Management Accounting

Management
Accounting

INTRODUCTION
Management accounting is a specific field of accounting in which the use of various
types of methods and techniques by the managers of an organization so that they are able to
ensure that they can better manage the firm's financial data, facts and information in a highly
effective manner (Apostolou and et.al., 2016). Its use is quite crucial from the point of view of
the organizations so that they are able to ensure that the attainment of the short-term, medium-
term and long-term goals and objectives can be done in the right manner. For this report, Capital
Joinery Ltd. has been selected. It is a firm which manufactures joinery, made-to-measure doors
and windows. In this report, focus will be made on demonstration of understanding of
management accounting systems, calculation of costs, explanation of the use of planning tools.
Additionally, focus on Comparison of ways in which the firms can make use of management
accounting to respond to the financial problems will be discussed as a part of this project.
TASK 1
P1: Management accounting systems
Management accounting is a tool which is used for the purpose of decision-making by the
management in a highly effective manner by the management (Management Accounting, 2020).
Capital Joinery Ltd. can make its use so that it can ensure that the attainment of the goals and
objectives can be made highly effectively and efficiently.
Different types of systems can be used by the organizations in it. These systems can be
explained as follows-
Cost accounting system- This system can be used by the organizations so that they are
able to ensure the calculation of the costs in the right manner (Astami and et.al., 2017). Thus this
system is used for the purpose of identification of costs, their segregation and ensuring that
proper techniques can be applied for ensuring their reduction. Therefore the use of this system
can be made by Capital Joinery Ltd. so that the attainment of the goals and objectives can be
done properly. As it is a manufacturing company it has to make an use of this particular system
to be able to identify its increase in the level of costs and take appropriate actions to be able to
deal with it in the right manner.
Essential requirements-
3

 Different types of methods must be used in this particular system so that the costs can be
identified properly. Therefore in this manner this will help Capital Joinery Ltd. to be able
to asses costs effectively and efficiently.
 Cost Reduction techniques must be used under this system so that the company is able to
reduce the various costs properly.
Inventory management system- The use of different types of methods and techniques can be
made so that the management of the inventory can be done properly (Dinh, Kang and Schultze,
2016). Capital Joinery Ltd. Can therefore make sure that the management of the stock can be
done by it in the right manner by using it. This can lead towards an increase in the level of
efficiency and effectiveness for the management of stock level. As the company is a
manufacturing company, it can make sure that the level of inventory can be managed properly by
making the use of this particular system which will help in effectively and efficiently managing
the stock.
Essential requirements-
 This system helps in ensuring that the management of inwards and outwards movement
of goods can be tracked by making the use of appropriate techniques and methods.
Capital Joinery Ltd. Can therefore make sure that the techniques like LIFO, FIFO,
Weighted Average Cost etc. can be used by it for this particular purpose.
 The use of various types of techniques can be made here so that the reduction in the
excessive inventory costs can be done properly. Therefore, In this way the management
of Capital Joinery Ltd. Will be able to reduce the maintenance costs effectively and
efficiently.
Job costing system- Different types of methods and techniques can be used by the companies so
that the wide variety of job orders can be managed by the organizations (Egan, 2018). Therefore,
In this way Capital Joinery Ltd. Can ensure that the management of its job orders can be done by
it appropriately. The company thus has to ensure that the management of the items of stock can
be done in a right manner by assessing the job costs and ensuring that they can be reduced by
managing the job orders properly.
Essential requirements-
4

 The use of right methods and techniques can be made for ensuring the proper
management of job orders. In this way, Capital Joinery Ltd. Can ensure that the
management of job orders can be done effectively and efficiently in an appropriate way.
 In this system, a wide variety of methods and techniques can be used so that the cost
reduction can be carried out in a proper way. Thus in this way Capital Joinery Ltd. Will
be able to reduce its costs effectively and efficiently.
Price optimization system- In this system the use of mathematical and statistical models can be
made so that the prices are set correctly for earning higher-level of profits (Ellström and Larsson,
2017). The company can thus set a right price by making the use of this particular sytem. The
company therefore has to make sure that it is able to effectively and efficiently manage the
different types of prices in a proper manner to attain a higher-level of efficiency and
effectiveness and set appropriate prices to maximize the level of profits.
Essential requirements-
 For the purpose of forecasting of price, the use of mathematical and statistical models and
techniques can be made under this system. The forecasting of different types of prices
can be done by the company by making a proper use of this particular system.
 Overall job costs can be reduced when the use of this particular system is made by the
different types of organizations. This will help the company to make sure that it can
facilitate a reduction in the job costs.
P2: Management accounting reporting
Management accounting reports are those reports which are used by the managers for the
purpose of analysis and interpretation. Therefore the use of the of the following reports can be
made by Capital Joinery Ltd.-
 Job costing reports- A detailed report of the inflows and outflows of the different types
of job orders can be prepared by making the use of these reports (Farooq and De Villiers,
2019). Thus in this way overall job costs can be effectively identified by the organization
in the right manner in the firm effectively and efficiently. Therefore this can be quite
useful for the managers of Capital Joinery Ltd. so that they are able to assess their job
costs effectively and efficiently. Thus in this way the management of job costs can be
done in the right manner by the company. If the are any deviations or variations which
are identified then they can be easily rectified using proper methods as well as techniques
5

in the right manner. The company can therefore make sure that by using these particular
reports the different types of job costs can be identified and the appropriate steps can be
taken in order to ensure that these costs can be reduced in a highly effective manner.
 Accounts Receivable Ageing Reports- A detailed analysis of the different types of
Debtors of the company can be made by using these particular reports. Therefore, In this
manner it is quite crucial that an overall summary of these Debtors can be prepared
effectively and efficiently. In Capital Joinery Ltd., it is highly crucial that these reports
are framed for the purpose of identifying debtors who have not paid their dues which will
help a lot in getting the payment from them within time. These reports are helpful for the
company in order to ensure that the different types of Accounts Receivables are listed
effectively and efficiently and thus the appropriate actions can be taken for ensuring their
proper management.
 Operating budget report- In these reports, there is a detailed report of the operating
revenues and expenses. In the company, it is very important that these reports are
prepared to assess the efficiency and effectiveness level of the operations. Therefore in
this way the company can target higher-level of operational profits. In these reports, the
company can make sure that it is able to prepare a detailed report about its various types
of operating budgets and reduce its various types of operating expenses and enhance its
overall operating incomes.
 Product/service profitability report- Different types of products and services and their
level of profits can be analysed when the use of these particular reports can be made
(Fitriyani, 2019). Thus, In the company It can be highly useful to ensure that the products
and services which are not making appropriate profits can be identified so that a suitable
action is taken by the management to improve their overall profitability level. In these
reports, the companies can make sure that they are able to prepare a detailed report about
their various types of products and services and thus make sure that they can find out
strategies and techniques to be able to enhance the overall level of profits on these
products and services in the right manner.
M1: Benefits of Management accounting systems
Cost accounting system can be beneficial for the organizations to identify and assess the
various types of costs. Also it can be used for the purpose of ensuring that costs can be
6

effectively reduced. Inventory management system can be beneficial for the firms to identify the
level of inventory in the organization. Also is use can be made so that the costs related with the
maintenance of stock are reduced effectively and efficiently. Job costing system can be
beneficial for the firms to focus on the right management of the job orders. Also this system can
create an advantage for the organizations to reduce the costs of maintaining the job orders. Price
optimization system can be beneficial for the organizations to set a right price. Also this system
can be helpful for the firms to target higher-level of profits in the future.
D1: Critical evaluation of management accounting systems and management accounting reports
The integration of these reports can be carried out in the different types of processes of
the organization quite effectively and efficiently. In Capital Joinery Ltd., the focus has to be put
on ensuring that both of them can be effectively and efficiently in the right manner. Thus in this
way the management will be able to optimize the functioning of the company.
TASK 2
P3: Calculation of costs
Marginal costing- It is a technique through which the organizations can calculate the
overall level of profits as well as also ensure that calculation of Break-Even point can be done
(Gulluscio and et.al., 2020). It is a point where there are neither profits nor losses for the
organization. In the company, the use of this technique can be made so that the profitability level
can be determined in the right manner.
Absorption costing- The overall level of expenses can be calculated by making the use
of this technique (Matsler, 2019). Therefore, In this way it ensures that a proper treatment of the
overheads can be done in the right manner. It can be done through ensuring their right allocation
according to the various types of expenses of the different departments. In the company, this
technique can be used so that the profitability level can be assessed and the proper allocation of
overheads is made.
7

8

9

10

11

12

M2: Accurate application of management accounting techniques
Organizations have to make use of both of these techniques in order to be able to ensure
that they are able to assess their profitability level effectively and efficiently. Capital Joinery Ltd.
Can therefore make the use of both of them so that it is able to determine its profits effectively
and efficiently. The goals and objectives of the company can be attained in this manner.
D2: Producing of financial reports for accurate analysis and interpretation of data
The financial reports can be used so that the organizations like Capital Joinery Ltd. Are
able to ensure proper analysis and interpretation of data in a highly effective manner. The use of
Marginal and Absorption costing techniques can be made so that financial reports can be
prepared through which analysis and interpretation can be done in the right manner. Thus in this
way conclusions and recommendations can be derived which can be highly useful.
TASK 3
P4: Advantages and Disadvantages of planning tools
Scenario- Capital Joinery Ltd. is a manufacturing company which deals in producing of
joinery, made-to-measure doors and windows. Thus its managers are required to make sure that
the are able to make the use of different types of budgets which will help in the creation of
various types of plans to be applied in the future in the company for raising the overall efficiency
and effectiveness level and thus ensure that the overall goals and objectives can be attained
properly. For this purpose the use of Fixed Budget, Flexible Budget, Production Budget, Labour
Budget, Sales Budget and Purchase Budget can be used effectively and efficiently in the right
manner.
Businesses can make the use of different types of planning tools. These tools are
explained as follows-
Fixed budget-
In these type of budgets, there is a very little scope of flexibility (Opute and Madichie,
2017). They have constant figures which cannot be changed. The use of this budget can be made
in Capital Joinery Ltd. for ensuring a higher-level of consistency.
Advantages-
13

 In this budget, there is a particular level of consistency. Therefore in this manner Capital
Joinery Ltd. has an advantage here.
 This budget can be implemented quickly in the organizations. Thus in this manner this
creates and advantage for Capital Joinery Ltd.
Disadvantages-
 This budget does not offers flexibility. Therefore the change in sales cannot be made.
Thus in this way it can crate an advantage for Capital Joinery Ltd.
 When this budget is used areas of improvement cannot be identified. Therefore, for
Capital Joinery Ltd. an advantage can be created.
Flexible Budget-
In this budget, a higher-level of flexibility can be offered to the organizations. Therefore
in this manner the different goals and objectives of the company can be attained highly
effectively. Thus in this way the use of this budget can be made by Capital Joinery Ltd. For
ensuring that a higher-level of flexibility can be maintained.
Advantages:
 Through this it is easy to calculate the quantity and amount of output produced in the
organization to achieve set profit level.
 Through this sales , cost and profit status of organization is easily determined.
Disadvantages:
 It use past data for measure flexible budget so historical data will be accurate.
It is expensive method because skilled worker should be require to maintain the flexible budget.
 It is expensive method because skilled worker should be require to maintain the flexible
budget.
Production Budget-
In this budget, the requirement from the organizations is that they must estimate their production
requirements for a specific period of time. By estimating these requirements they will be able to
manage their production effectively and efficiently.
Advantages-
 This budget allows in the estimation of the level of production in the firms. This allows
the management of Capital Joinery Ltd. To enhance their production level they can
identify various ways.
14

 In this budget the companies can ensure that they are able to find out problems and issues
with the production and can solve them. This will allow the management of Capital
Joinery Ltd. To gain an advantage.
Disadvantages-
 In this budget a lot of skills are required for the purpose of preparing the budget. This can
lead towards a disadvantage for the management of Capital Joinery Ltd.
 This budget's preparation is quite costly. Thus in this way this creates a disadvantage for
the management of Capital Joinery Ltd.
Labour Budget-
This budget is useful for the organizations so that they are able to estimate the labour
requirements effectively and efficiently. For the company, it is thus useful.
Advantages-
 It is useful in ensuring that the labour requirements can be easily identified in the
organization. In this way this helps the managers of Capital Joinery Ltd.
 In this budget there must be a use of estimates and requirements for the purpose of
enhancing the level of labour efficiency and effectiveness. This helps the management of
the company.
Disadvantages-
 Organizations find it costly to prepare this budget. Therefore this can create a
disadvantage for the management of the company.
 A lot of time is consumed in the preparation of this budget. Thus a disadvantage is faced
by the managers of the company in this way.
Sales Budget-
This budget can be used in order to forecast the level of sales in a proper way. In Capital
Joinery Ltd. it is a useful budget because it can help in raising the level of sales revenues.
Advantages-
 This budget ensures that a forecast of sales in the future time period can be made. For the
management of Capital Joinery Ltd. This can create an advantage.
 This budget ensures that comparison between the sales of organizations can be made
effectively and efficiently. Therefore, for Capital Joinery Ltd. This creates an advantage.
Disadvantages-
15

 In this budget, the forecasts which are made can be wrong and thus in this way an impact
can be created on the organizations. For Capital Joinery Ltd. A disadvantage can be
created due to this reason.
 Preparing this budget is a time-consuming process. For the company, it creates a lot of
disadvantage.
Purchase Budget-
In this budget, the forecast of purchases to be made in the future is made by the
organizations. Therefore, Capital Joinery Ltd. Can make its use so that it is able to keep its
expenses related to Purchases in check.
Advantages-
 This budget ensures that the various types of details regarding the Purchases can be found
out effectively and efficiently. Thus, In this way Capital Joinery Ltd. Can arrange its
Purchases properly.
 The use of this budget is very helpful in keeping the amount of expenses on Purchases in
check. This can therefore be very helpful for the management of Capital Joinery Ltd.
Disadvantages-
 In this budget, the details which are related with Purchases can be inaccurate if its
estimates are wrong. For the company, a disadvantage can be created due to it.
 Preparation of this budget is quite costly from the point of view of the managers. For the
company, it creates a disadvantage.
M3: Analysis of different planning tools and their applications:
Planning tools helps in to estimate future plans for organisation so that managers can take
appropriate decisions. Budgetary control helps organisation to pre estimate its expenses and
income for future so that firm can work according to plan. This helps Capital journey Ltd. To
achieve its goals and objectives in the future. It helps firm to identification of problems and using
proper approaches to overcome with the problems.
TASK 4
P5. Organisations are adapting management accounting system to respond to financial problems:
Financial problems: Financial problems refer to the situations in which the
organisations are not able to meet their expenses or financial needs. It can put impact on overall
16

performance of an organisation. The firm, Capital journey Ltd. Can face financial problems
during their operations. Financial problems which can face by a company including:
 Lack of cash flow: an organisation can face this problem, without the sufficient capital,
firm's will not able to pay their expenses. Lack of cash flow the firm capital journey Ltd.
Cant survive, it will affects firm's operations and revenues. Every business can better
performance when it has sufficient cash with it.
 Poor accounting practices: Accounting and budgeting plays crucial role in financial
management. Due to change in technology and methods firm has to train their
professional accountant so that they can do their performance in efficient way. Doing
work according to old era it affects firm's financial position. It can affect Capital journey
Ltd., firm must take care of popular accounting software or rules so that it can manage its
financial operations in efficient manner.
Techniques to solve financial problems:
 KPIs: Key performance indicators are quantitative measures that helps organisation to
evaluate its success . Different type of KPIs used by business to evaluate its performance
such as net profit, net profit margin, gross profit margin,current ratio, quick ratio etc.
These indicators helps organisation to overcome with less cash flow problems and help it
to estimate future funds so that organisation can manage its cash flow.
 Benchmarking: This technique is used for solving inventory, finance and customer
related problems. In context to Capital journey Ltd., it helps firm to solve poor
accounting practices problem as by setting standards, it will ensure firm how to manage
financial problem and how can it change its accounting methods according to popular
software.
 Financial governance: It refers to identify he way in which company can manage,
monitor and control its financial operations effectively. In context to, Capital journey Ltd.
It helps firm to manage and analyse its financial performance and it can solve financial
problems efficiently and effectively.
COMPARISON OF ORGANISATIONS
Basic ASDA ALDI
Financial problem The firm faced financial
problem related to its fund
This firm faced financial
problem related to lack of cash
17

management. flow.
Management accounting
system used
To solve this problem firm use
inventory management system.
To solve this problem firm use
price optimising system of
management accounting.
Application of management
accounting
Under this management
accounting system it is
concerned with overview or
monitor to stock and funds of
an organisation. So that firm
can previously measure the
necessity of funds to manage
its inventory and other
operations.
Under this system, it is used to
control expenses occurs upon
resources. Price optimization
can help firm to manage
required cash flow, by it can
tailoring the prices for the
customers segment.
From the above discussion about financial problem management of Capital journey Ltd.
Must learn from both the firms such as Asda and Aldi, in favour to that it can solve its financial
problems through management accounting system. Thus it can solve its cash flow related
problems and accounting practices related issues. So that It can manage its pricing strategy and
accounting methods effectively and efficiently.
The company can therefore make sure that by making an use of management accounting
systems it can solve its financial problems. The problem of Cash flow can be solved by making
an use of Cost accounting system which will help in ensuring that the regularisation of the cash
flows can be done properly. Also, the problem of accounting practices can be solved by making
the use of Job costing system as it will help the company to be able to manage the job orders in a
proper manner effectively and efficiently.
M4: Analysis of responding management accounting system over financial problems:
In context to solving various financial problems organisation's can use management
accounting system or its techniques. Through the management accounting system, Capital
journey Ltd. Will be able to solve its financial problems in right way or effective way. It is
important for organisation's manager to identify the best accounting system so that they can
implement it on their issues. Requirement for this system is to identify the problem and then
18

solve it out in best manner. It will helps firm to done its operations in effective and efficient
manner.
D3: Evaluation of planning tools
For the success of any organisation it is important to use planning tool that can ensure it
in make frame for short term and long term plans in the future. It is typical to analyse that these
plans can can help firm to achieve its goals and objectives. In the context of Capital journey Ltd.,
for the firm's future actions it is important to make proper planning so that it can ensure the firm
to complete its operations according to expected planning. To use of proper planning will assure
firm to achieve its sustainable achievement for the future.
CONCLUSION
From the above report, it can be concluded that Management accounting is a process of
ensuring that the financial information can be used in a proper manner effectively and efficiently.
Different systems of management accounting helps to solve problems occurs in the organisation.
Marginal and absorption costing helps firm to identify net profits of the firm. Planning tools such
as budgetary control can help firm to framing appropriate plans for the future. Effective planning
and effective use of accounting system will assure firm to achieve its goals and objectives.
19

REFERENCES
Books and Journals:
20