Management Accounting and Types of Management Accounting Systems

This report discusses management accounting and its role in decision-making. It covers the requirements of different types of management accounting systems, methods for management accounting reporting, advantages and disadvantages of planning tools for budget control, and the adaptation of management accounting systems. The report also highlights the importance of inventory management and financial reporting in businesses.

management
accounting

Executive summary
Management accounting is helpful in improving efficiency of computer system so that operations
can be performed efficiently. Budgetary control helps management in terms of budget, pricing
etc. this will help business in calculating expenses and carry investment activities efficiently.

Table of Contents
INTRODUCTION ..........................................................................................................................4
MAIN BODY...................................................................................................................................4
P1 management accounting and requirements of types of management accounting systems.....4
P2 methods for management accounting reporting.....................................................................5
P3 covered in PPT .......................................................................................................................7
P4 advantages and disadvantages of types of planning tools which are used for budget control7
P5 : adaption of management accounting system........................................................................8
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is the procedure of preparing reports about the business and its
operation and help the managers to take decisions about short-term, mid-term and long term
decisions (Nathwani, 2020). In this report a company called Marshall is being taken which
is indulged in the business of superior natural stone. In this report marginal costing,
absorption costing and income statement for the company have been made. Along with this
different characteristic of marginal costing and absorption costing is mentioned in this
report. Different management gave been described in this report. Methods of management
accounting is mentioned in this report.
MAIN BODY
P1 management accounting and requirements of types of management accounting systems.
Management accounting:
management accounting is the method through which financial information can be
measured, identify, analyse and communicate so that company's objectives can be achieved. The
aim of management accounting is to provide assistance to the managers so that they can make
decisions whereas financial accounting is done so that information can be given to external
parties of the company (Meaning and Definition of Management Accounting., 2021). The
objective of preparing management accounting is that they provide statistical and financial
information to managers so that they can take daily decisions. The reports are made so that
management requirements can be fulfilled.
Managerial accounting system:

Managerial accounting systems have various applications. It provides managerial information to
the management so that decisions can be taken. types of management accounting systems are
inventory management, cost accounting system, job costing system, price optimization, all of
them have different objectives and functions.
Cost accounting system:
cost accounting system is the method which is used by the organization so that cost of the
product can be estimated for inventory valuation, costly control, profit analysis etc. in the cost
accounting system cost is allocated on the basis of traditional costing or activity based costing
system. Cost accounting is the accounting system which capture the production cost of company
via measuring the input costs of production. Costing accounting system will measure the costs
and after that compare inputs with the results. Output is also used in measuring the financial
performance of the company. Businesses rely on accounting and every task is connected with
costs. Cost accounting further offers techniques like budgetary control, standard costing,
inventory control, marginal costing etc.
Inventory management:
inventory management refers to control the order and store them so that company can apply them
while producing the goods. It manages and control finished goods quantities for sales. Inventory
management is done with the aim to understand inventory so that situations of overstock and
under stock can be reduced (Gunawan and et.al., 2020). It helps managers to make inventory
related decisions. Inventory is important element for the business. Inventory management system
includes making purchase orders, adjusting, relocating of inventory etc. it is important because it
helps in improving workflow of company and inventory accuracy.
Price optimization system:
price optimization system is the method which does mathematical analysis so that it can be
determined that how consumers can react on different prices of goods and services. It is also
applied so that company can know that the prices which they have decided will fulfil their goals
by maximizing their profits or not.
Job costing system:
it means to allocate the costs to single item of the goods. It is applied when goods are different
from one another. This system accumulate information related to materials, labour and
overheads.

P2 methods for management accounting reporting.
Management accounting reporting:
it refers to the internal information which is received through financial accounting.
Management accounting is needed for planning, managing, controlling anf for making decisions.
Managerial reporting is based on financial statements which includes profit and loss, cash flow
statements and balance sheet. It also includes other types of accounting reports so that company's
information can be evaluated. It includes budget report, cost report, operating budget report,
performance report, inventory and management, account receivable ageing reports etc.
budget report:
budget preparation is the important factor of management accounting. Budgets are made on the
basis of previous years and adjustments are made in the future. It is mainly used for forecasting
purpose. Budget include expenses and revenues of the company. By staying in the budget only
Marshall ltd have to achieve its objectives. To save money manager can choose new suppliers for
raw materials. This will help company in increasing sales by decreasing the expenses.
Cost reports:
cost of items which are produced are calculated through management accounting. Cost reports
are made by including raw product overhead, labour adding extra costs in it. The addition
amount is then divided with costs of goods produced. Cost report is the summary of data.
Through the reports managers can see price of products and their selling price. It also helps
managers in planning and controlling profits.
Performance reports:
under management accounting budget are compared with revenues and expenditure of budget
amounts. The differences which is found are kept in mind while making new budgets and all the
informations are mentioned on the budget reports (Saukkonen, Laine and Suomala, 2018).
Performance reports are made monthly, quarterly or yearly and it is based on the choice of
organization. It helps managers in planning for the costs and demand.
Accounts receivable aging reports:
This report is important to business if business are using heavy credits. This is done by the
managers by breaking the balance of clients into periods so that defaulters can be identified and
issues can also be found in the collection process. If the defaulters are more than company
should opt for transformation and improve credit policies because maintaining cash flow is

important for smooth business operations. Although bad debts can be written off but it should not
make regular practice.
Operating report:
operational reporting refers to reporting which are related to operational details. Operational
reports are made so that daily activities of the company can be supported. It includes daily
accounts audit, production records, transaction records etc.
P3 covered in PPT
P4 advantages and disadvantages of types of planning tools which are used for budget control
Budgetary control:
budgetary control is the method by which budgets are managed for the future and also
comparison held with actual results so that variances can be known. When budget amounts are
compared with actual amounts then management can take corrective measures to fix issues if any
issue comes.
Types of planning tools are as follows:
budget:
a budget is the statement which include financial results for the time period in the future. Budget
have informations which are related to revenues and expenses for the expected time period.
Advantages of budget:
it is helpful in coordination between departments. Through budget strategic plans can be
converted into actions. As budget provide resources which is essential to carry strategic plan. It
provides records which can be used for organizational activities. It also facilitates effective
communications with employees. It is helpful in resource allocation. It is also helpful in
corrective actions via reallocations.
Disadvantages of budget:
Problems arise when rigidly budgets are applied. While forming budgets employees does not
participate which can demotivate them. Majorly budgets are applied from top to down in the
company and that can confuse employees as they will not understand budget expenditures. It can
also lead to unfairness. It can create workplace politics.
Cost volume profit analysis:
cost volume profit analysis is used to analyse the sales volume and cost of product of the
business. It shows that how changes in fixed costs, selling price per unit or variable costs

influenced the operating profits. It is the planning tool which is used by management of Marshal
ltd so that revenue can be estimated from the costs and profits. If company want to determine
break even point of goods then also cost volume profit analysis are used.
Advantages of cost volume profit:
it makes the calculations easy because it uses standard formula which also helpful in determining
the changes. It is helpful in planning as managers can estimate the spendings and from which
factors objectives of the business gets affected.
Disadvantages:
it shows that all the costs are fixed and however costs are not fixed and changes with production.
The have a notion that sales will remain constant only but demand can be changed.
Pricing strategy:
price is the cost which is given to the product or service and it is calculated through research
(Jack, 2017).
Advantages:
when the target customers pay prices then it will increase sales. To beat competition company
uses low price strategy.
Disadvantages:
company will price accordingly but customer will not pay for that, then this can cause decrease
in sales.
P5 : adaption of management accounting system
Management accounting system is being used by the organisation to recognize, measure, analyse
and interpreted the valuable information so that business can manage the loss and profit, this is
known as managerial accounting. It is frequently adopted by the businesses in today era as
management accounting help them to know the purchase cost of products although it is helpful
for the company to make budget. Some companies are confident about their adopted various
management accounting system and they may face any kind of economic changes but till now
some companies are unaware about the usage of management accounting. Apart from this there
are some factors who influence the business or companies to adopt management accounting.
Inventory management
Inventory management is one of the factor who is indulge in influencing the business to use
management accounting. If any business does inventory management they know the risk of

inventories such loss of inventories, tolerance, location, situation of suppliers, what is the
capacity of warehouse, do the warehouse can safeguard all the inventories or not. To manage the
inventory, business can adopt just-in -time or economic-order- quantity technique. Just -in- time
inventory focuses on ordering only specific goods and stocks which is need in the business. This
will help the business to decrease the storage cost but this technique only works when the
demand for the products remain constant, this cost is mostly used by the retail businessman. On
the flip side adoption of economic order technique focuses on placing large orders so that
business can save the cost by placing order in bulk.
Financial report
it is must for every company to know the financial reporting, it will help the company to know
what are their expenses and what income they have received from sales although by making
financial report company may know about its surplus and deficit and how they can recover the
deficit (Hojna and et.al, 2018). But financial report can only be made when the business or the
company uses management accounting then only it can know about the gross profit and sales and
also the expenses which the company make tom purchase inventories, row- material and also the
salary and wages which they have paid to its employees. It has been found that only big
companies are indulge in making financial report, the small shopkeepers and retailer so not
create such kind of financial report, in result they face loss at the end of the financial year.
Business type
Type of business is one of the major reason which is being found behind the management
accounting. Whether the business is indulging in providing service or a manufacturer both have
to use management accounting so that they can know the marginal costing and absorption
costing so that they can get an idea about the, direct labour and wages although the company
may know about the daily expenses and they can know the revenue and sales generated by them.
With the help of management accounting business can know that how much efforts they have to
put more so that they can generate good income and revenue in upcoming years, but small
business do not give priority to management accounting and tools thus they can’t calculate their
expenses and profits, but on the other hand big business who make profit in lacs, so due to
management accounting they recognise their end goals.
Recommendation:

marshal should choose right managerial accounting system so that company can achieve its
objectives. Company can also conduct research in accounting and should select best method
which helps in the growth of the company.
CONCLUSION
After analysing the entire report, it can be concluded that this report states about the marginal
costing, absorption costing and income statement. This report also speaks about the
characteristics of marginal and absorption costing. Various methods of management
accounting is mentioned in this report.

REFERENCES
Books and Journals
Jack, L., 2017. Strong structuration theory and management accounting research. Advances in
Scientific and Applied Accounting. 10(2). pp.211-223.
Saukkonen, N., Laine, T. and Suomala, P., 2018. Utilizing management accounting information
for decision-making. Qualitative Research in Accounting & Management.
Gunawan, A. and et.al., 2020. Linkages to Budgetary Control and Budgetary Absorption
Performance. International Journal of Economics and Financial Issues. 10(5). p.304.
Online
Meaning and Definition of Management Accounting., 2021. [Online]. Available through:
<https://www.toppr.com/guides/fundamentals-of-accounting/fundamentals-of-cost-
accounting/meaning-of-management-accounting/>