Management Accounting Systems & Techniques : Doc

Management Accounting
Systems & Techniques

Table of Contents
INTRODUCTION...........................................................................................................................3
LO1. Demonstrate an understanding of management accounting. .................................................4
P1. Explain management accounting and give the essential requirements of different types of
management accounting systems................................................................................................4
P2. Explain different methods used for management accounting reporting...............................7
LO2. Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs ..............................................................................7
P3. ..............................................................................................................................................7
LO3. Explain the use of planning tools used in management accounting.....................................11
P4. ............................................................................................................................................11
LO4. Compare ways in which organizations could use management accounting to respond to
financial problems.........................................................................................................................16
P5. Compare how organizations are adapting management accounting systems to respond to
financial problems....................................................................................................................16
CONCLUSION.............................................................................................................................19

INTRODUCTION
The Management accounting assignment includes a discussion about methods as a
planning and measurement tool for the enterprise to evaluate its performance also includes the
explanations about various management accounting systems. This will create an understanding
of the management accounting system which includes preparation of income statement of basis
of absorption costing and marginal costing.
A comparison has been made to show how the organization can use management accounting in
responding to financial problems.
ABC LTD is a medium size radiators and fan manufacturing company in the UK.
LO1. Demonstrate an understanding of management
accounting.
P1. Explain management accounting and give the essential requirements of different
types of management accounting systems.
Management Accounting, is the process of analysing business costs and operations to prepare
internal financial report, records, and account to aid managers in making decisions in achieving
business goals.
Management accounting is defined as:
 Measurement of performance – it helps the organization in measuring employee
performance and efficiency measurement.
 Assessment of risk – it identifies and assesses the risk factors within the enterprise
which can be minimised through effective management
 Allocation of resources – this ensures fulfilment of organisational objectives while
efforts have been made for long-term sustainability;
 Financial statement presentation – Management accounting provides a presentation of
the financial position of the enterprise. Various cost data and financial data makes it easy
for the enterprise to present good and precise financial report in order to take a good
decision.
There are a few roles and principles of management accounting which are explained below;
 Influence – Communication is the main source which provides insight that is influential
Management accounting is concerned with effective communication as it improves
decision making;
 Relevance – Management accounting takes into consideration the best available relevant
information available with the enterprise.

 Value Generation – Management accounting considers analysis information along with
the value generation path while exploiting opportunities and focuses on costs, risk and
Value generation opportunities;
 Trust – the professionals involved in management accounting processes are expected to
be skilful, ethical, and accountable while ensuring governance and social requirements.
The main difference between financial and managerial accounting whether there is an internal
or external focus; financial accounting focuses on creating and evaluating financial statements
that will be reported externally, like creditors and investors and managerial accounting analyses
and reports to business leaders in order to make decision to run the business effectively.
The various distinctions between management and financial accounting are presented bellow;
Users: The use of management accounting is internal mainly with managers and employees
whereas external users are concerned with financial accounting including shareholders, creditors,
banks;
Set of regulations: No application of accounting standard or external rules is imposed in
management accounting where a financial accounting is concerned with a various set of
regulations and standards as applicable to the company.
Sources: Financial as well as non-financial data, is used in management accounting however
financial accounting uses financial data utilized and drawn from the organization core
transaction-based accounting system.
Nature: The nature of information is mainly historical, current and future-oriented in
management accounting while the source of information and nature is historical related to the
past performance in financial accounting.
Various types of management accounting for the chosen company means:
- Job costing system: this is a system to assign manufacturing cost to each individual
product while keeping track on expense monitoring.
Job costing accounting procedure consist of: - receiving enquiry, estimate price of job,
order receiving, production order, cost recording, completion of the job.
- Price optimising system: Price optimizing system is used o take control of the prices of
resources. ABC will use this type of management accounting system as it will help tthem
in determining price structures for promotional pricing, initial pricing, and discount
pricing.
- Cost accounting system: The system helps the organisation to estimate the cost of the
product while analysis can be made of organisational profitability, inventory and cost
control.

- Inventory management system : The system can be used to achieve efficient and
effective flow of inventory within the organization and at the point of sales.
The various advantages of management accounting systems in context of ABC is presented
below:
- Cost accounting system.
Advantages
o ABC Ltd can measure the efficiency in processes and then assist in making with
the use of this system;
o it will help the company in fixation and reduction of prices
o provides necessary information required for planning.
- Inventory management systems:
o ABC can improve the accuracy of its inventory orders which means efficiency
and saving time and money;
- Job costing system:
o It will help ABC in the estimations of all types of cost throughout the
manufacturing process;
o It will prevent duplication and it helps in the evaluation of the quality of work
done.
- Price optimising systems
o ABC can determine the attitude of customers based on different prices, and helps
in maximizations of operating profit with best prices.
The different between Financial Accounting and Management Accounting
BASIS FOR COMPARISON FINANCIAL ACCOUNTING MANAGEMENT
ACCOUNTING
Meaning Financial Accounting is an
accounting system that
focuses on the preparation of
financial statement of an
organization to provid the
financial information to the
interested parties
The Accounting system which
provides relevant information
to the managers to make
policie, plans, and strategies
for running the business
effectivelyis known as
Management Accounting.
Is Compulsory? Yes NO

Objectives To provide financial
information to outsiders.
To assist the management in
planning and decision-making
process by providing detailed
information on various
matters.
Format Specified Not specified
Time Frame Financial Statements are
prepared at the end of the
accounting period which is
one year
The reports prepared as per
the need and requirements of
the organization.
User User Internal and external
parties
Only internal management
Reports Summarized Reports about the
financial position of the
organization
Complete and Detailed reports
regarding various information
Publishing and auditing Required to be published and
audited by statutory auditors
Neither published nor audited
by statutory auditors.
P2. Explain different methods used for management accounting reporting.
The various management accounting reports help the management in preparation of appropriate
management report which counts on their forecasts for making critical business decision.
The various reports prepared by the management and their benefits are presented below:
Budgeting reports –Budgetary reports sets out the plan to analyse the company performance
while making evaluation about the departments performance and control costs. These budget
reports are used to provide incentives to employyes that motivate them to achieve desired
objectives. Forecasting future budget based on these reports helps the organization to integrate
the efforts of various departments towards overall objectives of the company.
Advantages
 The budget reports helps the organisationlike ABC ltd in ascertaining financial risk
which would access company to determine its position and overall efficiency .
 This report provides access in executing corrective measures for company ABC Ltd.
cost reports – Job costs reports are concerned in identifying cost, expenses and profitability of
each particular job. These reports also evaluate the cost while the project is in progress. The cost
report provides access to identify the cost. The cost report is determined to attain activities,
products, projects, etc. in efficient manner. It also evaluates income as well as expenses which
lead to growth and profitability in business.