Management Accounting System and Techniques: A Comprehensive Guide

This article provides a comprehensive guide to management accounting systems and techniques. It covers the types of management accounting systems, their essential requirements, and various techniques used in cost analysis and budgeting. It also discusses the advantages and disadvantages of different budgetary tools and explores the application of management accounting techniques in financial reporting.

Management
Accounting

INTRODUCTION
Management accounting refers to the provision used for making informed decision-
making using accounting information in order to fulfil the objectives of the organisation. They
decide the better way of doing the business and aid to the management for better performance to
execute the functions (Alsharari and Al-Shboul, 2019). In this report the organisation is UCK
furniture that produces one product that is desk and is trading two division of table and Drawer.
In this report, it is being discussed about the types of management accounting system and its
essential requirement for the organisation has been discussed. Different methods used for
accounting system and its application has been analysed for the firm and its benefits. Evaluating
the different types of cost and its techniques to prepare the financial statements such as marginal
cost and absorption costing to evaluating the different system. It is being determines the types of
budgetary tools and its advantages and disadvantages and comparing the accounting problems
faced by different organisation.
TASK 1
P1. Determining the management accounting system and their essential requirement and types of
management accounting system
Management accounting- This refers to the tool that is identified the managerial
accounting and financial statements which help them in providing best method to take the
decisions. In the context of UCK furniture, this system helps in understanding overall financial
positions to carefully carry out the activities and monetary function in the organisation.
Management principles- These are very basic principles which need to be follow and
adhere in order to enhance the organisational efficiency. To increase the overall performance of
the selected company, following principles are as follows-
 Credibility- This refers to the taking appropriate method to take the responsible decision
and shareholder and it is more likely to put the capital into the firm. For the UCK
furniture, this helps in improving the credibility of the organisation in the eyes of investor
and creditors (Ameen, Ahmed and Abd Hafez, 2018).
 Relevance- As, proper information is very important key to handle and monitor the
overall functions of the organisation and that leads to certain benefits to take informed

decisions. For the selected organisation, this relevance information principles helps in
taking effective decisions and avail all benefits.
Difference between financial accounting and management accounting
Basis Management accounting Financial accounting
Meaning This concern with dealing with
many financial activities such
as planning, organising all
financial information in the
organisation.
This termed as taking all
necessary financial
information which help the
company in taking informed
decision of the company.
Purpose The purpose of this
management accounting to
handle and regulate internal
process.
This useful in taking effective
decisions regarding the
external environment of the
company.
Uses This helps in taking effective
decision regarding the overall
business process which help in
determining the success of the
firm.
This is very useful for
externals such as investor,
shareholder and competitors.
Management system- This concern with improving the internal process that will lead to
improving the overall operational and financial activities to enhance the effectiveness. Some of
the system are as follows-
 Cost-accounting system- This kind of accounting system controls the all kind of cost
and expenses which is related to the different types of organisational functions. It
basically deals with handling all process of raw material that is used in the production
stages and turns it into finished goods and services (Azudin and Mansor, 2018). In the
context of UCK furniture, the essential requirement of this system is to controlling and
monitoring all kinds of cost which is optimized the cost information. This is also helping
the management in fixing the adequate cost to fulfil the ease in processes.

 Inventory management- This includes all aspects such as regulating and fixing the
purchases from the suppliers and customers. This basically depends on the different types
of products that concern with sell through channel. This controls end-to-end production
process that managing the business processes and forecasting the demands and other
accounting system (Fleischman and McLean, 2020). This promote and provide essential
requirement to the selected organisation in taking important decisions regarding the
production process and integrating all useful information which is beneficial for the
company. This gives the support to the management in taking essential improvement and
take effective analysis of the inventory management and gives the useful decisions for the
company.
 Price optimising system- This system useful in analysing and focusing the key areas
such as margin sales and monitoring the number of conversion which is useful in the
management process. This is important factor which is very important to consider by the
company and that influences the purchasing power of customers. It plays the necessary
role in monitoring and regulating the pricing decisions that decides the success and
failure of the firm. For the UCK Furniture, the essential requirement is to handle and
regulating the expansion of business and promote the effectiveness regarding the pricing
decision which is taken by organisation.
Management accounting
systems
Uses Application
Cost accounting system This helps in providing the
estimating cost and leads to
proper control of all expenses
in the management process.
UCK Furniture need to access
this system to successfully
implement the activities and
functions.
Price optimising system This gives proper control on
the pricing policies which is
decided by organisation. This
facilitates in evaluating the
maximising of profit for the
management (Gibassier and
UCK Furniture is also using
this to regulates the whole
process of pricing strategies to
enhance the profit of all types
of management.

Alcouffe, 2018).
Inventory-management
system
This helps in monitoring and
regulating the process of raw
material that is converted to
the finishes goods.
In UCK Furniture, this system
will help in handling all
inventory system and that
gives benefits to the
organisation at greater level.
P2. Explaining types of management accounting methods
In organisation, reports are playing important part in recording the essential transaction
which help in taking decisions regarding the many operational activities such as regional sales
and profitability activities (Gunarathne, Lee and Hitigala Kaluarachchilage, 2021). This is
important for all managers to execute and formulate necessary business decisions which will
help in taking necessary business decisions which will lead to growth and success of an
organisation. In the context of selected organisation, this report will help in undertaking the
strategical and analytical functions and provide necessary informations. Followings reports area
as follows-
 Job costing reports- This reports useful in analysing the right way to conduct the
activities of job so that they provide meaningful output to the organisation. This define
the problem during the job and completed after and need to find the error in accesory. In
the context of UCK Furniture, they help in comparing the actual budget cost and helps
the manager in taking appropriate decisions regarding job schedule. It is benefits to the
company to make extra effort in achieving the objectives and goals.
 Performance report- Business report is very important way of handling the valuable for
the organisation and provide help in analysing the forecasting revenue and expenses for
the management. This facilitates in assisting to the top managers who were required to
evaluating the performance of the employees and gives the adequate decision regarding
them. In the context of selected organisation, this report help in giving proper help in
achieving the organisational objectives of the company and measuring the report
parameters of the employees performance.

M1. Evaluating benefits of management accounting system and application
Management accounting system helps in evaluating the overall efficiency of the company
that provide numerous benefits to the management system (Hiebl and Richter, 2018). In cost
system they provide support to the company in deciding the cost of activities for the selected
organisation. Price optimising is also very beneficial in providing effective decisions regarding
the establishing of the price and increase the effectiveness. Inventory management system is
useful in promoting and monitoring the process of raw material and its applications are useful in
UCK Furniture also enhance the efficiency of the management. This is very effective in the form
of understanding the requirement and needs of an organisation an accordingly formulating the
policies and regulating them effectively.
TASK 2
P3. Calculating different cost techniques to prepare income statements
Cost is amount that determining the money that required to spend on the creation and
production of product and services for the company. It helps in evaluating the actual expenditure
and cost that values the money which need to pay by customer. This provide very effective in
identifying the status of cost structure which gives the maximising the order of company and
increase the profitability. In the UCK Furniture, this will help in understanding the efficiency and
effectiveness of the organisation. This tells the how much cost should be charged to regulate it
thoroughly for the management of the firm and leads to improving the profitability.
Absorption costing- This refers to costing techniques that depicts all kinds of
manufacturing cost which is used to absorbed the units produced. This costing technique is very
useful in managing and controlling the risk associated with the management of the company. In
the context of UCK Furniture, this helps in formulating the cost of manufacturing cost that will
be beneficial in running the task and objectives of the organisation (Khosiev and et.al, 2019).
Marginal Costing- This technique is charged to unit cost as fixed cost for the period by
completing the period by completing and written off against the useful and managing the
analysis of operational functions. In the context of selected organisation, this is very beneficial in
managing the cost analysis and gives the optimum results to the management of the company.
This methods helps in understanding the overall effectiveness of the functions of the company.

January February
Particulars Details Amount
(Pounds) Details Amount
(Pounds)
a) Units
produced 11000 9500
b) Direct
Material (4kg*3pound/kg*11000) 132000 (4kg*3pound/kg*9500) 114000
c) Direct Labor (4 hrs* 2pound/hr*11000) 88000 (4 hrs* 2pound/hr*9500) 76000
d) Variable
Overhead (5pounds/desk*11000) 55000 (5pounds/desk*9500) 47500
e) Prime Cost 275000 237500
f) Production
overhead 20000 20000
g) Cost of goods
produced 295000 257500
h) Variable sales
cost (1pound/desk*11000) 11000 (1pound/desk*9500) 9500
i) fixed selling
cost 2000 2000
j) Cost of
Goods sold 308000 269000
k) Profit= l-j 77000 63500
l) Sales (35 pounds/desk*11000) 385000 (35 pounds/desk*9500) 332500

Cost Card Using Marginal costing
January February
Particulars Details Amount
(Pounds) Details Amount
(Pounds)

FIFO method
Profit: Sales – cost of goods sold
= 7000-5500
= 1500
LIFO method
Profit: 7000-5692.31
= 1308
AVCO method

Loss: 7000-11686
= -4686

Variance analysis- This method helps in assessing the difference between the budgets and
actual numbers and helps in maintaining better control over the business. In the context of
selected organisation, this is the best way to understand the control over the business and gives
the basic requirement to the organisation.
Material variances- This price variance is difference between the standard price and
actual price for the actual quantity of all material. In UCK, this help in developing the efficiency
of the overall organisation as this changes due to changes in poor purchasing procedures and
deficiencies in price negotiation (Kostyukova and et.al., 2018).
Labour variances- This cost is the difference between the standard cost for actual
production and actual cost in production and there are two types of labour variances. In the UCK
Furniture, this will help in improving the effectiveness of the company in better form by
analysing labour cost.
Overhead variances- This refers to the difference between actual overhead and applying
overhead cost. This is to compute and calculated the variances after understanding the actual cost
of overhead. In the selected organisation, this applied based on predetermined rate and cost
driver and helps in analysing the cost that will helps the organisation to take further decisions.
M2. Applying range of management accounting techniques to produce financial reporting
Some organisation are very effective in providing best result to the management through
applying useful techniques in the organisation. Accountant uses some different techniques like
financial analysis, cash flow analysis, marginal costing, standard costing and many other to find
relevant information. Through this, selected organisation can use this tool to attain the desired
objectives and goals by implementing and using them effectively in the organisation.
TASK 3
P4. Defining advantages and disadvantages of different types of budgetary tools
Budgets is overall estimation of incomes and expenses which help in running the
organisation and to provide effective way to formulate the all task and preparing the budgets to
help them in managing the effectiveness of the company (Latan and et.al., 2018). In the context
of UCK Furniture, this Budgets help in understanding the efficiency of the management in
executing the activities are as follows-

Capital Budget- These budget are basically formed to calculated the payments and that
is opposed to account of revenue. This budget is very beneficial for those who were able to
understanding the capital expenditure of the organisation. In UCK Furniture, this is beneficial in
fulfilling risk which is analyse by management and take ideas in promoting opportunities to
implement.
Advantages- This budget helps to prepare the long term budgets that support to attain the
profitability in greater level and useful in preparing long term budgets. In the context of UCK
Furniture this help in understanding the various risk which is associated in investment
opportunity. This is better way to use this investment option.
Disadvantages- This decisions which is taken in capital budgeting is irreversible as this
produces the much time to formulate this budget and also risky option for the company. In the
UCK furniture, this will create the problem for the company and only consider the inefficiency.
Operating Budget- This budget is used for day to day daily basis and accordingly
evaluate the business operations (Mahmoudian and et.al., 2020). This budget states the
accounting period that will help the expenses for upcoming period and using the functions and
activities in longer period. In the context of UCK Furniture, this budget will help in managing
the overall functions and activities which improve the effectiveness and efficiency of the
organisation. This provide support in managing the overall improvement in the firm and giving
best results to the company.
Advantages- This focuses on all activities and which is managing and control by the
organisation as this facilitates in regulating income and expenses. As this budget is useful in the
selected organisation that involve the intra day transaction and selling activities.
Disadvantages- This tool is quite complex in understanding the effectiveness of many
activities and which develop the overall efficiency and helps in allocating the expenses. In the
selected organisation, this budget will not be possible in many organisation and inaccurate in
transaction of many activities and functions (Schaltegger, 2018).
Cash budget- This budget is display inflow and outflow of cash in the organisation and
this helps in analysing the cash position of the company. This budget is very effective in
providing the overall efficiency regarding the business organisation according to the cash
liquidity of the firm. In the context of selected organisation this budget help in promoting the

function related to the application of cash related activities and helps in improving the budgetary
tools.
Advantages- This budget is useful in understanding the budgetary control and develop
the effectiveness in the overall organisation period which is useful in informed decisions
regarding the management.
Disadvantages- This budget is not useful in developing effective performance of cash
position in the management as this not effective in every activities. In the UCK Furniture this is
not feasible in all kinds of activities and functions and does not give relevant information to the
organisation.
M3 Analysing use different planning tools and their application for preparing and forecasting
budget
In the organisation there are many tools which are very useful for the organisation and
gives effective performance to the management activities and functions. It is being discussed
about the various budgetary tools which are very effective in term of providing many benefits to
the company. It is analysed that Operating budget, Cash budget and capital budget are very
necessary to be maintained by the organisation to fulfil all kinds of activities and gives useful
information to the firm (Napitupulu, 2018). Their application are very effective and provide
essential ease to the organisation.
TASK 4
P5. Evaluating the organisation that are adapting management accounting system
Financial problems are basically important issues that need to be monitored accordingly
and need to be identified accurately by top management. Theses problem must be address by the
company as soon as possible to overcome the unforeseen activities and functions as this might
affect the business organisation. In the context of UCK Furniture, this problem will hugely
impact the business organisation and will hinder the process of the overall management and will
need to be solved as soon as possible. This will be very difficult for the company to changes
some internal process to enhance and cure the financial problems of the organisation. Some of
the problems are as follows-
 Insufficiency in the funds- This problem refer to the lack of funds available in the
company and create many problems relates to many activities and functions. From this

financial problem this hinder the process of management. In the selected organisation,
this problem will decease the efficiency and turns out be lack of proper investment in the
profitable projects (Pedroso and Gomes, 2020).
 Increase in expenditure- This is also most common issue that is faced by many
organisation and where it leads to increasing of expenditure amount in the company. In
the context of selected organisation, this financial problem will be reducing the growth of
company and major fall in the financial position of the company. This will also reduces
the chances in developing the effectiveness of the organisation and leads to insufficiency.
 KPIs- This is very necessary and important form of indicator that will help in
identification of issues related to the financial and non- financial activities. In chosen
organisation this help in taking appropriate understanding of the company and will taking
informed decisions regarding the company.
 Balance scorecard- This is strategic management tool that will help in tracking the
executing the activities of staff and will lead to certain controlling of the financial
governance and monitoring the action which arises in the management. In the context of
selected organisation, this will be useful in regulating and monitoring the action in the
management which help in taking better decisions regarding the future plans and policies.
Basis Sainsbury Tesco
Financial problem This company is facing
problem of deficiencies in the
funds and that lower down the
investment capacity in many
projects.
This firm facing the financial
problem of excessive in
expenditure and that decrease
the efficiency of the company
and negatively impact the
business transaction.
Identification of issues To properly identify this issues
will be the KPIs, that help in
determining and monitor the
effectiveness of the
organisation. This tool is very
effective in addressing these
To identification of this issues
the tool that could be use is
Balance scorecard. This will
develop the efficiency and
improve the overall efficiency.

certain problems and will
increase the profit
(Rikhardsson and
Yigitbasioglu, 2018).
M4. Analysing the financial problem that is sustainable to the success of organisation
In the organisation the need to address the effectiveness of the management require
implementation of different tools such as KPIs, Balance Scorecard. This tool useful in solving
the issues regarding financial problems which need to be solve to avoid the uncertainties and
inefficiency in the organisation and this will develop overall effectiveness. In the selected
organisations the financial problems has creates lots of issues and leads to many further problems
which has to be address by the organisation. This is very necessary to develop and formulate this
techniques to resolve the efficiency and effectiveness of the company.
CONCLUSION
From the above report it is concluded that management accounting is the effective
method of better control and planning of business transaction and will help in providing better
way to understand the overall techniques and tools. In this report, this discussed about the
various management accounting system that will be using in the organisations such as Inventory
system, Cost management system and other system has certain benefits to the company. It is
being analysed that Marginal costing, Absorption costing are useful tool in developing the
effectiveness in the company and bringing many benefits to the selected organisation. Apart from
that some financial problems are faced by company where it hamper many activities and
functions of the company and for that concerned tools are being used such as KPIs, Balance
score card.

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