in an appropriate manner so
that the consistent performance of the organisation should be maintained and in addition to it the
firm can grow and prosper in the industry and stand ahead of its competitors in the market. Both
financial accounting and management accounting possess a lot of importance and both are
crucial as well as critical for businesses but there are many differences too between them and all

of them are explained in detail below with reference to the company that is Capital joinery
Limited-
Management accounting Financial accounting
 This type of accounting is not
compulsory in nature as it involves
decision making in a precise manner so
that it can add to the value of the firm.
Capital joinery Limited is a company
that uses it because of its nature of
operation and it also have proved very
beneficial for the firm in the market
(Brusca, Labrador and Condor, 2019).
 This accounting system is use in
internal analysis so that performance of
the company can be evaluated and is
mostly done by managers. Capital
joinery Limited recruits skilled and
experienced personnel in this aspect
that helped the company to increase its
performance and that too within a short
period of time.
 This accounting system is compulsory
in nature as it helps in evaluation of the
financial performance of a company.
Capital joinery Limited does it in a very
careful and precise manner so that
necessary points can be identified and
then analysed so that it can prove useful
from the company’s point of view.
 This type of accounting is done mainly
for the sake of external like for banking
firms, shareholders, institutions, etc.
Capital joinery Limited does a
evaluation of this aspect in a detailed
manner so that it can help to increase as
well as improve the image and value of
the company in the market.
There are various types of management accounting systems and all of them are discussed
below in detail-
Cost-accounting system- This system of management accounting is related with analysis
and evaluation of all types of costs that are incurred in doing business or while performing
activities of the company and thus possess a lot of value and has to be identified and evaluated in
a correct manner. Capital joinery Limited does a rigorous research and analysis in this regard so
that unnecessary expenses can be cut down so as to improve the performance of the firm.
Inventory management system- It is one of the most important aspect as it deals with
inventories of the business that is from the procurement of the stock till it is sold all are included

in it. Capital joinery Limited possesses an intact chain of supply that helps it in fulfilling all the
aspects in a precise manner.
Job-costing system- This system is related with the allocation and allotment of jobs in an
appropriate manner so that it can be performed precisely. Capital joinery Limited evaluates the
potential of its each and every employee and after that it allocates the jobs according to it so that
it can be well within time with utmost accuracy
Price-optimising system- It is related with selecting a price that is competitive as well as
profit earning too in the industry. Capital joinery Limited does a detailed study on all of the
factors so that decision can be taken appropriately (Chibili, 2019).
Apart from that there are different requirements of management accounting system that
possess a lot of value in the current market situation and all of them are explained in detail
below-
 Management style- It is very important to adopt a suitable management style as it
possess a lot of value as it can help the company to grow by increasing its sales and
profitability and at the same it can damage and destruct the image of the firm if it is not
analysed in a correct manner.
 Organisation structure- It is an essential element to plan a structure of the organisation
in an effective and efficient manner so that it can help in improving the performance of
the company in the long run.
 Information requirements- All the business activities must focus on getting information
that is of high importance so that it can add to the value of the firm in the industry in
which it is operating.
P2. Detailed analysis of reporting of management accounting methods that are most commonly
used in the current market
Management accounting reports are those which are given by the managers to the
designated authorities after a process of detailed analysis of all the factors that cumulatively
affects the working of the firm so that it can help the fir to grow in the market. Capital joinery
Limited uses various types of reporting methods in its operation and all of them are explained
below in detail below-
Budget report- It is a type of report in which budgets are prepared for the future and a
standard is set so that if there are any differences in the actual performance it can be identified

and simultaneously rectified without wasting any time. Capital joinery Limited does different
types of analysis before preparing the budget so as to make a perfect one which can help the firm
to prosper in the competitive industry (Taschner and Charifzadeh, 2020).
Accounts receivable ageing report- This type of report is related with the performance
of the accounts receivables that is debtors of the company as it is one of the most important
aspect for the business. Capital joinery Limited has deployed a skilled team that does all the
required researches on its behalf so that it can prove useful for the company in the long run.
Performance report- As the name of this report suggests it is related with evaluating and
analysing the performance of the firm in a particular time frame so as to observe that the funds
are utilised in an appropriate manner or not. Capital joinery Limited shows its performance
report in its financial statement so that it can encourage employees to do a better performance so
that the company can achieve its goals and objectives well within a limited time frame.
Inventory and manufacturing report- It is a report that is related with inventories that a
firm possess and deals with all its related aspects so that identification can be done in case there
are any wastages happening in the process. Capital joinery Limited recruits individuals that are
already experienced as well as skilled in this regard so that their expertise can prove beneficial
for the firm (Diab, 2019).
M1. Identification of the application of the management accounting system and its benefits in the
long run
Benefits as well as application of management accounting system with the context of the
company is explained below briefly-
Cost-accounting system- It is very helpful as it provides useful information about the
allocation of costs and after evaluating this costs from unprofitable activities can be reduced so
that it can increase the value of the firm by using sum in other activities that can fetch higher
return. Capital joinery Limited uses various types of techniques to analyse it so that it help the
firm to grow as a whole in the industry of high competitiveness.
Inventory management system- This system helps in making the operations of a
business simpler and the firm that is Capital joinery Limited uses it to simplify the complex
process that is prevailing in the market.
Job-costing system- It is very helpful in measuring the performance of the individual
that helps the company to grow in the long term. Capital joinery Limited uses all its available

resources in this regard so that it can prove beneficial for the business (Tessier and Sponem,
2017).
Price-optimising system- This system is very useful as it cuts down the time taken in
decision making by making it more compact and the company Capital joinery Limited uses it to
reduce the time taken in taking important decisions.
D1. Examination of the integration of both management accounting system with reporting of
management accounting
Both management accounting system and its reporting are inter related and integrated and
helps the company to do its operation in an effective and efficient manner and all of them are
discussed below in detail-
Budget report- It is very helpful in all the operations of a business and the firm Capital
joinery Limited profitability relies on this factor a lot and it has also used it in an appropriate
manner and thus proved very crucial for the company (Egbunike and Emudainohwo, 2017).
Cost-accounting system- It is a very critical as well as crucial system as it helps in
reducing the cost so that it the firm can become financially strong and Capital joinery Limited
does the same with full convection so that it can help the company to grow and prosper in the
long run aspect.
TASK 2
P3. Preparation of income statement and other important terms with the help of cost analysis
techniques by using absorption as well as marginal costing
Costs are an important factor and also there are different types of costs that are incurred
by each and every firm and all of them are described in an elaborated manner below-
Fixed cost- It is a type of cost that remains fixed while the business is operating in the
industry as it does not change with the production. It is a costs that will incur whether business is
operational or not and the firm Capital joinery Limited have a very little fixed costs that helps the
company to earn good amount of profits in the market and that too within a limited period of
time.
Variable cost- These costs are those costs that changes with the change in production
level of the company and can be said as the cost incurred in producing an extra unit of output.

Capital joinery Limited produces output in large quantities and thus this reduces the per unit cost
and proves beneficial for the firm in the long run.
Semi-variable cost- It is a type of cost that includes both of the above cost that is some
part of this cost is fixed while other is variable in nature. Capital joinery Limited keeps its semi-
variable cost low so that it can sustain in the market for a longer period of time as compared to
its competitors (Fleischman, Johnson and Walker, 2017).
Cost analysis- It is a type of analysis in which various costs are analysed and evaluated
so that additional costs can be cut down with immediate effect so that it can increase as well as
improve the condition of the company. Capital joinery Limited deploys a specific team of
expertise personnel’s that are experienced to in this regard so that analysis of this aspect can be
done accurately.
Absorption costing- It is a costing system that includes all types of costs that are
incurred by a company while doing its daily activities like rent, wages, etc.
Marginal costing- It is a type of costing which includes cost that is incurred in producing
an extra unit of output. It can be identified as the change in total costs because of the change in
output.
Marginal costing-
Particulars May June
Sales 25000 20000
- Marginal cost of sales
Variable sales commission 500 400
Variable manufacturing cost 2000 1600
Direct material 6000 4800
Direct labour 4000 3200
Total marginal cost of sales 4500 3600
Contribution 20500 16400
- Fixed cost
Fixed selling 1000 1000
Fixed production overhead 2000 2000
Fixed administration 3000 3000
Net profit 14500 10400

Absorption costing-
Particulars May June
Sales 25000 20000
-Marginal cost of sales
Variable sales commission 500 400
Variable manufacturing cost 2000 1600
Fixed selling 1000 1000
Fixed administration 3000 3000
Direct material 6000 4800
Direct labour 4000 3200
Total marginal cost of sales 16500 14000
Gross profit 8500 6000
-Fixed production overhead 2000 2000
Net profit 6500 4000
Reconciliation statement-
Particulars May June
Profit/ loss under absorption costing 6500 4000
Add/less closing stock 8000 6400
Profit/loss under marginal costing 14500 10400
Profit/loss under marginal costing 14500 10400
Working note-
Particulars Amount
Material cost variance
Standard cost 24000
Actual cost 22400
Result 1600
Material price variance
Standard price 12
Actual price 9.3
Actual quantity 1000
Result 2700

Material usage variance
Standard quantity 2000
Actual quantity 2400
Standard price 12
Result -4800
Last in first out (LIFO)
DATE Receipt Issue Balance
Quantity
Unit
cost
Amoun
t
Quantit
y
Unit
cost
Amoun
t
Quantit
y
Unit
cost
Amoun
t
01/06/20 10 35 350
01/06/09 15 38 570 15 38 570
01/06/15 12 38 456 3 38 114
10 35 350
01/06/20 10 32 320 3 38 114
10 35 350
10 32 320
01/06/23 10 32 320 3 38 114
10 35 350
01/06/27 3 35 105 3 38 114
7 35 245
01/06/30 2 35 70 3 38 114
5 35 175
27 951 8 289
Average cost (AVCO)
DATE Receipt Issue Balance
Quantity
Unit
cost
Amoun
t
Quantit
y
Unit
cost
Amoun
t
Quantit
y
Unit
cost
Amoun
t
01/06/20 10 35 350
01/06/09 15 38 570 25 36.5 912.5
01/06/15 12 36.5 438 13 36.5 474.5

01/06/20 10 32 320 23 34.25 787.75
01/06/23 10 34.25 342.5 13 34.25 445.25
01/06/27 3 34.25 102.75 10 34.25 342.5
01/06/30 2 34.25 68.5 8 34.25 274
M2. Applying relevant and appropriate techniques that are related with management accounting
for reporting financial documents
Normal costing- It is a costing method in which all the costs are analysed and evaluated
with reference to the operation that is done by the company. Capital joinery Limited has a team
of experts that analyse this aspect of the firm and that too in a precise manner after analysing all
the market situations that are prevalent in the current scenario.
Standard costing- It is a type of costing in which a standard is set and after that actual
cost is compared with it so as to analyse the differences and the reasons for it. Capital joinery
Limited set standard appropriately so that it can be achieved in an accurate manner (Gibassier,
2017).
Activity-based costing- In it activities are identified and after it costs are allocated so
that it can add t the value of the firm and the same is done by the firm that is Capital joinery
Limited to survive in the industry for a longer period of time.
D2. Evaluation of the above report and interpretation of the statistics that are related with
activities of business
As from the above it can be seen that net profit for the month of May is 14500 by using marginal
costing method while it was 6500 according to absorption costing. Whereas for the month of
June the net profit of the firm was 10400 in marginal costing while it was 4000 by absorption
costing. While according o the statement of reconciliation material cost, price, and usage
variance are 1600, 2700, and -4800 respectively. Whereas LIFO balance for the company is 3
units at the rate of 38 each, 5 units at the rate of 35 each, and in AVCO the balance is 8 units at
the rate of 34.25 each.

TASK 3
P4. Detailed examination of the planning tools of budgetary control with its advantages and
disadvantages
Budgets are an estimation of the expenses and the revenues that a firm incurs in its
operational cycle and budgetary control is its related aspect that helps it to achieve the goals and
objectives of the firm in the long run. There are different types of budgetary techniques that are
used by Capital joinery Limited and all of them are explained below in detail-
Capital Budgeting- It is one of the most important as well as essential aspect because it
is related with the capital natured factors and involves inflow and outflow of funds. Capital
joinery Limited uses it in a very appropriate manner so that it can add to the value of the
company by increasing its funds in the long run. There are many advantages as well as
disadvantages of it that are explained below briefly-
 Advantages- The most important as well as foremost advantage of it is that it helps in
taking decisions about various factors that carriers a lot of value in the current market
situation. It also helps in determining the risks that a company possess and it has proved
very beneficial for Capital joinery Limited as it has increased its sales and profit many
folds because of it (Holm and Ax, 2020).
 Disadvantages- The main disadvantage of it is that it is highly rigid and makes it
complex for the firm to take appropriate decisions for the well being of the company.
Operating Budgeting- It is very useful as it deals in the day to day activities that a firm
performs and Capital joinery Limited is uses it as it helps in formulating plans so as to
determine the ways by which funds can be utilised.
 Advantages- The foremost advantage of it is that it helps the firm Capital joinery
Limited to carry out its daily transactions with full accuracy and effectiveness.
 Disadvantages- The main disadvantage of it is that is very complicated and makes it
difficult for Capital joinery Limited to analyse and evaluate things correctly.
Zero base budgeting- As its name suggests in it a base year is taken and all the rest are
calculated according to that year. There are many advantages and disadvantages of it and all of
them are discussed below in detail-
 Advantages- The main advantage of it is that is very easy and simple to calculate as it
does not require any specific knowledge.

 Disadvantages- All the years cannot be same as one and it is a very rigid process which
is not beneficial for firms.
Activity based budgeting- As its name suggests in it resources and funds are allocated on
different activities according to its requirements. There are many benefits as well as limitations
of it that are explained below-
 Advantages- It is very useful as activities are allotted resources according to the needs of
a particular activity which results in increased performance.
 Disadvantages- It is highly rigid and complex process and at times it is not feasible for
firms to use it.
M3. Analysis and evaluation of the application of planning tools for preparing as well as
forecasting budgets
There are various tools of planning that helps the company to formulate as well as
forecast budget and Capital joinery Limited uses mainly two types of budgets that is capital and
operating in which capital is related with capital nature aspects and operating is related with
daily operation that a business performs. Both of the above helps the firm to achieve its goals and
objectives in an effective and efficient manner by performing all the things in a precise manner
(Hushko, Kengne and Kotkovskyi, 2016).
TASK 4
P5. Evaluation of different firms that adapt to the system of management accounting so as to
respond appropriately to various financial problems
Financial problems- It is a problem that arise in a firm that fails to appropriately use its
funds in a precise manner and Capital joinery limited also face some financial problems and all
of them are discussed below in detail-
 Unforeseen expenses- Capital joinery Limited faces many expenses that are not
predicted and hence reduces the profit and performance of the firm in the long run. More outflows than inflows- Capital joinery Limited experiences it as firm is incurring
more expense than revenues that is creating a debt trap for the company in the industry
and also impacts its working (Johanson and Madsen, 2018).
Management accounting approaches-

 Benchmarks- In this type of approach a standard is set and all the business activities are
focussed on that aspect only so that it can be achieved as soon as possible. Capital joinery
Limited sets its standards very high which is also one of the reasons for the brilliant
performance of the firm in the long term aspect. While Howden Joinery Ltd does not set
any benchmark for its employees and thus suffers in the industry because of it.
 KPI- It is the key performance indicator of the firm performance and Capital joinery
Limited pays attention to this aspect as it carriers a lot of importance in the current
market scenario and also helped the firm to improve its performance and quality in the
market (Monte Swain, 2016). Whereas Howden Joinery Ltd also pays a lot of attention
on this factor and thus it has also proved very beneficial for the firm in the long run.
Comparison between companies
Basis Capital Joinery Ltd Howden Joinery Ltd
Management
accounting system
It is adapting to management
accounting system in a very effective
way by using past year data to analyse
and evaluate future trends so that it can
respond appropriately to financial
problems (Nishimura, 2019).
This firm uses competitive
analysis to adapt to
management accounting
system so as to respond to
problems relating to finances.
M4. Analysis of management accounting that helps business to sustain in the market by solving
financial problems in a rational way
Management accounting helps in identification of deviations that arises in performance
due to various things so that firms like Capital joinery Limited can adapt to the financial
problems in the competitive business environment that is prevailing in the current market
situation (Obara, Nangih and Agba, 2017).
D3. Identification and evaluation of the tools of planning that helps a firm to solves problems
regarding financial aspect so that it can be successful in the long run
Planning tools helps in solving financial problems as it analysis well in advance the
future aspects that the firm could face and thus taking decisions according to it helps the
company Capital joinery Limited to face all the problems in an effective as well as efficient
manner.

CONCLUSION
From the above it can be concluded that management accounting is very important as
well as essential for each and every firm due to the value that it possess in the long run. Apart
from this it can also be concluded that there are different costs, tools of planning, budgetary
control, and various other aspects that are all collectively carriers a lot of value from the
organisation’s point of view.

REFERENCES
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