Management Accounting Systems and Performance

This assignment delves into the crucial role of management accounting systems in shaping organizational performance. It examines the influence of different management accounting practices, such as activity-based budgeting and zero-based budgeting, on a firm's overall success. The assignment also investigates the mediating effect of strategic management accounting between perceived environmental uncertainty and firm performance. Through an analysis of relevant literature and research, this document sheds light on the complexities of managing financial resources effectively and achieving sustainable organizational growth.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting and its types..................................................................................1
P2. Explaining methods used in management accounting reporting..........................................6
M1. Application and advantages, disadvatages of Management accounting system.................8
D1. Integrating management accounting system within organisation........................................9
TASK 2..........................................................................................................................................10
P3. Income statement using different costing techniques.........................................................10
M2. Applying various management accounting techniques.....................................................11
D2. Interpreting financial reports..............................................................................................12
TASK 3..........................................................................................................................................12
P4. Advantages and disadvantages of budgetary control tools.................................................12
M3. Uses of different planning tools in forecasting budgets....................................................14
D3. Planning tools for solving financial problems...................................................................15
TASK 4..........................................................................................................................................16
P5 Use of management accounting system for responding financial problems........................16
M4. Sustainable organisation through responding financial problems.....................................18
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Management accounting is an essential part of accounting process in any organisation or
business concern. It is also known as managerial accounting. It is a tool for managers to analyse,
assess and evaluate various aspects of managerial accounting within an organisation. Various
techniques and methods used management accounting system facilitates financial information for
financial reporting and also helps in assessing performance of organisation as a whole and its
individual functions. In the present report different types of management accounting systems and
reports are explained along with their uses in the context of Unicorn Grocery store. It is a small
business of retail store based in UK with less than 50 employees. Main purpose of this report is
to explain how different methods, systems and techniques provides aid to managers and small
business owners in achieving their target objectives and goals along with helping them in making
future economic decisions. In order to fulfil purpose of this report, various topics and discussions
comes under its scope such as advantages of management accounting systems and how the
system can be integrated within an organisation. Further, financial statement has been prepared
for cited firm using two different techniques along with explaining difference between both.
Different planning tools that helps managers in forecasting future events that ultimately
facilitates sustainable growth of business are also explained bvelow.
TASK 1
P1. Management accounting and its types
Following are some types of management accounting system that can be used by Unicorn
Store for improving efficiency of its business operations.

Illustration 1: Management accounting system
Source: (AbRahman and et.al., 2016)
Inventory management system:
This project is mainly designed for various companies to manage their:
 Employees
 Customers
 Vendors
 Inventory
 Sales
 Accounting
 Various reports
IMS helps a business be successful because it provides the direct control over the organisation
and keep tracks all of things.

The project scope provide the user with a platform in which user will be to an update exactly
how much inventory is required to avoid shortage and wastage of products to get the better
turnover from the inventory (AbRahman and et.al., 2016). With the in company can:
 Provide employee efficiency
 Have accurate planning of keeping right amount of products.
 Manages the vendors. Which plays a key role in the business
 Keeps sales records, slips and manages the invoices.
 Manages the accounts of company Will manage all amount of reports like invoice or history of customers, vendors and
inventory also.
Cost accounting system
Concepts of cost
Cost is the amount of resource which is given up in exchange of goods and services. The
resource given up is money expressed in monetary terms.
The charted institute of management accountants, London also defines cost as“the amount of
expenditure incurred on to specified thing or activity.
These kinds of activity involves expenditure under various heads, eg material, labour, other
expenses etc. Manufacturing organisation interested in ascertaining cost per unit of product
manufacture while an organisation who is rendering services eg, transport, canteen, electricity
company, municipality etc is interested in ascertain the cost of the services it renders. In simple
form it means the cost per unit is arrived by dividing the total expenditure incurred by the total
units produced (Bertz and Quinn, 2014). If the manufacture produces more than one product it
becomes imperative to split up the total expenditure between the various products so that the cost
of each product can be ascertained separately. For consumer cost means PRICE. For
management cost means EXPENDITURE. The process of ascertaining the cost is known as
costing.

It is necessary to specify the exact meaning of cost. When the term is used specifically it is
modified with terms as prime cost, fixed cost, sunk cost etc. To ascertaining these there are three
basic objectives namely- cost ascertainment, cost control and cost presentation.
General principles of cost accounting:
1. A cost should be related to its cause.
2. A cost should be charged only after it has been incurred.
3. The convention of prudence should be ignored (Bryer, 2013).
4. Abnormal cost should be excluded from cost accounts.
5. Past cost not to be charged to future period.
6. Principles of double entry should be applied wherever necessary.
Objectives of cost accounting
 To analyse all expenditure with reference to the cost products.
 To arrive at the cost of production every unit, job, operations should be analysed
 To provide data’s for profit and loss accounts and balance sheets at regular intervals such
as weekly, monthly, yearly.
 To provide actual cost and figures for estimations the price fixing policy should be
checked.
 To present comparative cost data for different periods. This is also helpful in budgetary
control (Chan, 2015).
 Last but not least, all information should be provided to the management to make the
short term decisions at various level like quotation of prices or make or buy decisions etc.
Importance of costing
 Cost accounting helps in periods of trade depressions and trade competition
 Cost accounting helps in price fixation
 Cost accounting helps in making estimates
 Cost accounting makes comparisons possible

 Cost accounting eliminates wastages.
 Cost accounting helps in inventory control
 Cost accounting helps in enhancing efficiency
 Cost accounting helps in channelizing production in right areas.
Job-Costing system
Job costing is that form of costing which applies where work is under taken to customers
special requirement in short duration (Groot and Selto, 2013). These kinds of works are generally
carried out in a factory or workshops. Eg, construction jobs, Engineering jobs, printing, furniture
making, fabrication jobs etc.
Features
 It is a specific order costing.
 The job is carried out or product is produced to meet the specific requirements of order.
 It is concerned with the cost of individual job or batch, but normally short duration of
time.
 Cost is collected at the end of its completion.
 Cost of job ia ascertained by adding material, labour and overheads.
 Work in progress may or may not exist in the end of the accounting year.
Advantages
 The profit or loss can be easily measured.
 It generates data cost which is useful for analysis and management control.
 It shows whether the job is profitable or not (Joshi and Li, 2016).
 Job costing enables comparison with other jobs so that inefficiencies identified and after
that rectified.
Disadvantages
 Time consuming process.

 Expensive
P2. Explaining methods used in management accounting reporting
Illustration 2: Management accounting reports
Source: (Khodzytska and Ivchenko, 2014)
Management accounting reports are also known as cost accounting reports. Which are
basically designed to offer internal information to organisation or companies through financial
accounting? The main purpose of management accounting reports is to help is to planning,
monitoring, determining decision. Management accountants depends upon standard financial
reports such as
 Balance sheet
 Income reports
 Cash reports
 Other management accounting reports

Management accountants use information not only financial but accounting as well as
management skills (Khodzytska and Ivchenko, 2014). Few of the above mentioned reports are
explained as below that can be used by Unicorn Store:
Cost reports
Cost reports help management accountant to calculate cost of items that are produced
through to unprocessed data. Such data includes:
 Cost of products
 Overheads
 Labour cost etc
Cost reports are also called management accounting reports which are used for the purpose of
planning and profit margins.
Budget reports
With many types of management accounting reports, the budget reports are also an
important report. The main purpose of budget report is to create budget from previous years data
to make future predictions (Klemstine and Maher, 2014). Supply of revenues and expenses must
be in the budget reports and company must work within the amount that has been calculated in
the budget.
Budget reports help small company owners to analyse their performance. If there is big
company owners managers should analyse departments control cost. If small business owners
were over budget in the previous year and can’t trim their cost, the budget for future years needs
to be increased to a more accurate level. Owners and managers use budget reports to give
incentives to their employees, as well as for giving bonus also for meeting their specific goals.
Performance report
Another type of management accounting report is performance report. These kinds of
reports are used by management accountants to analyse expenditures and revenues to amounts
that have been allocated. These inequalities are computed to help in deciding new budget. These

reports are computed annually although there are many companies who compute monthly or
quarterly reports (McLellan and Sherine, 2013). These reports are compiled with the data from
economic accounting. Accounting reports are one of the necessities for planned management
economy.
Accounting reports are submitted to higher authority of ministry to credit and financing
institution of HSBC and Bank of England to central statistical administration and local bodies.
Accounting reports which are submitted to higher authority are signed by head and the chief
accountant of the organisation. Copies should be send to all addresses are certified by the chief
accountant. Periodic accounting reports should be submitted not later than 15th of the month. And
annual accounting report should be submitted not later than 25thjanuary of the following year
under review. Higher organisation considers and approves accounting reports within 15 days of
the day reports are received.
M1. Application and advantages, disadvatages of Management accounting system
As discussed above various types of management accounting system and the types of
report, these can benefit unicorn grocery in number of ways:
 This will help the management of Unicorn in estimating the cost of their products and
services and also that segment of products that are most profitable (Nørreklit, 2014).
 Use of management accounting system will help in forecasting the future trends through
management can prepare various policies accordingly.
 Management accounting system will help the management in making various future
economic decisions regarding the activities that need to be closed down and those that
need to be started.
 Forecasting of future cash inflow and outflow is possible to determine and the impact of
the same to business unit.
 This also helps in identifying the areas for future business expansions.

 Through this management can also determine the variations in forecasted budgets of cost
and sales and actual amount of expenses and sales volume.
However, these techniques will be helpful for the business in terms of making the
adequate improvement in the operational or financial performance. Therefore, such techniques
will increase the productivity as well as make the adequate increment in efficiency of firm.
D1. Integrating management accounting system within organisation
As the need of management accounting has been discussed in the above report. The need
of its integration within the organisation also increases (Fullerton, Kennedy and Widener, 2013).
Before integrating management accounting management should identify the key areas that
require integration System of management accounting can be integrated in Unicorn grocery by:
 Setting the prices of different segments of products and services.
 By providing cost centres of goods and services.
 Preparation of budgets for various activities in different departments.
 Preparing centralised budget for the company as a whole.
 Developing budgets for staff development.
 By conducting personal meetings and interview with key personnel of the organisation.
 Identifying best practices that are required by the organisation.
 Explaining purpose of integrating management system to the employees.
In terms with making the improvements in the operational activities of the business there
can be need to analyse the requirements of funds, efforts in any business tasks. The managers of
Unicorn must concentrate over utilisation resources in consideration with the market needs and
wants.

TASK 2
P3. Income statement using different costing techniques
Marginal costing method
PARTICULARS DETAILS Amount (£) Amount (£)
Sale revenue on production (700*35) 24500
Cost (700*13) 910
Less: closing stock (100*13) -1300
variable cost 7800
Contribution per unit 16700
Less: variable sales overheads (600*1) 600
Less: fixed expenses
Production overheads 2000
fixed selling cost 600
fixed administrative cost 700 3900
Net Profit 12800
Absorption Costing Method
PARTICULARS DETAILS Amount (£) Amount (£)
Sale revenue on production (700*35) 24500
Cost (700*16) 11200
Less: closing stock (100*16) -1600
Less: fixed production overheads -100
Production Cost 9500
Contribution per unit 15000
less: variable sales overheads (600*1) 600
less: fixed expenses

fixed selling cost 600
Fixed administrative cost 700 1900
Net Profit 13100
Difference Between Marginal costing and Absorption costing
BASIS MARGINAL COSTING ABSORPTION COSTING
Meaning It is a decision making techniques
in order to ascertain total cost of
production.
This method apportions total cost to
the cost centre to determine total
cost of production.
Cost recognition Only variable cost is considered as
product cost while fixed cost is
considered as period cost.
Fixed cost as well as variable cost is
considered as product cost.
Profitability Profit volume ratio is used in
measuring profitability.
Profitability gets affected due to
inclusion of fixed cost.
Classification of
overheads
This method classifies overheads as
fixed and variable.
It classifies overheads as
production, administration and
selling & distribution.
Cost per unit Variances does not influence cost
per unit of output.
Cost per unit gets affected due to
variances in opening and closing
stock.
Highlights Contribution per unit is main
highlighted component.
Net profit per unit is main
highlighted component.
M2. Applying various management accounting techniques
Following are the techniques that are used by in management accounting:

Standard costing: standard costing records the variances between expected and actual
cost by substituting expected cost for actual cost in the reports (Novas, Alves and Sousa, 2015).
This system maintains large amount of information about historical cost for the items that are
held in stock. This system involves creating of standard cost for the various activities of the
organisation.
Activity Based costing: activity based costing system helps in assigning the
manufacturing overhead cost to the various products of the organisation. The assignment of cost
is based on the level of resources that are absorbed by the activities. In comparison to the
conventional costing, indirect costs are assigned to direct cost in this method
D2. Interpreting financial reports
To: General Manager
(Unicorn store)
From: Management accountant
(Unicorn store)
Subject: Information regarding revenues from different techniques
Dear sir,
This is to provide you information regarding profit earning capacity of the business. Income
statement for Unicorn Store has been prepared using two different costing techniques that are
Marginal costing method and absorption Costing Method. It has been analysed that results
from both the methods significantly differs with each other. This is due to the difference in
expenses that are accounted in both methods. Net profit as per marginal costing method is
£12800 while as per absorption costing method it is £13100. Hence, it is recommended to the
management to use absorption costing method for the purpose of preparation of income
statement. By doing so, better profitability of the organisation can be shown to its stakeholders.
Thanks & Regards

TASK 3
P4. Advantages and disadvantages of budgetary control tools
There are different methods of budgetary control tools that can be used by Unicorn grocery store:
Incremental Budgeting
It is the traditional method of Budgeting. Under incremental budgeting budgets are
prepared by taking base of prior year budgets and proper flow of funds is provided whenever
there is requirement.
Advantages
 This method of budgeting is easy to use.
 It provides regular flow of resources and funds to avtivities.
Disadvantages
 It does not encourage innovations and improvisations in budgets. Amounts of expenses are higher under this method.
Activity Based budgeting
This method does not use traditional approach of making budgets i.e. it does not consider
past year budget or expenses for making future year budget. Main property of this method is that
it analyses each and every function of business and allocates resources accordingly as keeping in
view the complexity, nature and materiality of activity (Activity Based Budgeting, 2017). This
enables management in escalating extra cost along with allocating resources to most profitable
operations which in turn saves efforts and resources of non-profitable operations.
Advantages
 Activity based budgeting is easy to understand by everyone.
 It provides more accurate costing of products, services and distribution channels. It provides transparent results of expenses and revenues from particular activities.
Disadvantages:

 It requires a lot of care as the data in this system can be easily misinterpreted and is also
prone to personal bias.
 Reports of this system are not based on Generally Accepted Accounting Principles
(GAAP).
 Non economical method as it requires lot of resources and also a high skilled professional
is required to carry out this method.
Zero Based Budgeting
It is that method of budgeting where for the purpose of preparation of budget, base is
taken as zero. This means, unlike other budgeting methods such as incremental budgeting, this
method does not take part year budgets and actual expenses as the basis for preparing budgets of
current or future year (Zero-based Budgeting (ZBB), 2012). Instead, this method keeps the base
of preparing budget at Zero and as their increases the requirement of resources to activities, it
provides regular flow. The method is considered as the most simple method of budgeting and can
be undertaken by any employee.
Advantages
 It does not require evaluation of past year budgets and expenses.
 This system is mostly useful for service or non profit organisations. It provides flow of resources as per requirement.
Disadvantages
 Over allocation of resources as there is no base.
 It is a time consuming method of budgeting.
 Manipulation of figures and personal bias of allocation of resources is easy under this
method.
M3. Uses of different planning tools in forecasting budgets
Different planning tools that can be used by the management of Unicorn grocery
store in order to forecast the budgets of different segments of organisation are costing and
pricing techniques (Soheilirad and Sofian, 2016). By using these techniques' management can
determine the estimated cost required by various segments or different products and services.

These estimations will then help the management in forecasting budgets for different operational
activities. Various costing and pricing techniques are:
Markup Pricing: Under this method prices of the products are set up by adding a
percentage of profit to the cost of products. This method is generally used by retail stores where
they add a percentage of profit on the cost at which they purchase products. Using this method,
business ensures minimum number of profit on sale of its products and services.
Process costing: Techniques of process costing is used in those industries where
manufactured products cannot be identified individually and products are approved on from
multiple stages before reaching to the finished product.
Job Costing: This refers to identification of actual cost of each job separately (Takeda
and Boyns, 2014). This method is used by those organisations where work is carried on the basis
of the requests of customers.
Operation costing: Those organisations or industries where production or units are
identical to each other use operational costing system. Cost sheet is prepared under this method
in order to determine per unit cost and profit or loss on overall production.
Competitive pricing: under this method business set the price of products on the basis of
prices of their competitors.
Cash budget: To enhance the revenue generation of the firm as well as managing the
inflows or outflows there will be need of making the cash budgets. However, with the help of
this tool the managers or organisation will have the adequate amount of funds which will be
utilised by them to make the effective operational improvements as well as fulfil the needs of
finance in every department in Unicorn.
Sales Budget: This will help the firm in making analysis over market and consumer
needs which in turn helpful in terms of making the production of units, Thus, such report
technique will be helpful for making the fruitful decisions which are relevant with products,
sales, market demand, consumer preferences as well as prices of such articles.

Operating Budget: To manage the internal operations of business there will be
requirements of proper execution of the duties performed in the premises. Therefore, it can be
said that there will be increment in the operations of business as each department will have their
own budgets and limits of expenses.
D3. Planning tools for solving financial problems
Planning tools helps in overseeing the necessary tasks required to achieve goals. Planning
tools provide various benefits in sustainable growth of business. Various sustainable growth
benefits to Unicorn store are:
 It provides direction to the team of the organisation the way to precede a task.
 Planning tools increases communication and coordination within the organisation that
helps in building trust and transparency among employees at all the levels.
 It provides direction to the team of the organisation the way to precede a task.
 It increases the reliability in the prediction of assumptions and decisions required in
financial budgeting (Tucker and Parker, 2014).
 Planning tools can also help management in anticipating the problems occurring in
different operational activities of the enterprise.
 Responsibility of completing tasks assigned to the specific employees is facilitated
through planning tools.
 It increases the reliability in the prediction of assumptions and decisions required in
financial budgeting.
 Planning tools also facilitates optimum allocation and utilisation of business resources.
These resources include both financial and labour (Armstrong, 2014).
 It helps the employees in developing their time management skills in order to perform
their task more effectively and efficiently.

TASK 4
P5 Use of management accounting system for responding financial problems
There are different management accounting systems other than those that are discussed
above. Many of these systems help management in solving their financial problem in day to day
operations such as preparing budget by allocating optimum resources to different activities and
functions of business, providing standards to performance of different activities and then
comparing actual results with standard results in order to evaluate performance of business
organisation. Further management accounting systems also provide path way to managers for
increasing the efficiency of their firm. However, Unicorn store, with the help of following
management accounting system will be able to respond to its financial problems more
effectively:
Benchmarking:
Benchmarking is one of the most useful managerial tool with the help of which
performance of various activities of the organisation are compared to that of best performance of
the industry. Therefore, benchmarking is setting a target or minimum level performance of
different functions. Organisation can also make a benchmark to have a minimum profit amount
or even in sales volume. In order to achieve ordinary profits, reaching to that benchmark is
necessary. If Unicorn Store would not be able to achieve that benchmark, then it can be said that
the performance of the business is not up to mark.
Key performance indicators:
These are the measuring values i.e. standard performance is set as per the best
performance of industry of different functions. Performance of activities is them compared with
the standard performance. This enable’s management in identifying best performing activities
along with those where corrections are required. In other words these are some parameters that
provide information regarding performance of different functions within an organisation.
Budgetary control

Budgetary control system of management accounting will help unicorn store in solving
its financial issues regarding budgets for financial year. Business often faces issues regarding
how many resources to be allocated to different activities and functions of organisations.
Budgetary control is a technique that will help managers of cited firm to prepare budgets for
different activities using different methods as per their suitability (Bertz and Quinn, 2014). Once
the budgets are prepared this system of management accounting helps in analysing variances and
identifying reasons for those variances. This will enable Unicorn store in assessing performance
of its different functions along with taking corrective measures to improve efficiency of its
activities.
Financial Governance
A business had to adhere to various policies, laws and regulations of the country and state
in which it is operating. It is a key ingredient of corporate governance for a business. Various set
of complex regulations are provided in order to facilitate financial reporting of business.
Regulatory and conceptual framework to financial accounting has been provided that generally
includes accounting principles such as GAAP (Bryer, 2013). This system of management
accounting will help Unicorn Store in solving and responding to its financial problems that are
related to producing financial reports.
M4. Sustainable organisation through responding financial problems
By number of ways sustainable growth of Unicorn store can be facilitated by
management accountants:
 By identifying social and environmental trends that can have a significant impact on the
ability of the company to create more value of time (Groot and Selto, 2013).
 By linking company's strategy to sustainable business challenges.
 By developing key performance indicators that will help in supporting sustainable and
strategic goals of Unicorn Store.
 By producing reports that includes data regarding sustainable impacts like price
decisions, strategic planning, investment appraisal, etc.

 By explaining the impact of sustainable issues in robust terms of business.
 By developing such kind of reporting strategy that enable to integrate issues of
sustainability that ensures the disclosure of financial and non-financial information.
 By applying tools and techniques of management accounting in order to integrate
sustainability matters into the process of decision making.
CONCLUSION
From the above report it has been concluded that management accounting is essential for
all kinds of organisation whether small, medium or large in scale. The above report is in the
context of small business i.e. Unicorn grocery store of UK. How different types of management
accounting systems can help in its growth and decision making process along with which reports
the business can use for identifying relevant information has been explained. Income statement
of the cited firm has been prepared using marginal costing system and absorption costing system.
Analysing the same it has been recommended to senior manager to opt absorption costing system
because it is showing higher profitability which will be favourable for firm. Further different
types of budgeting methods are explained, management of Unicorn store can prepare Budgets
using any of the method as per their suitability.

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