Management Accounting Systems & Techniques: A Comprehensive Analysis

This report delves into the intricacies of management accounting systems and techniques, providing a comprehensive analysis of their application in a business context. It explores various management accounting systems, including cost accounting, price optimization, and inventory management, and examines their benefits and integration within an organization. The report further investigates the concepts of absorption costing and marginal costing, demonstrating their application through income statement preparation and break-even analysis. It also analyzes the advantages and disadvantages of planning tools like variance analysis and activity-based costing, showcasing their role in budgetary control, forecasting, and financial problem-solving. The report concludes by highlighting the importance of management accounting techniques in achieving sustainable success for organizations.

Management Accounting Systems &
Techniques
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Table of Contents
Introduction......................................................................................................................................4
Task 1............................................................................................................................................5
A. Explain management accounting and give the essential requirements of different types of
management accounting systems to the chosen scenario giving examples.................................5
B. Explain different management accounting reports used by your chosen organization and
justify the importance of such reports to management................................................................7
C. Evaluate the benefits of the systems you have mentioned in A and how they are applied in
the given business context...........................................................................................................8
D. Critically evaluate how the management accounting systems and management accounting
reporting are integrated into your organization...........................................................................9
Task 2.............................................................................................................................................10
A- 1) Explain absorption costing and marginal costing methods..............................................10
A- 2) prepare an Income Statement based on the calculations of costs as per the information is
given above using both a) absorption costing method and b) marginal costing method...........11
B. a) Breakeven units.................................................................................................................12
B. b. Breakeven sales in value...................................................................................................12
B. c. Units to be sold for 10000 profit.......................................................................................12
B. d. Calculation of margin of safety.........................................................................................12
C. Apply the range of management accounting techniques and produce appropriate financial
reporting documents accurately for the scenarios given in Task 2............................................13
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D. Produce financial reports that accurately apply and interpret the data for the business
activities shown in the scenarios in Task 2 above.....................................................................14
Task 3.............................................................................................................................................15
A. Explain the advantages and disadvantages of different types of planning tools for budgetary
control. Here, you should provide examples of at least two types of planning tool used for the
chosen organization...................................................................................................................15
B. Show the application of the planning tools for preparing, forecasting and analyzing budgets.
...................................................................................................................................................17
C. Compare how your organization (Scenario chosen for the purpose) is different in adapting
management accounting systems to respond to financial problems. This should be supported
with examples and illustrations.................................................................................................18
D. Analyse how your management accounting techniques could respond to financial problems
and lead the organization to sustainable success.......................................................................19
E. Evaluate how planning tools could be used to solve financial problems and lead the
organization to sustainable success...........................................................................................20
Conclusion.....................................................................................................................................21
References:....................................................................................................................................22
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Introduction
In the changing environment, it is required that all of the elements which are required to be noted
in the business shall be involved in the accounting process of the company. This will be covering
all of the reports which are to be prepared and the systems which are used in this process. There
is the need to ascertain the profitability and this will be done by using the marginal and
absorption costing. There will be the breakeven point which will also be calculated in the given
report which will be helpful in the maintenance of the appropriate level of sales. There are the
planning tools and the discussion in respect of them will be made together with the other
measures which will be used so that all the problems which are faced can be eliminated.
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Task 1
Introduction:
The systems which will be used in the business will be described in the report below and then
with the help of the information that is collected reports will be made.
A. Explain management accounting and give the essential requirements of different types
of management accounting systems to the chosen scenario giving examples.
In the entity, it is required that the best and relevant approaches shall be undertaken so that they
can be used in the carrying out of all the activities in such manner that the appropriate results are
attained. The company will be required to maintain the proper accounts and for that financial and
management accounting will be used. In them, all the aspects of the business will be covered and
by that, it will be possible for the company to make the best decisions which will be in the
interest of all. The data which will be related to the financial matters will be considered in the
financial accounting and in management accounting, all other factors will be undertaken
(Legaspi, 2014). The company will be making the decisions in this and for that, they will be
collecting the info ration which will be done with the help of the systems of management
accounting. There is no specific standard or format in this which will have to be used so the
entity will be using the methods as per its wish. The main systems which will be used under this
and which will be helpful are as follows:
Cost accounting systems: The production process and other services which are provided by the
company will be requiring the use of the funds and all the amount which is used in the process is
known as the cost which is incurred. There are various elements which are included in this and
all of them will be covered in the calculation of the total amount of cost. There are several
approaches which can be taken into consideration in this process and that include normal costing
in which there will be the standard cost which will be used for the overhead and all the other
amounts which will take into account on actual values. The actual costing will be used in which
all the actual amount and standard costing in which all the standard values will be used by the
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business. This way the cost will be ascertained and the management will be making arrangement
for the same so that all the activities are carried in a successful manner.
Price optimization systems: The Company is in the need to increase the level of the profits and
for that customer, views are very much relevant. This system will be used by which all the
aspects will be included and the reaction of the consumers on the price change or different prices
will be analyzed. By that, it will be possible for the company to make the required decision and
take such steps by which the process which will be providing maximum returns will be selected
(Lopez-Valeiras, et. al., 2015). The price calculation will be made with the help of the various
techniques which are available such as cost-based or market-related strategies. There are various
methods in them and they will be used to choose the best price so that the benefit will be
attained.
Inventory management systems: The stock which is used in the business is required to be
maintained in an appropriate manner and for that, all the requirements will be determined and
then they will be managed. There will be need of various methods to be used in this and they
include economic order quantity. By the help of this the optimum level of the inventory which is
required to be maintained will be identified and then the orders will be placed accordingly. This
will help in reduction of the stock which is wasted or remains unutilized. The value at which it
will be required by the company to record it will be determined and for that, the valuation tools
such as LIFO, FIFO, and weighted average will be taken into use.
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B. Explain different management accounting reports used by your chosen organization and
justify the importance of such reports to management.
The information can be used in a proper manner when it is recorded in the proper manner and for
that, there is the need to make the reports and the explanation of the same is provided below:
Cost report: All the information which is required in the calculation of the cost will; be
incorporated in this report together with the cost which has been calculated. That will be used by
the managers so that they can take it in the account and check that it is maintained inappropriate
manner. By this, the irrelevant cost which is incurred can be eliminated so that the reduction in
the total cost is made.
Budgets: The estimates which are made by the company for the amount of the expenditures
which are to be made will be recorded in this and they will be considered as the targets which
will have to be managed (De Jong, et. al., 2012). By the help of this, there will be a balance
which will be made in them and funds will be managed.
Job cost report: This is the report in which all of the aspects which are related to the jobs which
are carried in the business are incorporated. The cost which is there in relation to them will be
recorded and for that, the techniques such as contract costing, process costing will be used so that
accurate values are determined.
The company requires the formation so that it can be used in the decision-making process and for
that reports are providing which will be used. There will be proper disclosure which will be
made of all the important information and they will be used by the managers who are involved in
the management process (Sullivan, 2018). All of the information will be presented in the easiest
manner so that it will be understood by all and they will be able to interpret it in the required
manner.
The information will be available at one place and that will be analyzed as in this all types of
data are involved. The cost report will be analyzed so that it can be determined it is recorded
appropriately and if there is any deviation then it will be identified and there will be a process
which will be undertaken to overcome it.
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C. Evaluate the benefits of the systems you have mentioned in A and how they are applied
in the given business context.
The management accounting systems which are used in the business are very essential as they
will be providing the company with the required benefits. There will be proper decisions which
will be made as the information will be collected in an appropriate manner (Taipaleenmäki and
Ikäheimo, 2013). There will be coordination which will be established due to them and also such
measures will be taken by which there will be cost reduction. This will be providing the
company with the other advantage which is an increase in the profits level.
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D. Critically evaluate how the management accounting systems and management
accounting reporting are integrated into your organization.
The process which is involved in the business in relation to the management accounting is
interlinked and it makes the systems and the reports integrated. They will be used in the balanced
way as there will be no reporting which can be made only when the information that is to be
entered is available and that is possible by the help of the management accounting systems.
There is the link which is developed among all the departments and this makes then integrated
into the company and this process as they will be involved in this.
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Task 2
A- 1) Explain absorption costing and marginal costing methods.
The calculation of the cost in the business can be performed by the use of the two system and
they are marginal and the absorption costing which are described below:
Absorption costing: The Company uses this when they are making the allocation of the fixed
production overheads. In this, they will be distributed among the units which are manufactured.
This way there will be gross profit which will be calculated and then the other expenses will be
considered (Aurora, 2013). There will be over or under adjustment which is there and that will be
adjusted by the company for the calculation of the profits.
Marginal costing: This is the technique in which the company will be bifurcating all the
expense in the variable and fixed and the variable portion will be used for the calculation of the
contribution and then for the determination of the profit there will be a consideration which will
be provided to the fixed expenses.
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A- 2) prepare an Income Statement based on the calculations of costs as per the
information is given above using both a) absorption costing method and b) marginal
costing method.
Net profit by absorption costing £Amoun
t
£Amoun
t
Salesvalue 33000
Less: Cost of Sales:
Opening stock 0
Cost of production 15200
Closing stock 3800 11400
Gross Profit 21600
Less: Selling Expenses
Variable sales expenses (1*600) 600
Fixed administration expenses 1200
Fixed selling expenses 1500 3300
Net loss 18300
Net profit by marginal costing £Amoun
t
£Amou
nt
Sales value 33000
Less: Variable costs
Stock at the opening 0
cost of production 12000
Stock at the closing 3000 9000
Variable sales overheads 600
Contribution 23400
Less: Fixed costs:
Fixed Production overheads 3200
Fixed administration expenses 1200
Fixed Selling overheads 1500 5900
Net loss 17500
B. a) Breakeven units
Break-even = Fixed cost/ selling price-variable cost)
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= 6000/(40-28)
= 6000/12
= 500 units
B. b. Breakeven sales in value
Break even = Fixed cost/ PV ratio
= 6000/(12/40*100)
= 6000/0.30
= £20000
B. c. Units to be sold for 10000 profit
Desired sales= Fixed cost + profits/ contribution
= 6000 + 10000 / 12
= 16000/12
= 1333.33 units
B. d. Calculation of margin of safety
Margin of safety = Current sales – break even sales / current sales *100
= 800-500/800*100
= 37.5%
C. Apply the range of management accounting techniques and produce appropriate
financial reporting documents accurately for the scenarios given in Task 2.
The company is carrying out various calculations and in them, there are various techniques
which are taken into use. There are proper statements which are prepared and by that the profits
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which are made are determined. There are standard values which are identified by the budget.
Then the company is making the calculation for the breakeven point. There are the proper
amount and quantity which is calculated by that. There is no budgeted amount which is provided
in the costing process and due to that the under and over absorption of the cost is not involved in
the absorption costing.
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D. Produce financial reports that accurately apply and interpret the data for the business
activities shown in the scenarios in Task 2 above.
The calculations which are made above can be interpreted and by that it has been identified that
the profits are calculated by the use of marginal and absorption costing and the amount which is
determined in them is not same. There is the difference between them and that is due to the
treatment of the closing stock and the related fixed production overhead which are made in
relation to it. For the reconciliation of them, there is the statement which is made and that is
provided below:
Particulars Amount
Net profit by marginal costing 17500
Difference in units 800
Net profit by absorption costing 18300
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Task 3
A. Explain the advantages and disadvantages of different types of planning tools for
budgetary control. Here, you should provide examples of at least two types of planning
tool used for the chosen organization.
The company is required to make the plan by the help of which all the actions which are to be
performed and in what manner will be determined and the results will be obtained by which there
will be a success. Some of the major tools which are used in this process are described below:
Variance analysis: This is the technique in which the company will be able to determine the
variances and the deviations which are present (Glantz, et. al., 2016). For this, the budgeted
values will be identified and then the comparison of same with the actuals will be made so that
they can be identified.
Merits:
 The company will be able to determine the errors and this will help in performance
evaluation so that required corrective steps can be taken.
 There will be the elimination of the errors and by that, the company will be able to attain
the sustainable success.
Demerits:
 In this, the standards are taken which are estimates and this involves the risk of involving
the incorrect values in the process.
 There will be no consideration which will be provided for the coming period and only the
past records are used which will not include the changes that will be taking place.
Activity-based costing: This is the process in which the company will be making the allocation
of the cost to the activities which are there (Faraji, et. al., 2015). There will be a determination of
the activities and then the cost drivers in relation to them will be determined which will be used
to make the proper distribution by which the accurate cost will be identified.
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Merits:
 The company will be able to make the cost determination and that way control will be
established.
 The process will be making it possible to deal with the cost related issues and that will be
maintained.
Disadvantages:
 The process that is involved is complex will not be understood by all in a proper manner.
 There is the need to identify the activities and it is not an easy task as there are several
activities which are performed in the business.
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B. Show the application of the planning tools for preparing, forecasting and analyzing
budgets.
The company is required to make the appropriate forecasts and for that proper identification and
analyzation will be made. There are several tools which will be sued in this process. The
business will be making the evaluation of all the internal as well as the external elements which
are involved. For that technologies such as Porter's five forces and SWOT will be made. Then
the budgets will also be made and there will be variance analysis which will also be performed.
The cost will be calculated with the help of the methods such as activity-based costing, target
costing, and standard costing.
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C. Compare how your organization (Scenario chosen for the purpose) is different in
adapting management accounting systems to respond to financial problems. This should be
supported with examples and illustrations.
Financial issues are faced in all the companies and businesses and so unicorn grocery is also
having some of the issues and it will be required that there shall be a proper process which shall
be followed in which appropriate techniques will be undertaken.
Problem identification: The main part of the business is to determine all of the problems and
issues which are there in it. For that proper evaluation will be made of all the processes which
are undertaken. There will be a determination of all of the required components which are
involved in that, the main problem is related to the funds as the company does not keep the
proper check on the same and that leads to the issues in it and that the makes the company to
suffer the losses (Yalcin, 2012). There are various activities which are not performed in the
required manner and fraud so committed by which the whole organization is required to incur the
losses and suffer the adverse impact of the same.
Plan development: The Company will be making the appropriate plan in which it will be
considering all the aspects and then there will be tools and techniques which will be considered
that can be used in this process. There will be proper evaluation which will be made so that the
best tool will be chosen by which all of the issues will be dealt with in the best manner.
Techniques implementation: The techniques which will be sued in this process are as follows:
Benchmarking: In this, the company will be analyzing the policies of the industry and others
and then making the policies of the company in accordance with them so that they can attain the
required results (Ajelabi and Tang, 2012). This will be useful as there will be the inclusion of the
best techniques in this process.
Key performance indicators: The company will be setting the performance-based incentives
and they will be provided to employees if they attain the required results. By this, the targets will
be met and there will be best outcomes and this way the overall improvement in performance
will be made.
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D. Analyse how your management accounting techniques could respond to financial
problems and lead the organization to sustainable success
The company is required to undertaken such tools and techniques by which all of the problems
are considered and resolved in the best manner. For that management, accounting is the best
option as this involves various tools which will be sued and they help in attaining the required
results and there will be no issues which will be occurring again. The management accountant is
hired who possess the required skills so that they are able to deal with them in an effective
manner. There will be proper communication which will be established by them in this and by
that coordination will be developed which leads to a reduction in the problems. The cost will be
controlled and for that, there will be cost processes such as marginal and absorption which are
undertaken. Then the variances which are there will be determined and removed in the coming
year, the changes in the plan are made accordingly by the company so that they are avoided in
future (Roberts and Russo, 2014). All the major areas in which the company has strong pint will
be identified and they will be sued in the manner that all the weaknesses are overcome by them.
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E. Evaluate how planning tools could be used to solve financial problems and lead the
organization to sustainable success.
All the tools and techniques which are to be used by the company in the process of management
accounting are discussed and by that, it will be able to make the policies which will be helping in
the attainment of the required results. All the targets which are set will be attained and there will
be no issues which will be repeated. There will be a target and standard costing which will be
undertaken and budgeting will be also undertaken by which overall cost control will be made.
There will be no wastage which will be made and also the stock of the company will be managed
in the best manner.
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Conclusion
The report that is made is describing all the essential requirements of the management
accounting there are various elements which are discussed such as the systems and reports which
are used in the business. All of the calculations have been presented in the appropriate manner
and there is the need to make the sales at the level which will be providing the company with the
benefits. There are tools which are discussed and they are used in the company so that planning
is made in the appropriate manner. The tools and techniques for [problem-solving are also
explained which will be helping sustainable success.
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management performance improvement. International Journal of Managing Public Sector
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Costing–A Comparative Approach. Annals-Economy Series, 2, Pp.123-129.
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Budgeting: Lessons From A Decade Of Performance-Based Budgeting In The
Netherlands. OECD Journal Of Budgeting, 12(3), P.C1.
 Faraji, T., Maghari, A. and Mirsepasi, N., 2015. A framework for assessing cost
management system changes the case of activity-based costing implementation in the food
industry. Management Science Letters, 5(4), pp.413-418.
 Glantz, S.A., Slinker, B.K. and Neilands, T.B., 2016. Primer of applied regression &
analysis of variance. McGraw-Hill Medical Publishing Division.
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Study Of Management Accounting Concepts In The Philippines Industries. LAP LAMBERT
Academic Publishing.
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management accounting and control systems, and international performance. Sustainability,
7(3), pp.3479-3492.
 Roberts, M. and Russo, R., 2014. A student's guide to analysis of variance. Routledge.
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http://smallbusiness.chron.com/types-managerial-accounting-reports-58384.html [Accessed:
22 June 2018].
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 Ward, K., 2012. Strategic management accounting. Routledge.
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 Yalcin, S., 2012. Adoption and benefits of management accounting practices: an inter-
country comparison. Accounting in Europe, 9(1), pp.95-110.
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