Management Accounting and its Systems

This document provides an overview of management accounting and its various systems, including inventory management, cost accounting, price optimization, and job costing. It also discusses different methods of management accounting reporting and techniques for cost calculation. Additionally, it explores planning tools such as cash budget, master budget, and operating budget. The case study of Creams Ltd. is used to illustrate these concepts.

Management
Accounting
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Table of Contents
Table of Contents.............................................................................................................................3
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and its essential requirement by explaining type of management
accounting system........................................................................................................................1
P2 Different methods uses in management accounting reporting...............................................3
TASK 2............................................................................................................................................4
P3 Cost calculation by using appropriate techniques of cost analysis.........................................4
TASK 3..........................................................................................................................................10
P4. Planning tools along with advantages and disadvantages...................................................10
TASK 4..........................................................................................................................................12
P5. Comparison between organisation related to the ways management accounting systems
can be adopted for responding financial problems....................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16
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INTRODUCTION
An accounting branch which is a way for presenting administration reports which provide
precise together with opportune budgetary, measureable information to management for making
long haul choices is described to management accounting. It recognises, computes, breaks,
translates and transmits accounting data for empowering an association for seeking attainment of
objectives. Within the accounting, all the financial and non financial related facts and statistics
are presented in systematic format to management (Bragg, 2012). To have deep knowledge about
management accounting, Creams Ltd is considered organisation which is medium sized business
specialised in selling waffles, ice creams and many other products. The present report
demonstrates about management accounting and its various systems that are essential required in
workplace. Further, it comprises methods for reporting of management accounting and various
techniques through which financial reports and other related documents are produced. The report
explains usage of distinct planning tools and adoption of certain management accounting systems
for responding financial problems.
TASK 1
P1 Management accounting and its essential requirement by explaining type of management
accounting system
Management accounting is consider as provision of financial and non financial decision
making information. It is uses by people to manage the working activities and financial
information so they can increase the organisational productivity and profitability. Management
accounting system is a mechanism that entails prompt reporting and documentation of financial
contributions to the statistical details that company executives and senior officials use for
effective forecasting which budgeting, decision-making and also requires assessment of
corporate efficiency. The main purpose of management accounting is to maintain financial
information and providing true image of their own business. Creams Ltd. is manufacturing
company that is making ice creams and other items by keeping records of all item cost and
selling activities. The different types of management accounting systems are as defined:
Inventory management system – This system is uses by organisation in order maintain
and track the inventory that is important to run a business. Every organisation are running
business by providing different types of products that are required to maintain effectively. This
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system is uses to keep tracking of stock which are available in organisation and increase the
profitability. The essential requirement of such system is to tracking and recording the inventory
level of organisation that helps to increase the business performance. In Creams Ltd. inventory
management system are uses by management for the purpose of managing stock and inventory
that helps to maintain the inventory and place the order to further material timely (Lev and Gu,
2016).
Cost accounting system – This system is related to defining the cost of products and
services which are provided by firm in order to run a business and maintaining the profitability.
This is a framework which uses by firms to estimate the cost of their products for controlling
cost, profitability analysis and valuating the cost which helps to maintain the profitability. In
Creams Ltd. it is essential required as to estimating cost of their raw material so they can
maintain the productivity effectively. This increases business performance by estimating correct
cost and making right business decision (Chiwamit, Modell and Yang, 2014).
Price optimisation system – This is a mathematical programme that helps to calculate
how demand varies at different prices which helps to maintain the profits. Every organisation
needs to set the prices of their products and services which helps to improve the profits. This
system allows company to use a pricing method optimally so prices of products can be maintain
effectively. In Creams Ltd, price optimisation system is important which is uses by managers to
set the prices of their products such as ice cream, cake etc. that can help to increase the
organisational productivity and profitability. They analysis the cost and set prices accordingly so
revenues can be increases effectively.
Job costing system - Such accounting system is uses by companies in order to
accumulate the manufacturing cost independently and separately for each job. The method is
primarily used when an company works with various kinds of goods and has a major influence
on costs. In turn, this approach allows manger to maintain a clear record of the amount of
expanses produced on a given commodity by creating a different job expense report for each
commodity or object. This is essential for organisation and Creams Ltd. to engaged in production
of products and special orders. With the help of this system Cream Ltd can separate their cost in
each section that maintain the high productivity and profitability (Modell, 2014).
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P2 Different methods uses in management accounting reporting
Management accounting reports are those report which are prepared by management in
order to keep records their day by day transactions and run a business effectively. This is a
written document that involves all information and financial data in order to get accurate cost
and maintain profitability. With the help of management accounting report a business concern
get estimate how much need to invest and get return revenues (Sampaio and Bernardino, 2016).
For preparing management accounting report different methods are used by management of
Cream Ltd. who analysis the performance and prepare reports accordingly. The description of
few management accounting reports are as stated below:
Budget report – This is consider as most fundamental report which is uses by
organisation for the purpose of comparing the budgeted and actual information. This is important
for all organisation get the gap and variance between estimation and actual performance so
decision are made accordingly. All expected expenses and income are compared with actual
revenues by preparing a report that helps to increase the profitability. In Creams Ltd. managers
are preparing budget reports every year by estimating expenses and income which are going to
incurred in organisation while running a business. So actual profits can be get by management by
comparing and using profits appropriately.
Account receivable aging report – This report is useful for organisation as it provides
information about outstanding receivable. As business is depends on credits that is given by
business concern to its customers for the purpose of increasing sales and building relationship.
This report is uses by such business concern to keep records of all unpaid invoices so amount can
be received at right time or due date. The credit period is given for 30, 60 and 90 days that create
obligation on debtors to make payment at fixed period. In Creams Ltd. managers are preparing
account receivable aging report to get the unpaid payment from customers and run a business
effectively (Weetman, 2019) .
Cost accounting reports – Cost computing is important for organisation which helps to
maintain the profits and high performance of organisation. The cost accounting report is related
to cost of products and services which are provided by organisation for the purpose of running
business activities. Cost are delegated in raw material cost, overheads, labours and other
expenses which are recorded by managers of Creams Ltd. for knowing the productivity and
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profitability. This keep records direct and indirect cost also so products can be estimate
accurately (Otley, 2016) (Roslender, 2017).
Performance report – This report depicts the overall performance of their organisation
by focusing and considering all income and expenses. This helps to increase the business
performance by analysing the business activities and reducing the cost. For organisation it is
important that to evaluate future growth and expansion of business by getting opportunities and
managing the business performance. Creams Ltd, is preparing performance management report
in order manage activities and organisational performance in competitive environment. This is
also helpful to detect the errors and organise activities accordingly (Seckler, Gronewold and
Reihlen, 2017).
Inventory management report – This is another method of managing the stock of
organisation that is prepared by management in order to track inventory. In organisation different
types of products and services are collected that all needed to manage properly, so this system is
use4s by management in order to keep record of all items. This is important for organisation to
analysis the stock which are available in company for the purpose of managing inventory and
increase the business performance. In Creams Ltd, different types of products are managed by
management by keeping records and preparing inventory management report that can help to
provide detail of all available items and place the order to those material which are going to
reduce and more demanded (Shumeyko, Sagamonova and Sagamonova, 2018).
TASK 2
P3 Cost calculation by using appropriate techniques of cost analysis
Cost – This refers as value of money that are using by organisation while proving
providing and manufacturing the products and services. At the time of manufacturing and
providing services some amount has to spend that is called cost. This is important for
organisation to analysis cost of their products and services which they are providing (Tregidga,
2017).
Marginal Costing – In this process, the variable coat is assumed to be the cost of the
commodity and the fixed coast is part of the cost of the time. This method is used to fix the
selling price and to select the best product mix. Calculation of net profit for the company Creams
Ltd. is using marginal costing to calculate the profits (Vansant, 2016).
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Absorption costing - Both fixed costs in addition to variable costs are considered to be the
cost of the product in this method. This shows the precise and equal expense of and commodity
and therefore the measurement of other factors, such as cost of production, cost of raw materials,
etc., is seen more clearly (Warren, Jonick and Schneider, 2020). Creams Ltd company is
preparing income statement by using the absorption costing method is shown below for a better
understanding of this method.
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Calculation of variances:
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TASK 3
P4. Planning tools along with advantages and disadvantages
Budget is the estimated financial plan which includes forecasted incomes and expenses
about particular accounting period. Budgets in the entity are complied together with re evaluated
on continuous basis. It includes information about planned sales volume, assets, resource
quantities and cash flows. In business concern, budget is used for expressing strategic planning
of events with transitions in measurable terms (Shumeyko, Sagamonova and Sagamonova,
2018). The essential purpose of budget in Creams Ltd is to provide forecasting about
expenditures and revenues, establishing cost constraints, enabling actual financial operations and
ensuring expenses do not extend than revenues. Through budgets, managers make relevant
decisions for allocating financial resources to distinct categories or departments for ensuring that
all divisions are provided money to carry out activities as per the set schedule.
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Budgetary control: It is one of mechanisms that determine certain actual outcomes with
estimated figures for the firm for upcoming duration. It is a system that controls costs involving
preparing budgets, making effective coordination between units and setting responsibilities,
making comparison of actual and budgeted performances for acting on variances in order to
make utmost profitability. In Creams Ltd, financial performance objectives are established by
managers and then compared with definite results through budgetary control.
Planning tools for budgetary control: Budgetary controls as well as budgeting are
essential elements of planning tools that assist administrators to create suitable management plan
along with manage fiscal plan (Tregidga, 2017). Some of the tools that are used at Creams Ltd
for purpose of budgetary control are the following:
Cash budget: The planning tool includes estimation related to cash flows within different
departments of business over determined time period. Management accountants of Creams Ltd
uses cash budget to manage and control cash flows and ensuring that sufficient cash is allocated
in all units to manage daily activities. Advantages of cash budget to the company are that it helps
in identifying the situation in which organisation can face situation of shortage of cash and
enable in operating entire activities effectively (Cash budget, 2020). Along with this, the
planning tool also assists in justifying suitable solutions for problems of cash flows. In contrary,
disadvantage related to usage of cash budget is that it lacks flexibility and limits business to build
credit profile.
Master budget: Planning tool that is sum total of entire divisional budgets is sad to master
budget. It is prepared by all business divisions and involves cash flow forecasting, estimated
accounts, financial planning and other related documents. In Creams Ltd, master budget is used
for summarising divisional budgets and preparing financial plan for upcoming accounting year.
the advantage of master budget to company is that the budgetary controlling motivates staff as
well as assists planning in advance. It is also beneficial to attain objectives and making
continuous improvements in financial activities (Vansant, 2016). Rigidity and complexities are
certain disadvantage that is faced by the management accounting while using master budget.
Operating budget: Planning tool which includes detailed projection of incomes and
expenses associated with upcoming fiscal year is defined to operating budget. In case with
Creams Ltd, management accountant uses operating budget for recording expected flows of
monetary resources from purchase to selling activities along with the impacts on financial
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statements. It lists out all operational expenses that are to be incurred together with incomes
which are to be generated in specified time duration. The advantage of operating budget to the
business concern is improving efficiency along with keeps track of expenses and incomes. Along
with this, it also control expenses and encourages hard work to attain ambitious sales targets.
Disadvantage of operating budget is that it is based on forecast that many time do not result
accuracy and leads to huge complexities in managing situations.
Planning tools together with techniques engrosses forecasting, performance measurement,
developing charts, budgeting and decision making for pictorial analysis in order to name few of
exhaustive lists (Warren, Jonick and Schneider, 2020). By using certain planning tools, finance
department of Creams Ltd updates entire unit about expenses and incomes for upcoming
duration.
TASK 4
P5. Comparison between organisation related to the ways management accounting systems can
be adopted for responding financial problems
In present world, there is no organisation that does not face any financial problem. All
companies whether small or large faces finance related problems. These problems can emanate a
company to achieve success along with set performance targets (Bragg, 2012). The training
accountant has identified that company such as Creams Ltd and Kaspas Deserts uses financial
analysis tool for identifying financial problems. With the help of the tools, management
accountant of Creams Ltd have identified that following financial problems that is faced by the
entity:
Late customer payments: It is analysed that customers such as retailers and others buys
organisational products in bilk quantity and make late payment. In case with Creams Ltd, it is
seen that customers that make bulk purchase and continuous purchase makes late payment due to
which other operations of the entity faces complexities as it restricts inflow of cash in business.
Excessive spending: In order to attract and retain more customers, companies are making
huge spending than they earn that causes shortage of funds in the business and creates issues
concerned with finance. In context to Creams Ltd, marketing team makes huge spending in
making advertisements and promoting the brand than what they earns ad it results in problems
related to funds.
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To manage and resolve financial situation, management accountants of the entities uses
suitable management accounting approach for gaining solutions (Roslender, 2017). Some of
them are discussed underneath:
KPI: It approach that helps in measuring about wellness of company to perform an activity
which is necessary for existing and upcoming success is key performance indicator. To resolve
situation of excessive spending, managers of Creams Ltd could use the technique as it will help
in focusing on financial parameters and controlling unproductive transactions.
Benchmarking: Other approach through which an organisation compares processes along
with performances with the best in the industry is termed to benchmarking (Weetman, 2019). By
using the approach, administrators of Creams ltd could deal with financial problem of late
customer payment as they can analyse the strategies that are adopted by leading players and can
apply the same to get payments of time.
Financial governance: The way that states about how business managers gathers, manages,
analyse, monitor and control data related to finance is defined to financial governance. With the
help of the approach, managers of the companies track activities, manage performances, control
information and adheres compliances that can help in resolving financial problems.
The ways accounting systems could be used in Kaspas deserts and Creams ltd for resolving
problems of funds are as compared:
Creams Ltd Kaspas Desserts
Financial Problem: Creams Ltd is facing
problem of excessive spending in which huge
number of expenditures are made by marketers
for attaining customer interest and attention.
Financial problem: Kaspas Ltd is going
through severe financial issue of late payment
from customers as there are various people that
makes bulk purchase and fails in making
payment on due date.
Accounting system: For the purpose of
managing and resolving the financial
complexity, administrators of Creams Ltd can
use cost accounting system through which all
the advertisement expenses that are
unproductive are eliminated and huge
Accounting system: To resolve issue of late
customer payment, managers of Kaspas Ltd
could use prime optimisation system. With this
suitable prices for the products can be
established as per customer perceptions. This
will motivate customers to make timely
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satisfactory results can be achieved. payments to company (Lev and Gu, 2016).
CONCLUSION
From the above report it can be concluded that management accounting play a crucial role in
preserving stable financial conditions. Management accounting also includes accurate
documentation and monitoring of financial results by numerous publications, such as budget
reports and accountability reports. Different system and reports are prepared by management in
order to run business effectively. The use of partial and absorption coatings is also assessed.
Further conclusions can also be drawn on the benefits and drawbacks of the planning tool. To
solve the financial problems KPI and benchmarking tools are uses by management so it can
maintain the organisational productivity.
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REFERENCES
Books and Journals
Bragg, S. M., 2012. Throughput accounting: a guide to constraint management. John Wiley &
Sons.
Chiwamit, P., Modell, S. and Yang, C. L., 2014. The societal relevance of management
accounting innovations: economic value added and institutional work in the fields of
Chinese and Thai state-owned enterprises. Accounting and Business Research. 44(2).
pp.144-180.
Lev, B. and Gu, F., 2016. The end of accounting and the path forward for investors and
managers. John Wiley & Sons.
Modell, S., 2014. The societal relevance of management accounting: an introduction to the
special issue. Accounting and Business Research. 44(2). pp.83-103.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
Roslender, R. ed., 2017. The Routledge companion to critical accounting. Routledge.
Sampaio, D. and Bernardino, J., 2016. Open source accounting software for SMEs. International
Journal of Business Information Systems. 23 (3). pp.287-306.
Seckler, C., Gronewold, U. and Reihlen, M., 2017. An error management perspective on audit
quality: Toward a multi-level model. Accounting, Organizations and Society. 62. pp.21-
42.
Shumeyko, M. V., Sagamonova, G. V. and Sagamonova, E. V., 2018. Improvement of
Engineering Accounting and Control System in Construction on the Basis of
Accounting Engineering Tools. In Materials Science Forum (Vol. 931, pp. 1194-1199).
Trans Tech Publications Ltd.
Tregidga, H., 2017. “Speaking truth to power”: Analysing shadow reporting as a form of shadow
accounting. Accounting, Auditing & Accountability Journal.
Vansant, B., 2016. Institutional pressures to provide social benefits and the earnings management
behavior of nonprofits: Evidence from the US hospital industry. Contemporary
Accounting Research. 33 (4). pp.1576-1600.
Warren, C., Jonick, C. and Schneider, J., 2020. Accounting. Cengage Learning.
Weetman, P., 2019. Financial and management accounting. Pearson UK.
Online:
Cash budget. 2020. [Online]. Available through: <
https://www.bbc.co.uk/bitesize/guides/z4njhbk/revision/4>
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