Management Accounting - Advantages & Disadvantages

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
P1. Concept of Management Accounting and its essential requirements..............................4
P2. Various methods used for management accounting reporting.........................................6
M1. Assessing benefits of MAS in the context of KEF Manufacturing................................8
D1. Critical evaluation of integrating MAS and MAR within organizational processes.......8
TASK 2............................................................................................................................................8
P3. Computation of costs using Marginal and Absorption Costing Techniques....................8
.............................................................................................................................................12
M2. Application of Management Accounting techniques....................................................14
D2. Production of Financial Reports that enable data interpretation of various business
activities................................................................................................................................14
TASK 3..........................................................................................................................................14
P4. Advantages and disadvantages of different kind of planning tools of budgetary control14
M3. Types of planning tools and their application for preparing and forecasting of budgets.16
TASK 4..........................................................................................................................................17
P5. Comparing the ways organisations adopt MAS in response of Financial Problems.....17
Comparing implementation of MAS among different organisations...................................18
M4. Analysis of how management accounting system help in resolution of financial problems
sustainably............................................................................................................................19
D3. Evaluating how Planning tools help in resolution of financial problems to achieve
sustainable success...............................................................................................................19
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................21

INTRODUCTION
In present day scenario, the business environment has evolved from the preparation of
historic general ledger using a wide variety of book-keeping systems and methods that provide
financial accounting information at a face value (Abdullah and Said, 2015). There has been an
introduction of highly customized business processes as well as systems which ensures that not
only the performance is tracked on a continual basis but also cost-based information helps in
removal of uncertainty so as to facilitate forecasting of future strategic plans of action.
In this context, this report aims to provide an insightful look into the various types of
management accounting systems as well as techniques. For this purpose, Alpha FMC has been
chosen as a consultancy organization that is based in London, UK (Alpha, 2019). It has a wide
variety of clients most of which are small and medium sized enterprises that are operative in
sectors like Manufacturing, Retail, Hospitality or Construction. One such enterprise is Kent
Engineering and Foundry (KEF) which is based out of Maidstone, England and produces as well
as distributes loudspeakers internationally (KEF, 2019). Also, an analysis of planning tools and
techniques has been undertaken to depict how such systems enable decision-making among
organizations.
TASK 1
P1. Concept of Management Accounting and its essential requirements
In the recent years, the concept of Managerial Accounting has gained huge acclamation
from accounting professionals as well as organisations alike. It can be defined as the practice of
taking informed financial as well as non-financial decisions on the basis of information derived
by the managers in regards to a particular business element which helps in successful
achievement of organisational goals. It is important to note that financial reporting forms a
critical part of this field of study (Al-Mawali, 2015). Management accounting is the discipline
including a set of methods or techniques which deal with the collection, process, and
interpretation of qualitative and quantitative information of any business in order to prepare
reports that must be used by decision makers to determine how to find sources of incomes and
how to invest the business resources to fulfil the organization strategy in the most convenient
way.

One of the main advantages of it is that it enables accurate forecasting of information
which further enables in planning budgets as well as their comparison to actual performance.
Hence, some of the crucial functions played by Management accounting in organisations include
planning, organising, controlling and decision-making. In addition to this, it also acts as a
medium of communication among all the organisational levels and departments. In the context of
KEF, there are various types of Management Accounting Systems (MAS) that are in place for
the business itself, however, it can improve its performance in a sustainable manner if it focuses
on the processes mentioned underneath:
 Costing System:
As KEF is a manufacturing entity, it is crucial for it to have a competent system in place
which facilitates cost minimization and quality maximization of the various products it
manufactures and sells to its customers. Such a system consists of investment or expenses
needed to produce a good or deliver a service (Alvesson and Willmott, 2012). Hence, this system
plays an important role. It is a framework which helps in accurate estimation of reimbursements
so as to enable forecasting and planning for the managers that eventually helps in the
enhancement of overall profitability of KEF. Any type of system which helps in deliverance of
such functions to the business managers with least changes made to the existing set-up of such
accounting processes can be treated as an ideal costing system for KEF.
 Price-Optimisation System:
It is important to know the correct value of the products and services since it not only
determines the level of revenues generated but also the profitability maintained by an entity over
the course of its life. This system helps in finding the right price that not only delivers cost-
effective and high quality offerings of finished goods to Kent's customers but also maximizes
profits for the company itself. As this system takes into account the overall demand of the
product, level of competition as well as cost of goods manufactured, it can help KEF in bringing
more profit and overcoming competition effectively. One of the essential requirements of this
system is to have a strong analytics back-end that would act as a supportive structure by posing
as a medium of database to the company itself (Arroyo, 2012).
 Inventory Management System:
As the name suggests, this system assists in management of inventory that is essentially
related to stocks, products to be sold, raw materials if the business manufactures one or several