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Management Accounting Systems & Techniques: A Comprehensive Analysis

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This report delves into the intricacies of management accounting systems and techniques, exploring their application in a real-world business scenario. It examines various cost accounting systems, price optimization strategies, and inventory management techniques, highlighting their benefits and integration within the organization. The report further analyzes absorption and marginal costing methods, preparing income statements and calculating break-even points. It also evaluates the advantages and disadvantages of planning tools like variance analysis and activity-based costing, demonstrating their role in budgetary control, forecasting, and financial problem-solving. Ultimately, the report emphasizes the crucial role of management accounting in achieving sustainable success for organizations.

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Management Accounting Systems &
Techniques
1

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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...........................................................................................................9
D. Critically evaluate how the management accounting systems and management accounting
reporting are integrated into your organization.........................................................................10
Task 2.............................................................................................................................................11
A- 1) Explain absorption costing and marginal costing methods..............................................11
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...........12
B. a) breakeven units................................................................................................................. 13
B. b. breakeven sales in value....................................................................................................13
B. c. Units to be sold for 10000 profit.......................................................................................13
B. d. Calculation of margin of safety.........................................................................................13
C. Apply the range of management accounting techniques and produce appropriate financial
reporting documents accurately for the scenarios given in Task 2............................................14
D. Produce financial reports that accurately apply and interpret the data for the business
activities shown in the scenarios in Task 2 above.....................................................................15
2

Task 3.............................................................................................................................................16
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...................................................................................................................16
B. Show the application of the planning tools for preparing, forecasting and analyzing budgets.
................................................................................................................................................... 18
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.................................................................................................19
D. Analyse how your management accounting techniques could respond to financial problems
and lead the organization to sustainable success.......................................................................21
E. Evaluate how planning tools could be used to solve financial problems and lead the
organization to sustainable success...........................................................................................22
Conclusion..................................................................................................................................... 23
References:.................................................................................................................................... 24
3

Introduction
In the report which is to be presented all of the aspects which are there in relation to the
management accounting will be taken into consideration. In this various systems which are to be
used will be considered and with the help of them, the reporting will be made. The company will
be making various calculations in which the profit will be calculated and also the break-even
points will be identified with the determination of margin of safety. All the planning tools which
will be used for the proper attainment of the objectives will be considered. There will be a
determination of the financial problems which are faced and then the manner in which they will
be resolved will be considered so that it is possible for the entity to attain the sustainable success.
4

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Task 1
Introduction:
The management accounting and the other aspects which are related to it will be discussed in the
report provided below. All of the importance and the systems will be considered by which
further reporting will be made possible.
A. Explain management accounting and give the essential requirements of different types
of management accounting systems to the chosen scenario giving examples.
Management accounting is the process which will be used by all the companies as it helps in the
completion of the operations in such a manner that the objectives of the company are attained. In
this, the data will be collected, interpreted and analyzed for the proper making of the decisions in
the company. By the help of them, all of the goals which have been set by them will be achieved.
In this, the various aspects which are there will be considered and for the inclusion of the
financial aspects, there will be the use of another technique which is a financial accounting
(Taipaleenmäki and Ikäheimo, 2013). With the help of that, it will be possible to include all of
the important information in the accounts so that it can be used for the carrying of various
processes. The information that will be needed will be collected with the help of the systems
which are available and the main are discussed below:
Cost accounting systems: This is the system which will be useful in reference to the cost which
is involved in the business. For that there will be required to identify the costs which are there
and they will be classified in the types which are basically two variable costs which will be
changing on the continuous basis with the deviation in the volume and the fixed expenses will be
the ones that remain same and no change will be made in them (Lopez-Valeiras, et. al., 2015).
The calculation of the same will be made with the help of various methods that are available and
that include normal costing in which the overheads will be based on the targets set and other
expenses on actual amounts. The standard costing will be used when the set standards will be
used and the actual costing will be used for the calculation of the actual cost which is incurred in
the business.
5

Price optimization systems: In the company, the product will be provided by it to the
consumers at a certain rate and that is known as the price which is a very essential part of the
business. It is required that there shall be the appropriate price which shall be set so that the
profits are increased and also they are affordable for all. For that, the response of customers at
different prices will be analyzed and feedback will be obtained to take the further decisions about
price. The calculation will be made by using the various strategies which are there and for that
the company will be considering them such as the price skimming, cost-based, value-based and
various approaches.
Inventory management systems: The processes which are undertaken in the business required
the inventory and that shall be maintained in a proper manner and for that effective decision in
this respect shall be taken. The proper inventory management techniques shall be used such as
economic order quantity or just in time approach by which the required level of stock will be
managed. This will be ensuring that there is no wastage which is made and also shortage is not
faced. The valuation will be made in an appropriate manner so that proper recording in the
accounts is made possible and this will be with the help of methods such as weighted average,
FIFO, and LIFO.
6

B. Explain different management accounting reports used by your chosen organization and
justify the importance of such reports to management.
The company uses the information for various processes and that will be possible when proper
records will be maintained with the help of reporting. This will be essential for the management
and various types of reports which will be formulated are as follows:
Budget report: The Company is required to identify all of the incomes and expenses which will
have to be met by it in the coming period and for that, it is required that proper estimates shall be
made. All of the findings and the estimates which will be made will be recorded in the budget. In
that, they will be incorporated in such a manner that they will be followed by all and for that
proper implementation of the same will be made (Klychova, et. al., 2014). This will be the plan
which will be made and by the help of that it will be possible for the management to manage the
activities in such manner that no adverse impact is made and also proper utilization of the
resources will be made possible.
Variance report: The performance of the company does not remain constant and for that, it is
required that there shall be proper analyzation which shall be made and the deviations which are
involved will be identified with the help of that. The actual performance of the company will be
evaluated and will be further compared with the standards which are set so that the variance
which is present among them is identified (Glantz, et. al., 2016). This will be entered in the
report so that can be brought to the notice of management which will be considering it and
designing such process and actions that will be helping in the elimination of them and also the
budget for the coming period will be made after taking them in consideration.
Job cost report: The cost which is incurred in the company in respect of the several jobs will
have to be managed in a proper manner and for that, it will be identified. There will be the use of
this report so that all of the information in this respect can be entered at the one place (Sullivan,
2018). There will be the calculation of the total cost by considering all of the expenses which
have been incurred and that will then be allocated in such manner that the cost of each job can be
ascertained.
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The decision making of the company will be made strong with the help of these reports and so it
is very important that they are maintained in an appropriate manner. The data which will be used
in this will be the relevant and reliance can be placed on the same which will help in making the
best decisions.
8

C. Evaluate the benefits of the systems you have mentioned in A and how they are applied
in the given business context.
The company will be using the systems which have been explained above and with the help of
them, it will be possible for it to attain several advantages. There will be making of the proper
plans by the help of this and also the decisions will be made in the more improved manner and
that will be making the whole process more relevant (Yalcin, 2012). The control system will be
made strong by which all of the expenses will be minimized and that will lead to a reduction in
the total cost. There will be an increase in the profits by this which will be making the business
more successful as the performance will be improved.
9

D. Critically evaluate how the management accounting systems and management
accounting reporting are integrated into your organization.
The processes which are involved in the management accounting are interlinked and there is the
need to identify that. The systems and the reports which are used in the process are integrated
and this is due to various reasons. There will be a requirement of both in the entity as the reports
will be formulated by the use of the systems which will be providing them with the information
that is needed to make the report (Dekker, 2016). There are various types of the data which is
needed and that will be collected from several departments and this will be making them get
integrated with all others and also with the organization to make the process successful.
10

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Task 2
A- 1) Explain absorption costing and marginal costing methods.
The cost can be ascertained with the use of various methods and with the help of them it will be
possible for the company to determine the profits as the income statement will be made. They are
explained below:
Absorption costing: This is the technique which is used in the business and with the help of this
the cost will be ascertained. There will be proper allocation which will be made under this of all
the expenses which are there and the cost will be ascertained after considering all of this. There
will be consideration of all the variable and fixed expenses under this. The company will be
making the use of this so that income statement is developed in such aa manner that proper profit
is determined.
Marginal costing: The Company will be using this and in this, only the variable aspects of the
cost will be considered. There will be no allocation of the fixed cost that has been incurred. The
contribution will be identified by the reduction of variable amounts only (Maria, 2017). In this,
the profit will be obtained after reducing all of the fixed cost and there will be no apportionment
of them which will be making the profit to be different.
11

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
12

B. a) breakeven units
Break-even = Fixed cost/ (selling price-variable cost)
= 6000/ (40-28)
= 6000/12
= 500 units
B. b. breakeven sales in value
Break even = Fixed cost/ Profit-Volume 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%
13

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C. Apply the range of management accounting techniques and produce appropriate
financial reporting documents accurately for the scenarios given in Task 2.
The reporting is the important concept in the process of accounting for that there are various
tools and techniques which are used and this will be making the process more successful. By the
help of them, there will be various calculations which will be made and this will be making the
management with the data which shall be incorporated in the reports. In this, the cost will be
calculated and then with the help of that profits will be identified. There is also the determination
of the breakeven point and the units which will be required to be sold so that the required profits
are made.
14

D. Produce financial reports that accurately apply and interpret the data for the business
activities shown in the scenarios in Task 2 above.
The company is identifying the profits by the use of various methods which are available and it
has been noted that there is the deviation in both of them and the main reason for that is the
manner in which the company is making the allocation of the fixed costs which are incurred. Due
to that, the reconciliation will be made which is provided below:
Particulars Amount
Net profit by marginal costing 17500
Difference in units 800
Net profit by absorption costing 18300
15

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 will be required to manage all the activities in the best manner and for that, there
will be need of the plans. For that, there will be various planning tools which will be used and
they will be required to be identified. There is the description which is provided below in this
context.
Variance analysis: This is the technique which is used to identify the deviations which arise in
the business. This will be made possible with the help of the comparison that shall be made
among the actual and the budgeted value (Pilleboue, et. al., 2015). By that, all of the differences
which exist among them will be determined and then the company will be taking the appropriate
measures to deal with them.
Advantages:
 The company will be able to identify the accuracy of the budget and this will prove to be
a performance measurement by which proper evaluation is made.
 The company will be able to make the improvements in the process by the determination
of the deviations which arise.
Disadvantages:
 The budget which is made is on the basis of the estimates and it is not possible that all of
the assumptions that are made are correct.
 The company will be making the changes according to the past records and in that the
changes which are to be made to meet the other modifications are avoided.
Activity-based costing: This is also used in the business for the determination of the cost of the
product. In this, the activities which are performed will be considered for this purpose. There will
be proper identification of them and also the cost which is incurred. Then the cost drivers will be
determined and the cost allocation will be made in accordance with that (Faraji, et. al., 2015).
16

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The cost pools will be made and this will be helping the identification of the cost of each of the
item by including the cost of all the activities.
Advantages:
 The appropriate cost will be calculated by this in which all of the aspects in relation to
this will be identified.
 The proper decisions will be made which will help in cost control and also the issues if
any which are faced in this respect will be identified.
Disadvantages:
 The whole process which is involved in this is complex and due to that all will not be
able to use this and skilled labor will be required.
 The process will be lengthy as all of the activities are to be identified which will be very
difficult.
17

B. Show the application of the planning tools for preparing, forecasting and analyzing
budgets.
In the process of the forecasting, there is the need to use various planning tools as ten only all of
the areas will be covered which is very essential for the making of the proper plan. The external
factors are to be analyzed and this will be made possible by the PESTLE analysis. Then for the
identification of the internal factors, there will need to use the SWOT in which all of the
weaknesses and the strengths of the business will be analyzed and then decisions will be made in
such manner that proper budget is made.
18

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.
The company will be maintained in a successful manner when it will be able to deal with all the
problems that are being faced. There will be aa need to identify them and this will be made by
following the proper process. In that, there is the need to use the proper techniques which will be
helping in the completion of the whole process in the best manner.
Identification of the problems: The Company will be required to identify all of the issues
which are faced in the business and for that proper process will be followed and also the analysis
will be made in the best manner. There will be various issues which arise as the problems will be
faced in various areas of the company. There will be the cash related issues which are faced as
the shortage is there and then the company will be required to determine them so that they can be
eliminated by the making of proper arrangements. Also, the manner in which resources are
allocated will be evaluated so that proper analysis in this respect is made by which they will be
distributed in most effective manner. If the company is having the losses then they will also have
to be brought to the notice of all so that they can take the action to make the negative effects to
convert in the positive aspects.
Making of the plan: The Company will be making the proper plan which will have to be
followed so that the issues which have been determined can be eliminated and the results and the
performance of the business can be improved. By the help of that company will be taking such
steps which will be making the actions to be done in such manner that no further problem is
faced and the objectives of the business are attained in the best manner.
Tools and techniques: The Company will be using various such tools by which the proper plan
will be made and also the performance will be improved and they are the following:
Key performance indicators: The performance of the company will be improved by the use of
the proper performance-based incentives and for that, they will be set by the company. In the
monetary and non- monetary incentives will be provided. This will be encouraging the
19

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employees to perform an effective manner as this will be providing them with the required
benefits.
Benchmarking: The policies in the company are very important as they are standards which will
have to be acquired and so the proper benchmarks will be set and in them, the evaluation of the
practices which are followed by the other entities and industry will be discussed (Zhu, 2014).
They will be considered and then the practice of the company will be made by taking the main
points from them.
20

D. Analyse how your management accounting techniques could respond to financial
problems and lead the organization to sustainable success
Management accounting will prove to be of great importance as there are various tools and
techniques which are there in them which will be used so that the whole process can be
improved. In that, the business will be able to maintain the proper position and there will be the
attainment of the targets and objectives which are set. The budgets which are made include the
standards which are to be followed and by that the company will be able to attain the targets and
also control the cost which is incurred. Under this the company will be performing in accordance
with the specified method and the issues will be avoided (Otley, 2016). There will be an efficient
allocation of the resource so that maximum advantage from them is attained. The company will
be managing the operations in an effective manner as the communication process will be
improved and smooth processing will be made. The management accountant will possess such
skills which will be making this possible.
21

E. Evaluate how planning tools could be used to solve financial problems and lead the
organization to sustainable success.
The various planning tools which are used in the company will be providing the advantage as the
financial problems which are there will be resolved with the help of them. In this, the target
costing will be used so that cost can be controlled and with the budget will also be used with the
same objective. There will be the use of the standards and the breakeven identified by which it
will be decided that what volume is to be maintained by which the company will be making the
profits which are required.
22

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Conclusion
The report that is presented above provides all of the required understanding in relation to the
management accounting. The company is using various systems and they have been identified
and with them, the manner in which they will be sued for the reporting is also determined. The
calculations which are made provide the profits which the company will be making and with the
other values are also identified such as the desired sales and margin of safety. The planning tools
and their importance is also analyzed. The problems which are faced are determined and the
manner in which the various tools will be used for this is also determined which makes the
business successful.
23

References:
 Dekker, H.C., 2016. On the boundaries between intrafirm and interfirm management
accounting research. Management Accounting Research, 31, pp.86-99.
 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.
 Klychova, G.S., Faskhutdinova, М.S. and Saraiva, E.R., 2014. Budget efficiency for cost
control purposes in the management accounting system. Mediterranean journal of social
sciences, 5(24), p.79.
 Lopez-Valeiras, E., Gomez-Conde, J. and Naranjo-Gil, D., 2015. Sustainable innovation,
management accounting and control systems, and international performance. Sustainability,
7(3), pp.3479-3492.
 Maria, T., 2017. Impact of Costing and Cost Analysis Methods on the Result of the
Period: Methods Based on Partial Cost Theory. Ovidius University Annals, Economic
Sciences Series, 17(2), pp.671-675.
 Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, pp.45-62.
 Pilleboue, A., Singh, G., Coeurjolly, D., Kazhdan, M., and Ostromoukhov, V., 2015.
Variance analysis for Monte Carlo integration. ACM Transactions on Graphics
(TOG), 34(4), p.124.
 Sullivan, D., 2018. Types of Managerial Accounting Reports. [Online]. Available at:
http://smallbusiness.chron.com/types-managerial-accounting-reports-58384.html [Accessed:
30 July 2018].
24

 Taipaleenmäki, J. and Ikäheimo, S., 2013. On the convergence of management
accounting and financial accounting–the role of information technology in accounting
change. International Journal of Accounting Information Systems, 14(4), pp.321-348.
 Yalcin, S., 2012. Adoption and benefits of management accounting practices: an inter-
country comparison. Accounting in Europe, 9(1), pp.95-110.
 Zhu, J., 2014. Quantitative models for performance evaluation and benchmarking: data
envelopment analysis with spreadsheets (Vol. 213). Springer.
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