Management Accounting: Systems, Techniques, and Planning Tools

This report explores the fundamental concepts of management accounting, encompassing systems for data collection, reporting methods, cost analysis techniques, and planning tools. It delves into the application of marginal and absorption costing for income statement preparation, examines the advantages and disadvantages of various budgeting approaches, and analyzes how management accounting can effectively address financial problems and contribute to sustainable organizational success. The report utilizes real-world examples and case studies to illustrate key concepts and demonstrate practical applications.

Management accounting
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Table of Contents
Introduction........................................................................................................................3
LO1: Demonstrate an understanding of management accounting systems.....................4
P1 Explain management accounting and give the essential requirements for different
types of management accounting..................................................................................4
P2 Explain different methods used for management accounting reporting...................6
M1 evaluate the benefits of management accounting systems and their application
within an organizational context.....................................................................................7
D1 provides a critical evaluation of how management accounting systems and
management accounting reporting are integrated within organizational processes.....7
LO2: Apply a range of management accounting techniques............................................8
P3 Calculate costs using appropriate techniques of cost analysis to prepare an
income statement using marginal and absorption costing.............................................8
M2 Apply a range of management accounting techniques and produce appropriate
financial reporting documents........................................................................................9
D2 Produce financial reports that accurately apply and interpret data for a range of
business activities..........................................................................................................9
LO3: Explain the use of planning tools used in management accounting......................11
P4 Explain the advantages and disadvantages of different types of planning tools
used in the budgetary control.......................................................................................11
M3 Analyze the use of different planning tools and their application for preparing and
forecasting budgets......................................................................................................12
LO4: Compare ways in which organizations could use management accounting to
respond to financial problems..........................................................................................13
P5 Compare how organizations are adapting management accounting systems to
respond to financial problems......................................................................................13
M4 Analyze how, in responding to financial problems, management accounting can
lead organizations to sustainable success..................................................................13
D3 Evaluate how planning tools for accounting respond appropriately to solving
financial problems to lead organizations to sustainable success................................14
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Conclusion.......................................................................................................................15
References.......................................................................................................................16
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Introduction
In the management accounting, there are various techniques which are available and
will be used in business so that all the work can be performed in the best manner. In
this report, the systems which are used for collection of data will be considered together
with the reports that will be prepared by the use of them. The costing methods which
are available and will be used by the company in the making of income statements will
also be explained. This will be carried out in context of Zylla and budgets will be
described which will be used as a planning tool. The manner in which company will be
dealing with the financial problems will also be taken into account in which all the
techniques that can be undertaken will be discussed.
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LO1: Demonstrate an understanding of management accounting systems
P1 Explain management accounting and give the essential requirements for
different types of management accounting.
Zylla is the company in which there is the need to make various decisions due to the
changes which are taking place in the business. For that, it will be required that all the
information shall be collected which will be needed. There are several functions which
will be undertaken in this and they are as provided hereunder.
Zylla will be needed to make such plan by which all the operations are effectively
performed as there will be the inclusion of the details such as the manner in which
activities shall be carried. All the directions shall be informed to the responsible persons
so that they do not face any issues. To ensure that proper implementation has been
made, there shall be proper control system by which check can be made (Legaspi,
2014). The process of decisions will be improved by the use of the principle of Causality
and analogy in business.
Accounting is classified into various sections and they are management accounting,
cost accounting, and financial accounting. Here consideration will be provided to
management accounting in which all the departments will be linked with one another
due to the systems which are used under it. The manner in which financial and
management accounting are different can be understood from the table below:
Management accounting Financial accounting
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Planning
Controlling
Directing and motivating

This is not compulsory and can be carried
in the manner decided by managers.
They are legally mandatory and shall be
complied with by all.
The manner in which reports are to be
made is not specified so any format can be
used for this.
The format of statements to be made is set
and will be used.
The department-wise focus will be
provided in this.
The whole organization is taken into
consideration as one unit.
Only the internal parties will be able to use
the information that is present.
The data will be provided to all the parties
outside the company.
The several systems which will be used to collect information are as follows:
Cost accounting systems: the information in relation to cost will be collected under
this by the use of various methods such as actual, normal or standard costing. They will
be beneficial in ascertainment of the accurate cost (Zaleha Abdul Rasid, et. al., 2014).
They will help business in establishing control over expenses. Process and job costing
can also be used under this system.
Inventory management systems: The manner in which inventory will be valued is
considered under inventory management system under which all the cost such as
holding and ordering cost will be included. The methods which are to be used in this are
just in time and economic order quantity by which optimum level will be maintained.
Job costing system: This is used in respect of the jobs which are required to be
performed in the business. The entire amount which will be spent in the process will be
determined with the help of the job costing. Then it will be allocated to all the various
jobs which are performed in the business.
Price optimizing systems: The information which will be needed in the setting of price
will be collected with the help of this system. Then that will be used with the help of the
methods which are available in this regard (De Toni, et. al., 2017). There are basically
two categories which can be undertaken and they are cost-based in which cost will be
taken as base and market based in which all the market situations will be included.
P2 Explain different methods used for management accounting reporting.
The data which is collected by the use of systems will be used in the making of reports
so that it can be properly evaluated and used in the decision making. The basic reports
which will be formulated are as follows:
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Various reports:
Performance report: This is the report under which the information by the use of which
evaluation of performance can be carried will be entered. All the variances which will be
determined by variance analysis will be mentioned and also the other parameters which
will be used in this process shall be defined in this report. Employees will be motivated
by this and will perform efficiently.
Budgets: This is the report in which all the assumptions which are made in relation to
incomes and expenses will be incorporated. By the help of them, it will be possible to
manage the operations in the manner which will be in accordance with the standards
(Raghunandan, et. al., 2012). This will increase the overall efficiency of the operations
in business.
Cost reports: This will be including all the costs which will be incurred by the company.
That information will be used by the managers in making the plan by which allocation of
the resources will be made. This shall be done by identifying the needs of the
departments and using the data which is available in the cost report.
Investment appraisal report: The evaluation in respect of various proposals will be
made with the help of this report. In this, all the appraisal techniques which are there will
be undertaken so that the projects can be examined and it can be decided that which of
them shall be continued (Lunkes, et. al., 2013). Some of the tools which are to be used
are payback period, internal rate of return and net present value.
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Budget
Investmnet appraisal reports
Performance reports
cost reports

M1 evaluate the benefits of management accounting systems and their
application within an organizational context.
The organization will be benefited by the use of systems in many ways and they are as
provided below:
 The company will be able to control the cost and this will help in reduction of the
total cost.
 The plan will be made by using the data which is available and that will help in
improvement in the level of efficiency.
 Budgets are made which will specify the manner in which performance is to be
maintained so that objectives in business are attained.
 Motivation will also be provided to all the employees.
D1 provides a critical evaluation of how management accounting systems and
management accounting reporting are integrated within organizational
processes.
The systems which are used collect the various types of information which are used in
several sections of the business. All the departments are connected and they will be
performing the task in the manner by which others are also benefiting. So the systems
which provided data are also related to the information collected by one will also be
used by another such as cost system will be useful for price decision also. The reports
preparation also required information for which systems are essential. So in this
manner, they are also integrated with each another.
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LO2: Apply a range of management accounting techniques.
P3 Calculate costs using appropriate techniques of cost analysis to prepare an
income statement using marginal and absorption costing.
In the process of cost calculation and determination of profits, there is the need to use
various methods and two of them are provided below.
Absorption costing: The expenses under this will be identified on the basis of the
operations such as production or administration (Aurora, 2013). All the cost which is
based on production will be considered irrespective of the fact that it is variable or fixed.
Marginal costing: Under this cost will be treated as fixed and variable and only the
components which are variable will be taken into use. All those which are constant will
be taken in total and no allocation will be made of them.
Below are presented the income statements by which this process can be understood in
a better manner.
Income statement as per Marginal Costing 2017
£ £
Sales (40 x 800) 32000
Cost of Sales :
Opening Stock 0
Cost of Production (7 x 900) 6300
Variable Production cost (2 x 900) 1800
Cost of Goods Sold 8100
Less Closing Stock (9x 100) 900 7200
Contribution 24800
Less Fixed Cost
Administration cost 1600
Production overhead 1800 3400
Net Profit 21400
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Income statement as per Absorption Costing 2017
£ £
Sales (40 x 800) 32000
Cost of Sales :
Opening Stock 0
cost of Production (7 x 900) 6300
Fixed production cost 1800
Variable Production cost (2 x 900) 1800
Add Closing Stock (11 x 100) 1100
Gross Profit 23200
Less Fixed Cost
Administration cost 1600 1600
Net Profit 21600
M2 Apply a range of management accounting techniques and produce
appropriate financial reporting documents.
There is the need to use various techniques in the business so that proper reports can
be made in that collection of cost data will be made with the help of the activity-based
costing in which all the expenses will be allocated by considering their respective
activity. Then variance analysis will be performed so that the deviations are considered
in making the plans by incorporating the modifications required to eliminate the
differences. All the inventory systems which are used will be helpful in the valuation of
stock so that it can be taken at correct amount and for this FIFO, LIFO or weighted
average method will be considered.
D2 Produce financial reports that accurately apply and interpret data for a range
of business activities
The report which is presented above shows the profits which have been earned in
marginal and absorption costing. It can be noted that there is the difference which exists
between them and the reason behind it is the manner in which fixed expenses are
allocated. The reconciliation for same is provided below:
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Reconciliation Statement £
Profit under Absorption costing 2160
0
Fixed production cost in closing inventory
(2 x 100)
200
Profit under Marginal Costing 2140
0
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LO3: Explain the use of planning tools used in management accounting.
P4 Explain the advantages and disadvantages of different types of planning tools
used in the budgetary control.
Budgets are the plans which are made by the company so that all the cost can be
managed in the most appropriate manner. There are various merits and demerits of this
which are as follows:
Advantages of budgets:
 There will be fewer chances that problems will be faced as work will be
performed in accordance with the plan.
 As there are changes which are taking place in Zylla so they will be incorporated
in the process.
 There will be a reduction in the cost of control will be established.
Disadvantages of budgets:
 The process involved in the making of the budget is time-consuming and also
high cost will be met.
 All the amounts will be based on the projections which will increase the risk
involved.
Various types of budgets:
Master budgeting: It will be the budget in which information in respect of all the
departments will be included. By this the workload of managers will be reduced as they
will not have to check various budgets and also time will be saved (De Jong, et. al.,
2012). All the required data will be included and so it will be difficult to update all the
information in case of any change.
Flexible budget: This is used such situation when the company is required to make
budgets for various levels. In that case, a standard will be made and all the others will
be based on that. By this time involved in making new budget will be eliminated. This
will be used for all the activities which are undertaken.
Cash budgeting: In the business, all the transactions which will be involving the use of
cash will be included in this (Egbide and Agbude, 2014). The targets in respect of them
will be mentioned in this so that they can be managed and all the needs and
requirements are identified in advance.
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M3 Analyze the use of different planning tools and their application for preparing
and forecasting budgets.
Budgeting is the process in which all the aspects of the business will be covered. Due to
this, it will be required that all the factors by which they will be affected shall be
ascertained. For this planning tools shall be used such as variance analysis by the help
of this the deviations which are there will be determined and used in making the new
budget. Target costing and ABC costing will be undertaken so that exact amount will be
identified to be included (Vasile and Croiteru, 2013). These are internal aspects and in
order to cover the external components, there will be the use of Porter's five forces and
PEST analysis in relation to it. By that, it will be possible to make such budget which will
be covering all the necessary elements.
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LO4: Compare ways in which organizations could use management accounting to
respond to financial problems.
P5 Compare how organizations are adapting management accounting systems to
respond to financial problems.
The financial problems which are there in the business shall be identified on a timely
basis and for that, there is the need to use the systems which are there in management
accounting. All the information will be made available by them and that will be taken into
use. In addition to this there is the need to use other techniques also by which it will be
possible to deal with all the issues in an appropriate manner and they are as follows:
Benchmarks: In the performing of the activities in best manner it is required that
policies and strategies of best company or industry shall be used. Due to this fact
benchmarks are used in which the industry facts will be taken into consideration and
operations will be performed in accordance with them. This will lead to a reduction in the
issues which arise.
Key performance indicators: This is considered as a motivational tool for employees
as in this the parameters which are required to be followed by them are specified. All
the workers will have to perform in that manner by which they will be able to prove their
efficiency (Carbon, 2014). This will be the aspect by which they can prove their skills
and so will be performing with all their will.
Financial governance: Financial issues which arise in business can be controlled by
the use of such control and policies which are formulated in this respect (Hassan and
Ahmed, 2012). All the finance will be maintained as managers will know about the
manner in which they are required to allocate the funds so that best results can be
attained.
M4 Analyze how, in responding to financial problems, management accounting
can lead organizations to sustainable success.
The process which is involved in management accounting will be beneficial for the
business as it will be possible to respond to all the problems in an effective manner. All
the information which is needed in this procedure will be obtained by the use of systems
and then reporting will be made with the use of them so that issues which are present
can be identified. The company will be able to take such measures by which all the
issues will be resolved. All of this will be carried on time and so the issues will not
increase.
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D3 Evaluate how planning tools for accounting respond appropriately to solving
financial problems to lead organizations to sustainable success.
In order to achieve the sustainable success, it will be required that all the planning tools
shall be used by which problems can be responded in an effective manner. The main
techniques which will be used are costing methods which will control the cost and then
the differences which are present in them shall be determined and for this variance
analysis will be taken into use (White, 2015). Company shall prepare budgets by which
all of the targets to be achieved will be set and this will help in maintaining the process
in such manner by which issues will be eliminated and reduced.
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Conclusion
The report above elucidates the importance of management accounting for any
business. In this, all the systems which are used by Zylla are identified by the help of
which the information needed to make the decisions is collected. Then the reports are
made so that evaluation can be made with the help of them and it will also be used in
the coming period. The costing methods such as absorption and marginal have been
identified and profits are determined by the use of them. Budgetary control has been
discussed in which there merits and demerits together with the planning tools have
been explained. The financial problems which arise in business are resolved with the
help of techniques which are there and they are understood in the report above which
ensures the success of the business.
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References
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