Compare how organizations are adapting management accounting systems

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1: Explanation about management accounting and key essential requirements of various kind
of management accounting systems:...........................................................................................3
P2: Explanation about different kind of methods applied for management accounting
reporting:.....................................................................................................................................5
TASK 2............................................................................................................................................7
P3: Computation of costs applying appropriate techniques of cost analysis to prepare an
income statement using marginal and absorption costs from:....................................................7
TASK 3............................................................................................................................................9
P4: Various advantages and disadvantages of different kind of planning tools used for
budgetary control:.......................................................................................................................9
TASK 4..........................................................................................................................................13
P5: Compare how organizations are adapting management accounting systems to respond to
financial problems:....................................................................................................................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting is significant business term which includes activities or
functions related to providing financial and monetary information to top level management
within a business organisation (Anessi-Pessina and et.al., 2016). This information is used by top
level management in strategy formulation and in decision making process. This report contains a
complete definition of management accounting, its key functions, requirement of different kind
of management accounting system and management accounting reporting methods in the context
of Whale Water Systems. It it is UK's medium size enterprise and engaged in manufacturing of
water systems. This report also contains computation of cots by applying cost analysis
techniques, advantages and disadvantages of planning tools and way by which organizations are
adapting management accounting systems to respond to financial problems.
TASK 1
P1: Explanation about management accounting and key essential requirements of various kind of
management accounting systems:
In business and trade context, systematic approaches of collecting, evaluating, analysing,
choosing and measuring organisation's internal monetary or financial information into relevant
accounts is referred as management accounting. Management accounting system provide a
systematic framework for preparation of various type of budgets and for effective planning
process within a business organisation. Following are the key elements of subjectivity in the
context of management accounting:
 To utilise organisation's resources effectively to attain profitability level and growth.
 To formulate methods and different strategies that assist in achievement of
predetermined goals and objectives (Arnaboldi, Lapsley and Steccolini, 2015).
In this context, Whale Water Systems is using various management accounting systems
in different circumstances in order to enhance accountability and productivity. Following are
some vital functions of various types of management accounting systems, are as follows:
Provide and modify data: In a business organisation various decisions taken by
managerial personnel based on relevant data and information. Various management accounting
systems like cost accounting, inventory management etc. provides useful data for decision
making process. These system also indicates towards need of modification in information to

enhance the effectiveness of decisions taken. In Whale Water System, management use
information that is generated from various management accounting system to take decision
regarding manufacturing and production of water system and other related equipments.
Serves as a mean of communication: Management accounting systems provide a means
for communicating financial information across the various departments of a business. These
system act as a systematic means of communicating vital information among various
departments of a business organisation. In Whale Water System, Information generated through
inventory management system is communicated by cost accountants to production managers for
manufacturing and production processes, which is used by them to ensure availability of
adequate number of water pumps and systems.
There are different kind types of systems of management accounting which are applied
by Whale Water System to enhance accountability, effectiveness and efficiency of various
functions and activities. Following are some key management accounting systems as discussed
underneath:
Financial accounting system: This system of management accounting provide a
framework for managerial personnels of Whale Water System to produce financial results and
accounts which exhibits actual performance of company. This system is responsible for effective
maintenance of data or information related to accounting and financial records within company.
Through this system company maintain and records their production and manufacturing
activities to asses actual performance during a particular period which assist in taking business
decisions. This system also provide groundwork for auditing, accounting information system and
preparation of rules and procedures for internal controls (Bromiley and et.al, 2015).
Cost accounting system: A cost accounting system involves a detailed and critical
analysis of various cost and expenses which provide assistance to managers in taking cost
related decisions. In Whale Water system, this system is used by cost accountants and various
production heads to determine the cost of water system, different water pumps and other related
equipments. It is also used by managers and accountants for identification of any cost making
activities and functions. Main motive of this system is to optimise cost to maximise profitability.
This system also supports activities like product costing and activity based costing which assist
in enhancing accountability.

Management accounting system: This system is used by companies to generate various
managerial reports for effective internal management. In Whale Water System this system is
used by managers to prepare various managerial reports to accomplish effective organisational
control and supports decision making activities. Main objective of this system is to establish
proper control over internal activities and function, and to identify any unproductive activity or
function. Managers with help of reports generated from management accounting system takes
vital business decisions related to profit management, investment management etc. Effective
profit and investment management is important to achieve sustainable growth and to make
expansion (Malinić and Todorović, 2012).
Tax accounting system: This management accounting system mainly emphasises on tax
related activities and functions, and proper compliance of tax regulations. In UK, Accounting of
tax may differ according to different structure and forms like individuals, partnerships and
corporate, but over objectives of this system is to proper compliance of tax regulations imposed
by HMRC. This system provide assistance in assessment of taxes and compliance of rules or
regulations related to tax. In Whale Water System this system is applied by management to
determine actual amount of various taxes like GST, International taxations etc. and timely
payment of taxes to avoid any legal complexities in near future.
P2: Explanation about different kind of methods applied for management accounting reporting:
In mediam sized business organisation like Whale Water System, reporting of day to day
activities and function is essential for strategic decision making regarding future performance.
For effective reporting various kind of management accounting reporting methods are used by
management which help in effective decision making. Following are some important kind of
management accounting reporting, as follows:
Trading and profit and loss accounts: Main objective of trading and profit and loss
account is to exhibit the gross and net profit earned by Whale Water System over a specific
period of time. In company accountants and managers are responsible for preparation of trading
and P&L account to assess the gross profit or gross loss earned by selling Water systems, pumps
and other equipments during a particular period of time. This is part of income statement which
also provide details about cost of goods sold, production and manufacturing expenses, selling
and distribution expenses and other related expenses.

Balance sheet: It is a statement which exhibits overall performance of a business
organisation by providing balance of assets, liabilities and shareholders funds. It is most
considerable report as it present actual worth of business organisation. In Whale Water System
this report is prepared by management to assess and evaluate the actual financial position and
performance of company. This report is also used by company to determine working capital level
and for ratio analysis.
Cash flow statements: This report exhibits the actual movement of cash during a
particular period of time (McLean, McGovern and Davie, 2015). In Whale Water System, this
statements is prepared by accountants and managers to assess the liquidity position of company
and to maintain a certain cash level to operate its functions. In company, cash flow statement
determine expected cash flows which assist management in effectively operating their
operations.
Significant system of management accounting reporting in context of preparation of
effective reports is explanied below:
Inventory management systems: Reporting under this system assist managers to assess
the actual position of inventories like finished goods, processed goods, work in progress, spare
tools, raw material etc. In Whale Water System this system is applied by production managers to
optimise inventories costs like storage costs, inventory handling costs etc. Managers by using
reports generate through this system, identifies main cause of increase in abnormal wastage.
Job-costing systems: This system is used by business organisation having unrelated
product or having different nature of cost, to allocate costs to particular task or job. In Whale
Water System, this system is used for allocation of costs related to different products, to a
particular task or job to increase their accountability. This system also used by company to
project useful and concerned information with cost of particular job or task.
Price-optimising systems: Under this system a certain and most appropriate price level
is determined by management by analysing response of customers at different price level. In
Whale Water System, managers use this system of reporting to minimise the price of product to
gain competitive advantages. Managers by using this system analyse the demand of product at
different price of product.

TASK 2
P3: Computation of costs applying appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs from:
Marginal Costing: It is method of costing in which all variable costs are assigned to
each unit of cost and fixed costs are deemed as period cost.
Absorption Costing: It is kind of costing method in which all manufacturing expenses
are assigned to particular unit whether variable or fixed in nature.
Case 1: Marginal Costing Technique
a. Cost Card:
Cost Card under Marginal Costing
Particulars Cost per unit (£)
… …. … ..Wood (Direst Material) 35
….. …... ...Direst Labor 32
…. … ….Variable Production overhead 5
Marginal cost (per unit) 72
.. … ...Selling price 100
Less: .. .. ..Marginal cost per unit -72
Less: .. .. ..Variable selling cost -4
.. .. ..Contribution (per unit) 24
b. Income Statement:
.. .. ..Profit Statements for the months January, February and March for Primark
Furniture PLC
Particulars January (£) February (£) March (£)
Production (in units) 12000 10500 9500
Sales (in units) 10000 12500 11500
.. .. ..Sales (A) 1000000 1250000 1150000
Cost of sales:

…..... ...Opening Stock 0
Material @ 35 350000 437500 402500
Labor @ 32 320000 400000 368000
Variable o/h @ 5 50000 62500 57500
Less: Closing Stock @ 72 144000 144000 144000
136000 206000 178000
Less: Variable selling cost -40000 -50000 -46000
Contribution 96000 156000 132000
Less: Fixed costs -24000 -24000 -24000
Less: Fixed selling expenses -3000 -3000 -3000
Actual Net profit/(Net Loss) 69000 129000 105000
Case 2: Absorption Costing Technique
a. Cost Card:
Cost Card under Marginal Costing
Particulars Cost per unit (£)
Wood (Direst Material) 35
Direst Labor 32
Variable Production overhead 5
Marginal cost (per unit) 72
Selling price 100
Less: Marginal cost per unit -72
Less: Variable selling cost -4
Contribution (per unit) 24
b. Income Statement:
Particulars January (£) February (£) March (£)

Production (in units) 12000 10500 9500
Sales (in units) 10000 12500 11500
Sales (A) 1000000 1250000 1150000
Cost of sales:
Opening inventory 0
Material @ 35 350000 437500 402500
Labor @ 32 320000 400000 368000
Variable Overhead @ 5 50000 62500 57500
Fixed Overhead 24000 24000 24000
Less: Closing inventory @ 72 144000 8000 8000
Contribution 112000 318000 290000
Less: Variable selling cost -40000 -50000 -46000
Less: Fixed selling expenses -3000 -3000 -3000
Actual Net profit/(Net Loss) 69000 265000 241000
c. Reconciliation of Profits
Reconciliation of Absorption and Marginal Costing
Particulars January (£) February (£) March (£)
Profits using Absorption Costing 361000 273000 397000
Less: Fixed Overhead in Closing
Inventory -4000 -4000 -4000
Add: Fixed Overhead in Opening
Inventory 0 4000 0
Profits using Marginal Costing 357000 273000 393000

TASK 3
P4: Various advantages and disadvantages of different kind of planning tools used for budgetary
control:
In business context, various formal or internal statements which are prepared by
managerial personnels or accountants by projecting income and expenses to asses the future
performance of business organisation. Various budgets help managerial personnels and staff
members to identify and assess the impact of various problems related to strategy formulation
and implementation. Following are some major kind of budgets, as follows:
Types of Budgets
Zero based Budget: ZBB assist managerial personnels to formulate a top level strategy
within a business organisation. This is kind of planning tool in which all expenses and cost
related to each particular period are specific. Budgets are normally prepared while considering
the various needs and requirement of business organisation in near future (Takeda and Thomas,
2016). This budget can be prepared by Whale Water System, in this budget, budgeting starts
from zero, rather than old or traditional budget which is prepared by on previous budgets.
Advantages: In Whale Water System, ZBB is used to track cash inflows and outflows
during a particular period by starting budgeting from zero which assist company in solving a new
particular problem without considering previous data.
Disadvantages: Practically in organisation like Whale Water System, it is not possible
for management to start budgeting from Zero.
Incremental Budget: This is significant aspect of management accounting. In this
budget a particular year is taken as base to estimate expenses and income to project performance.
In Whale Water System, this kind of budget is prepared by managers to analyse the future
performance of business organisation. It is mainly used by trend analysts to project the
performance and growth of company in near future.
Advantages: This budget is advantageous for Whale Water System to systematically
classify different problems of previous and to formulate plan for upcoming year. In company this
budget also assist in identification of particular division, spending beyond thee budgeted limits.
Disadvantages: The main disadvantage of this budgets lack of specificity. It is not so
easy to allocate problem in specific division or department.

Operating Budget: It is a kind of budgets that requires different kind of sub budgets in
order to meet essential goals of company in predefined time. Te process of preparing operational
budgets starts with developing budget that help to keep a systematic record of overall sales
revenues and expenses incurred on promoting valuable product of company (Yazdifar, H. and
et.al., 2012). This budgets mainly involves information about total Income and expenses which
are predicted by manager of company. In context of whale water system this budgets support in
acquiring short-term plan in which capital expenses is excluded as it is part of long-term cost.
There are various advantages and disadvantage of this budgets that are defined below:
Advantages: It is short in nature that help to perform daily activity in respective manner.
This budgets also help manager of whale water system to plan efficaciously about future so that
profit margin can be increased.
Disadvantages: This budgets mainly includes lots of time as manager have to daily
conduct a meeting for daily operations.
Sales Budget
Product EC 1 Product EC 2 Product EC 3
Forecast unit sales 2000 3000 4000
*Price per unit 100 130 150
Total net sales 200000 390000 600000
Production
Budget
Product EC 1 Product EC 2 Product EC 3
Forecast unit sales 2000 3000 4000
+Closing Inventory 600 1000 800
Total Production
required 2600 4000 4800
-Opening Inventory 500 700 800
Units to be
manufactured 2100 3300 4000

Material usage
budget (wood)
Product EC 1 Product EC 2 Product EC 3
Units to be
manufactured 2100 3300 4000
*Material needed
kg/unit 5 3 2
Production Needs 10500 9900 8000 28400
+Closing Inventory 18000
-Opening Inventory -21000
Total raw material
needed 25400
*Raw material / kg 8
value of raw material 203200
Material usage
budget (Varnish)
Product EC 1 Product EC 2 Product EC 3
Units to be
manufactured 2100 3300 4000
*Material needed
kg/unit 2 2 1
Production Needs 4200 6600 4000 14800
+Closing Inventory 9000
-Opening Inventory -10000
Total raw material
needed 13800
*Raw material / kg 4
value of raw material 55200

Labour usage
budget
Product EC 1 Product EC 2 Product EC 3
Units to be
manufactured 2100 3300 4000
*Hours needed
hr./unit 4 6 8
Production Needed 8400 19800 32000
*Labour wages 3 3 3
Total labour wages 25200 59400 96000
Cash flow forecast for the 3 months period Jan-18 to March-18
01/11/2017 01/12/2017 01/01/2018 01/02/2018 01/03/2018
opening Cash balance 12000 36150 -7150 21600 20000
cash inflows
cash sales 30000 27000 33000 36000 39000
credit sales 70000 63000 77000
Total cash inflows 42000 63150 95850 120600 136000
cash outflow
purchases 50000 50000 70000 80000
wages 5850 7150 10400 13000 16250
3150 3850 5600 7000
overheads 10000 10000 12000 15000
Total cash outflows 5850 70300 74250 100600 118250
Closing Balance 36150 -7150 21600 20000 17750

TASK 4
P5: Compare how organizations are adapting management accounting systems to respond to
financial problems:
Financial problems are the issues about the money that gives the stress to the management and
cause difficulties in settlement of daily monetary transactions. Organizations faces the financial
problems mostly at the time on recession. There may be so many reasons behind the arisen of
these problems.
Whale Water systems is an independent company that designs and manufacturers
pumps, valves, and plumbing systems. Company is facing financial problems because of these
several issues:
Weak fund management system: When company's fund management system doesn't
perform its duties properly, it causes a misappropriation of company's monetary resources and
increases the risk of theft.
Unforeseen expenses: Unforeseen expenses are the sudden expenses which were not
planned by the management in their budget like new technology purchasing, legal expenses,
office expenses, new taxation policy etc.
There are some techniques which help in prohibition of these problems. Whale Water
systems is implementing these techniques in its workplace. These tools are:
Key performance indicator (KPI) - The key performance indicator (KPI) is the
technique that analyses about how effectively an organisation is achieving their goals. This tool
is useful in focusing on those activities which are high performing (Kihn and Ihantola, 2015).
Benchmarking- It is a technique that is related to comparing the process and policies of
company with other companies which are working in the same environment. This is beneficial in
adopting the best policies by comparison. Whale Water systems is adapting both the techniques
to identify the financial problems which are taking place in their organization. With the help of
KPI technique, the company is capable to find out if the financial management team is
performing properly and benchmarking techniques is helpful in measuring the amount of
unforeseen expenses that can emerge in the organization.
Financial governance: Financial governance is the process of controlling and
maintaining financial performance of the organization with the help of available data and

information. With the help of financial governance process, Whale Water systems is following
all the standards in preparing its accounts and also making provisions for unforeseen expenses.
Flexible Budget
At 12000 units At 14000 units
DM 40000 46666.66667
DL 24000 28000
V O/h 13500 15750
F O/h 11000 11000
Total cost 88500 101416.6667
SP 120000 140000
Net profit 31500 38583.33333
At 14000 units Actual Budgeted
DM 50000 46666.67
DL 27500 28000
V O/h 16000 15750
F O/h 12000 11000
Total cost 105500 101416.67
Selling Price 142400 140000
Net profit 36900 38583.33
Budgeted profit 38583.33
-direct material -3333.33
+direct labour 500
-variable overheads -250
-Fixed overheads -1000
+Selling Price 2400

Actual Profit 36900
Comparison:
Basis Aston martin Bently
Financial issue The company is facing the
issue of unforeseen
expenditures. Due to this their
expenses are continuously
increasing. As well as
company is unable to aware
about which expenses are
suitable and which ones are
not. Due to this issue they are
facing a huge financial crises
(Maas, Schaltegger and
Crutzen, 2016).
This company is facing the
financial problem of week
fund management system. It is
a kind of issue in which
company do not have proper
record of their earnings. Due
to this issue they do not have
liquidity to operate their day to
day activities.
Management accounting
system
On the basis of their financial
issue, it is necessary for them
to apply an appropriate
accounting system which is
cost accounting system.
Eventually, it is a kind of
accounting system which is
related with the controlling
and minimising the
expenditures. If they will apply
this accounting system then
they will easily sort out the
issue.
As per the financial issue of
above mentioned company it is
required for them to apply a
suitable accounting system.
They can apply job costing
system. If they will apply this
system then they will have
proper information about the
cost and income of various
sources. I will help them in
overcoming from the financial
issue.

CONCLUSION
From above report it has been articulated that management accounting system provides
relevant information and data for managerial and strategic decision making. Different kind of
management accounting systems covers all vital aspects of a business organisation and assist in
measuring the overall performance during a particular period. For calculation of costs techniques
of cost analysis like marginal and absorption are used by business enterprises. Various planning
tool provide assistance in preparation of budgets and evaluation of overall performance of
enterprise. Different management accounting system provide assistance in resolving various
financial problems, which ultimately leads to enhancement in overall profitability abd
productivity.

REFERENCES
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