Management Accounting and Types of Management Accounting Systems

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO1 .................................................................................................................................................1
Management Accounting and types of management accounting systems ..................................1
Different methods for reporting in management accounting ......................................................4
LO2..................................................................................................................................................7
Calculations of cost using different cost accounting accounting techniques...............................7
LO3..................................................................................................................................................9
Advantages and disadvantages of different planning tool...........................................................9
LO4................................................................................................................................................12
Comparison between organisations adapting managerial accounting systems for responding to
the financial problems. .............................................................................................................12
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15
APPENDICES...............................................................................................................................18

INTRODUCTION
Management accounting, managers use the provisions of accounting information in order
to better inform themselves before they decide matters within their organizations, which aids
their management and performance of control functions. This type of accounting system also
helps in knowing the needs and demands of business (Ax and Greve, 2017). The management
accountants are also being known as the value creators. These type of people are also engaged in
forecasting the future risks and challenges which is being associated with business. Risk included
can be financial. Assignment will explain management accounting and it will also provide
essential requirement for different type of management accounting system. It will also explain
different methods used for management accounting reporting. Study will also explain advantage
and disadvantage of different budgetary tools that can be used in budgetary control. It will also
compare how different organizations are adapting management accounting system so that they
can respond to financial problem.
LO1
Management Accounting and types of management accounting systems
Management accounting deals with application of the professional knowledge, concepts
and techniques for preparing accounting informations in a way that will help management of
company in formulation of policies and plans, controlling operations of organisations, optimal
use of the resources, decision making and disclosures to management and for safeguarding
assets. In simple terms, the management accounting could be understood as presentation and
processing of accounting as well as economic data. This helps in evaluating management's
performance, to formulate strategies, to make comparison, forecasting, budgeting etc.
Accounting is referred as process of identifying, measuring and interacting with data for
making the informed judgements and decisions by users of accounting information. Systems of
management accounting vary in application (Booth, 2018). Each system of managerial
accounting is framed for providing the useful information as required by the management for
effective decision making. There are different types of management accounting systems like cost
accounting, inventory management, price optimisation and job costing.
Types of management accounting systems.
Cost accounting systems
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Cost accounting systems refers to a framework that is used by companies for estimating
the cost of products for the profitability analysis, cost control and inventory valuation. It
evaluates the performance of company and help managers of company in making decisions that
are based over costs related to manufacturing a product. Cost systems applies to every business
whether trading or manufacturing products or delivering services. Cost accounting is not same as
that of financial accounting. Cost accounting deals with cost with cost reduction and cost control
measures so that the profitability of company could be increased (Christ and Burritt, 2017). Cost
accounting is concerned with projected and actual outcomes. It helps manager in taking various
corrective steps for reducing the errors and gaps between the actual and budgeted results.
Cost accounting systems acts as guide for managers and executives working within
company so that decision can be taken for improving the efficiency and performance. Cost
accounting is mainly for the internal users of company. There are different types of cost
accounting systems available for manager of different business. Objective behind cost
accounting is of lowering costs of business operations by identifying and controlling them (Cost
accounting system, 2015).
Inventory Management System
Inventory management is combination of technologies, procedures and processes which
oversee maintenance and monitoring the products in stock and identify whether these products
are assets, supplies, raw material or the finished products. It is complex process specially for the
larger organisations where the basics of management system are same everywhere and in every
type of company. In this systems goods are received in the warehouses as raw materials or the
components. Inventory management system uses variety of information for keeping the track
records of goods as going through the processes, including serial numbers, lot numbers quantity,
cost and the dates of moving into the process.
Function are generally correlated and interlinked to each others. Inventory management is
a part of supply chain management of the business organisation. Inventory management is an
important function for the management of company that helps them to decide about the products
cycle. Managers of company strive for maintaining an optimum inventory levels meeting the
requirements and avoiding the impacts of mismanagement of inventory over financial figures
(Cooper, Ezzamel. and Qu, 2017). Companies use software of inventory management that
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provides the central database and reference point for inventory. These software have the ability
of analysing data, generating reports, forecasting the future demands and many more.
Price Optimisation System
It is a systems of mathematical programs which are used for calculating the variations in
demand at different level of prices. It then combines data with the cost and inventory
informations for recommending the price which will be improving the profits of company.
Optimization is used widely in pricing fields for describing applications used for setting the
prices. This is an optimization method which is used for decision making processes which
employs algorithms, data and software for making recommendations faster and better than the
humans (Dekker, 2016). Management of company after examining possible choices, make
predictions for the each outcome and select the best one that maximises the results of business.
Pricing optimisation examine all the possible pricing choices, make prediction over the revenues
and level of profit from each outcome. It is not limited to the use of automation for making
faster and better decisions. It deals with with finding the inputs which help in maximising the
outputs. The system aims at finding the optimum prices that will result in best margin and
revenue outcomes for every part of the business (Price optimisation system, 2017). Objective of
price optimisation is to provide the product at optimal prices at which organisations can earn
maximised revenues margins.
Job Costing System
This is system used for accumulating and assigning manufacturing cost of individual
output or unit. Job costing is used in organisations where the items manufactured are not similar
and have significant cost. There are variations in items manufactured, job costing requires each
item should have separate cost record. They also serve as subsidiary ledger for manager of
companies. This helps managers and of company to keep record of every job and to maintain
data that is relevant for the business operations. Job costing is an accounting methodology for
tracking the expenses of creating unique products. This helps managers in tracking the cost of
each job (Höglund and et.al., 2016). This is an efficient accounting technique used by various
business organisations as it helps them to run the business smoothly.
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Different methods for reporting in management accounting
Management accounting lays emphasis over internal informations that are received
through financial accounting. Managerial accounting is used to control, plan and for making
decisions. Manager depends over financial statements like income statements, balance sheet and
the cash flow statements. These reporting statements are generally for external users where other
accounting reports also knows as managerial reports are for internal users for evaluating the
information of corporation. These reports include performance reports, budget reports and many
other. Management accounting is also known as managerial accounting (Maas, Schaltegger and
Crutzen, 2016). The report are prepared throughout the bookkeeping and accounting year as per
the requirements. Various critical decisions related to the business are based on these reports
therefore reports prepared should be authentic and carefully crafted by experts. Managers use
these reports for analysing and highlighting patterns and converting them into the useful
information. These reports have importance for the managers.
Budget Reports.
The budget reports in management accounting are critical for measuring the performance
of company and generated as whole for the small business and for department wise in large
organisations. Companies create budgets for understanding the schemes of business. The
estimates of the budgets are made on the basis of previous experiences. Budgets helps in making
the organisation prepared for the unforeseen situations that may arise. Budgets of company are
listed for all the sources of earning and expenditures. Budgetary report helps organisation to
remain in the budgeted level of expenditures and then achieving its goals and objectives. These
reports account for all the expenses that are required to be incurred for manufacturing the
products in an organisation. These managerial report guide the managers for planning and
deciding its future course of actions. If company do not prepares the budget reports than there
are possibilities that the company may not be able to control the cost of product. This will
increase the costing of products reducing the profit margins of products (Malmi, 2016).
Budgetary reports are prepared by every organisation for controlling the costs and forecasting the
revenues that may be generated by them selling the declared products. Budgetary reports are
prepared before the manufacturing of products. After the production budgetary report are
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