Management Accounting System and Techniques for Effective Decision Making

This article discusses the importance of management accounting system and various techniques used for effective decision making. It covers topics such as cost accounting system, price optimization system, job costing system, and inventory management system. It also explains the difference between financial accounting and management accounting. The article further explores the role of management reporting and its different types. It also discusses absorption costing and marginal costing. Lastly, it delves into the tools of budgetary control including contingency planning, flexible budgeting, and forecasting tool.

Management Accounting

INTRODUCTION
Management accounting system can be defined as the subset of various accounts and reports
that are required by the manager for making long term and short term decisions. The main
motive to implement management accounting decisions is to make effective internal decisions.
This includes financial and non-financial information to make effective reports. Moreover, with
the effective managerial accounting system better decisions are managed by organisation through
undertaking all reports in effective manner. This report is written from the perspective of KEF
limited which is operating their business in manufacturing sector. It is a medium sized
organisation that covers the market of UK (Quinn and Jackson, 2014). These reports highlights
on management accounting system and its importance. Along with this techniques for
management accounting and their merits and de-merits will also be covered. In the last,
management accounting system in order to deal with financial problems will also be covered in
this report.
TASK 1
P1
Management accounting exist as a procedure and a system that is beneficial for making
effective decisions related with internal management of organisation. In the present scenario,
management of KEF Ltd. is focused to formulate effective plans for the future through
generating internal policies and plans for organisation. It results it is easy for management to
sustain for longer period in organisation. Some types of management accounting system is as
follow:
 Cost accounting system- The cost accounting system works as an effective system that is
beneficial to analyse the cost of products and services developed by organisation. In order
to analyse it properly variable as well as fixed cost both are included by cost accounting
system. So the actual cost is identified and evaluated by management.
 Price optimisation system- This system is used by organisation for developing an
effective framework that is used to determine and decide the effective price of the
products and services. It result this is easy for KEF to decide balanced price that is
beneficial for customers and organisation at a similar level (Van der Meer-Kooistra and
Vosselman, 2012).

 Job costing system- Job costing system is one of the most effective method by which
KEF analysis the total cost by considering the prices of each unit on individual basis. As
there are various products are offered by KEF so with job costing system management
analysis the profits from each unit that is developed by management.
 Inventory management system- Inventory is the most essential part for organisation as it
is sold by management in the market. With the development of job costing system it is
easy for management to enhance the work area in possible manner through reducing the
cost of storage and warehouses (Renz, 2016). Moreover, it also helps to track the actual
state of their inventory that is present in the warehouses of organisation.
Importance of management accounting system
 Price setting- It is one of the most important system that is used by market and
production department to contribute effective price system in management. So the
demand of products will be fulfilled in future as well as present time period.
 Budget- This is another method which is used to analyse the importance of
management accounting. With an effective budget it is for management to control the
expenses of organisation.
 Unregulated reporting- Management accounting is the another method which is
used it make effective reports through generating operations, finance etc. are adopted
by management to summaries all essential aspect for organisation.
Difference between financial accounting and management accounting
BASIS MANAGEMENT
ACCOUNTING
FINANCIAL
ACCOUNTING
Meaning Management accounting is
beneficial to analysis relevant
and useful information that
directs the organisation to
make effective plans.
All types of account and
reports such as balance sheet,
profit & loss account and
many more which represent
the existing financial
condition of organisation.
Rules It is implemented by internal
department. So there are less
restrictions.
All the standard format must
be followed by account
department to make financial

reports.
P2
All the reports related with monetary and financial aspect must be managed by the
organisation for performing their work effectively in market. This determines with accurate
reporting system it is easy for management to make effective decision and strategies. Some
effective methods of management reporting are as follow:
Performance report- In simple terms performance report is used to measure the actual
performance of the organisation from all perspectives. Within the context of KEF Ltd. it is used
by management to monitor the performance of organisation and its employee’s in appropriate
manner. So the actual performance from each activity is managed (Shah, Malik and Malik,
2011).
Budget report- Most of the functions of an organisation are performed by management
under the budget activity. This determines with the proper budget it is easy for organisation to
complete there in proper manner at minimum cost. So the strategies related with future
perspective are formulated in proper manner.
Account receivable ageing report- The sale of organisational products is done on cash
basis and credit basis. This all transactions are recorded by the management. So in order to
acknowledge all credit sales management of KEF utilise the account receivable method. This
result the organisation is able to collect all necessary funds from the market.
Cost managerial accounting report- The cost report are generated with the motive of
developing the framework that enhances profit for organisation from various perspective. To
utilise cost managerial report accurately. KEF analysis all the cost for analysing the expenses of
organisation due to which price of products are decided with profit margin with them.
M1
Merits of cost accounting system
 This is beneficial for making an accurate estimation about the price of product and
service that is offered by organisation.
 It is used to find the actual cause due to which cost of the products is increases in the
market.
Merits of price optimisation system

 With price optimisation system the products and money are exchanged at mutual consent
between customers and parties.
 This system helps the management to decide the price of products for all segments.
Merits of inventory management system
 It helps an organisation to analyse the actual track of their products.
 This is beneficial to save the cost and time of their inventory.
D1
Management accounting and reporting works as a crucial part for organisation as they are
related with each other. It governs that if the management wants to develop an accurate report
then it is essential for management to utilise all the important data. Example- with the implement
of inventory management system the actual requirement of raw-material is evaluated by the
corporations (Suomala and Lyly-Yrjänäinen, 2012).
TASK 2
P3
Cost- In the present scenario, all the needs of the functions and operations are performed
by the organisation for earning high amount of profits. Along with this all the functions are
performed by management through paying some amount. Like the purchase of raw-materials and
to convert into finished goods and then sale them into market to earn sufficient profits from
them.
Absorption costing- It is a method that is used by organisation to calculate the cost on all
perspective which represent the cost by undertaking fixed and variable cost. This determines that
it works as the full costing method for KEF.
Marginal costing- The marginal costing method consider the variable cost for
organisation by determining the cost for the organisation through determining all units. This
results all cost related with period and the time for each unit is included.
Statement of profit or loss using Absorption costing for June
Particulars
No. of
Units Cost/Unit Amount Amount
Sales 18000 70 1260000
Cost of
Opening Inventory 0 56.5 0
Add: Production 19000 56.5 1073500

1073500
Less: Closing
Inventory -1000 56.5 -56500 -1017000
Profit 243000
Less: Under Absorption -13000
Reconciled Profit with Marginal Costing 230000
Statement of profit or loss using Marginal costing for June
Particulars
No. of
Units Cost/Unit Amount Amount
Sales 18000 70 1260000
Prime Cost
Opening Inventory 0 50 0
Add: Production 19000 50 950000
950000
Less: Closing
Inventory -1000 50 -50000 -900000
Contribution 360000
Less: Fixed Production Cost -130000
Marginal Profit 230000
Fixed Overheads absorbed on 18000 units = 18000*6.5 117000
Fixed Production overheads 130000
Under absorbed fixed costs -13000
When the production is 22000 units and Closing inventory is 2000 units
Statement of profit or loss using Absorption costing for June
Particulars No. of Units Cost/Unit Amount Amount
Sales 20000 70 1400000
Cost of
Opening Inventory 0 56.5 0
Add: Production 22000 56.5 1243000
1243000
Less: Closing Inventory -2000 56.5 -113000 -1130000
Profit 270000
Statement of profit or loss using Marginal costing for June
Particulars No. of Units Cost/Unit Amount Amount
Sales 20000 70 1400000
Prime Cost

Opening Inventory 0 50 0
Add: Production 22000 50 1100000
1100000
Less: Closing Inventory -2000 50 -100000 -1000000
Contribution 400000
Less: Fixed Production Cost -130000
Marginal Profit 270000
M2
Management accounting techniques are essential part for organisation which is used to
generate effective reports as well as statement. In the present scenario, it is essential for
organisation to develop all financial documents such as cash and fund flow statement, profit &
loss account etc. as it helps the management to generate financial reports. It represents the
existing conditions of the KEF to its stakeholders (Ward, 2012).
D2
Financial reports reflects various business activity in a proper manner by which it is easy for
management to understand all financial aspects of organisation. Moreover, with the implement of
financial statements it is easy to check actual position of organisation. As all the reports and
accounting are linked with each other due to which its business activities are performed in
effective manner. Like with the report it is easy for management to represent their financial
performance to its stakeholders.
TASK 3
P4
Budgetary control works as an effective technique that is used to formulate financial
performance of the organisation through analysing the past budgets of the organisation. The
main motive to use the tool of budgetary is to control and monitor financial transaction of
business. It determines that there are various task need to be manage their work as it controls
and manage function which increases the probability to earn more profits. Some tools of the
budgetary control are as follow:
Contingency planning- Contingency planning works as an effective tool that is used to manage
the risk related with unexpected situations that arises during the operations of a firm. This tool

is used by management of KEF to overcome from various issues that are related with workplace
and environment of organisation. Further, this tool also helps the management to formulate pre-
planned plans and strategies to deal with unfavourable situation in the market.
Advantages
 With the already plans it is easy for management to reduce the risk and probability of
loss in the industry.
 This is used to generate corrective action against the problems that boost profits for
organisation.
Dis-advantage
 It is complex to predict the future perspective and contingency plans are formulated for
upcoming period. So it is hard to understand future contingencies.
 The cost of contingency plans is too high due to which managers face challenges to deal
with situation.
Flexible budgeting- This is one of the essential tool that helps to make changes in the monetary
plans as per the needs of organisation. Along with this it also leads management to establish and
formulate the budget according to the market conditions (Otley and Emmanuel, 2013). The main
motive to develop this plans is to make plans and changes according to the revenue and profits of
organisation.
Advantages
 Flexible budget generate coordination among all activities of organisation through
considering needs of all departments.
 These budgets generate proper results through considering the range of all activities
effectively.
Dis-advantages This is difficult to generate flexible budgets for long term as market conditions are very
dynamic. It is also complex for manager to understand and develop period for longer period.
Forecasting tool- It helps the management to predict the future through analysing the existing
and past budgets for the organisation. The main motive to utilise this tool is used to predict the
outcome as per the future plans. In context of KEF Ltd. forecasting tool utilise by management to
generate better financial statements and ratio for the organisation.

Advantages
 This is used by management to enhance customer’s loyalty by offering them discount
and new offers.
 Forecasting tool helps the manager to understand market in appropriate manner.
Dis-advantages It is complex for managers of KEF to predict right plans and design them as per future
needs.
All the information collected by managers relates with different departments so it is complex to
coordinate all the work for uncertain future (Nitzl, 2016).
M3
Budgetary controls describe the transparent and clear image of the organisation through
providing better tools and techniques that enhances financial performance for the upcoming
periods of the organisation. Further, to implement this effectively management analysis the past
budget, data and information that is recorded in organisation. For contingency plan forecasting
tool and flexible budget are essential part for management. Forecasting tool also utilise by the
organisation to provide better guidance among the employee’s and managers of organisation.
TASK 4
P5
Financial problems- The major impact of the financial problem on KEF is that it impacts
on organisation to achieve their goals and objectives. Along with this the profitability is also
affected due to changes in the operations and functions of organisation. Similarly, on the other
side it is mandatory for KEF Ltd. to generate strategies through which it is easy for them to
tackle the problems that is reducing profits of organisation. Some financial problems that are
faced by KEF are mention as follow:
 Cash flow problem- This problem enhances when the organisation is not able to pay the
cash against their liabilities. Cash is one of crucial factor for management as it required to
performs and manage all types of functions. KEF faces the cash related problem because
of the high expenditure which is done to enhance the business size of organisation. Along
with this incentive, bonus, advertising and other many more expenses impact on
organisational profitability.

 Risk management- This is one of a another factor that is essential to analyse by the
management. It governs that there are various challenges are faced by management due to
which their performance is impacted. On other side, there are various challenges such as
uncertain dynamic environmental condition, creditors and debtors forfeiture etc. are some
of the issue by which management is get impacted (Hartmann, Perego and Young, 2013).
Therefore, it is essential to monitor all the risk perspective of organisation.
 Working capital- This refers to the amount that is available in the organisation and
beneficial to manage daily operations of KEF. With the good and effective financial
governance, it is easy for management to generate future needs which results to enhance
the accuracy of financial statement of organisation.
Financial governance- This system define the way by which organisation defines the way
through which manager, monitor and control to generate financial information. With the proper
financial governance it is easy for KEF management to overcome form the challenges and to
make better decisions for the future. In the last, top authority enhances performance of
organisation in minimum time period.
KPI-Key performance indicator leads the organisation to compare their performance in
effective and efficient manner with the other companies. This refers that there are various task
are performed by management in order to achieve there long term as well as short term goals.
With the effective KPI it is easy for organisation to focus on the whole process of the
organisation through determining all of its process and functions. With the KEF Ltd. it is easy for
management to make changes as per the progress which leads to achieve their objectives
effectively (Gibassier and Schaltegger, 2015).
Benchmarking- It is one of the most essential technique that is used by organisation for
measuring their performance with competitors in market. Strategy, policy, results, program are
some of the bases which are used by management to associate its performance with others. With
the approach of benchmarking KEF Ltd. identifies all those aspects which is used to maintain the
quality of their work.
KEF is performing their business at medium sized level so the major problem faced by them is
relates with the ineffective utilisation of money. It results the work of organisation is negatively
impacted like the lack of working capital. On other side, other manufacturing units such as M&S
face the issue of risk cash flow and ineffective strategies creates problems to manage proper

working capital. Therefore, the KEF Ltd. implements the KPI approach in the organisation.
Whereas, M&S manage improves quality of its goods with the benchmarking technique.
M4
KPI implement both the approaches to achieve top position in market as it helps the
management to reduce financial issue. Example- By formulating effective strategy it is easy for
management to enhance their operations better than the competitive firms. Benchmarking
approach helps the organisation to perform their work by reducing the competitiveness from
market and to boost performance of organisation on constant basis. This helps management to
sustain for longer period as well as to increase the market area (DRURY, 2013).
D3
Planning helps the organisation to formulate strategy which enhances the future growth of
management by completing their work in a smooth flow. According to the present market
conditions, all the environmental aspects of management are too dynamic. Flexible budgeting,
Contingency planning, forecasting tools are some of the major tools that improves profitability of
organisation and reduces the financial problems of organisation in accurate manner. Along with
this with the implement of these tools it is easy for KEF to deal with the unexpected financial
problems and complex market conditions by utilising their pre-planned plans.
CONCLUSION
From the above summarised report, it is concluded that management accounting play an
essential role for the organisation which assist management to accomplish their goals in
minimum time period. Various accounting system such as price optimisation, job costing leads
the business to enhance its performance in appropriate manner. Further, benefits of this system
are evaluated by organisation through improving their results. KPI, Benchmarking are some of
the tools which is used by management to analysis the cost and to maintain the quality of their
products. Moreover, planning tools such as flexible budgeting, forecasting tools are also covered
with their merits and demerits that defines success factor for organisation in accurate manner.

REFERENCES
Books and Journals