Management Accounting Systems and Cost Calculation

This study material provides an in-depth understanding of management accounting systems and cost calculation techniques. It explores the benefits and critical evaluation of these systems. The material also includes a case study on Capital Joinery Ltd.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management accounting systems..........................................................................................1
P2: Management accounting reports............................................................................................3
M1: Benefits of Management accounting systems......................................................................4
D1: Critical evaluation of Management accounting systems......................................................4
TASK 2............................................................................................................................................4
P3: Calculation of costs...............................................................................................................4
M2: Accurate application of Management accounting techniques..............................................9
D2: Producing of financial reports...............................................................................................9
TASK 3............................................................................................................................................9
P4: Planning tools for budgetary control.....................................................................................9
M3: Analysis of the use of planning tools.................................................................................11
TASK 4..........................................................................................................................................11
P5: Comparison of organizations...............................................................................................11
M4: Analysis of response to financial problems........................................................................13
D3: Evaluation of planning tools...............................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting refers to a process under which the managers make the use of
analysis and interpretation techniques so that they are able to correctly use the given financial
data, facts and information so that the conclusions and recommendations can be effectively
derived (Ng and et.al., 2017). This is thus useful in the taking of short-term, medium-term and
long-term decisions in the future. This report is based on Capital Joinery Ltd. It makes Joinery,
made-to-measure doors and windows for different types of customers in the market. In this
assignment, focus will be made on demonstration of understanding of management accounting
systems, calculation of costs, explanation of the use of planning tools. Additionally, focus will be
made on comparison of ways in which organizations can make use of management accounting to
respond to financial problems as a part of this project.
TASK 1
P1: Management accounting systems
Management accounting is a decision-making tool which can be used internally by the
management. In it, the use of various types of systems can be made effectively and efficiently
(Macchia, 2019). The different systems which be used under it are as follows-
Cost accounting system- It is a system in which there is an estimation of different types
of costs which are incurred in an organization (Lee, Sim and Kim, 2018). Thus in it, the
organizations make sure that they are able to control the various types of costs in the right
manner. Thus in this way the management of Capital Joinery Ltd. Have to make the use of this
system so that they are able to assess and control the costs and overheads in the firm effectively
and efficiently. This will help them in the achievement of goals and objectives.
Essential requirements-
 In this system, there must be an use of appropriate methods as well as techniques like
Input Measurement System, Overheads Assessment and Segregation System so that the
companies are able to achieve their goals and objectives by reducing the costs. Thus in
this way Capital Joinery Ltd. Will be able to ensure that by making the use of this
techniques the company attain its goals and objectives effectively and efficiently.
 In this system, there has to be an use of methods for the purpose of cost control. This
helps the companies to be able to identify the excessive costs and control them in the
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right manner. In this way Capital Joinery Ltd. Will be able to identity its costs and
exercise a much-required control on them which will be quite helpful in the maximization
of profits.
Inventory management system- In this system, the use of appropriate methods and
techniques is made for assessing the stock level in the organization (Kumarasiri, 2017). In this
way the company will be able to make sure that the costs of maintaining inventory can be
reduced effectively and efficiently. Thus for Capital Joinery Ltd., the use of this system is
recommended so that it is able to assess the stock level and reduce the costs of maintaining it.
Essential requirements-
 This system must be useful for the firms in ensuring that the level of inventory is assessed
effectively and efficiently. Thus in this way it should make the use of methods and
techniques like LIFO, FIFO, Weighted Average Cost etc. so that the assessment of stock
level can be done. Therefore In the context of Capital Joinery Ltd. This system will help
the organizations as in this way it will manage its stock effectively.
 In this system, the use of methods and techniques for the purpose of forecasting of stock
items can be done. Therefore in this way an appropriate forecast of the inventory-related
requirements can be made effectively and efficiently. For Capital Joinery Ltd. The use of
this system will help the organizations in ensuring that it can a proper record of the level
of inventory can be kept.
Job costing system- In this system, there is an use of methods and techniques for assessing the
various types of job costs effectively and efficiently (Hyndman, 2016). In the context of Capital
Joinery Ltd. It becomes highly important that it uses this system because it is a manufacturing
company and therefore it has to control its job costs and earn higher-level of profits.
Essential requirements-
 This system must help in ensuring that the job orders are fulfilled on time. It thus uses
different types of job costing methods for the assessment of job orders to be fulfilled. In
the context of Capital Joinery Ltd. It will help in proper tracking and management of job
orders.
 This system must ensure that the job costs are identified and reduced in the right manner.
This will be thus helpful in enhancing the level of profits. For the managers of Capital
Joinery Ltd. This will be useful in the estimation as well as reduction of the job costs.
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Price optimization system- It is a system in which the various techniques and methods of price
determination are used (Gomez-Conde and Lopez-Valeiras, 2018). Thus in this way it is quite
helpful for the different types of organizations. In the context of Capital Joinery Ltd. It can be
used so that appropriate prices are set for enhancing the level of profits.
Essential requirements-
 In this system, the use of forecasting techniques is made so that the forecast of different
types of prices can be made. Therefore this can help in setting the right price. Capital
Joinery Ltd. Has to ensure by using these techniques an appropriate forecast of these
methods can be made effectively and efficiently.
 In this system, the statistical and mathematical methods must be used which can allow for
ensuring that the prices can be determined effectively and efficiently. In the context of
Capital Joinery Ltd. This will help a lot in setting a price which will help in the
maximization of the available profits.
P2: Management accounting reports
These reports can be used effectively and efficiently by the organizations so that they are
able to ensure that they perform the analysis and interpretation in a highly effective manner to
derive conclusions and recommendations which can be useful in the future (Gnawali, 2017). The
various types of reports which can be used by the management of Capital Joinery Ltd. Are as
follows-
Budget reports- In these reports the managers make use of approaches and techniques to
summarise the various budgets which are prepared (Clerkin, 2017). Thus in this way a detailed
report of these budgets can be prepared which can create an advantage for the firms effectively
and efficiently. In the context of Capital Joinery Ltd. It is quite important that they are framed to
identify the deviations and variances which are being incurred so that corrective steps can be
taken to remove them and achieve a higher-level of efficiency and effectiveness in the
functioning.
Inventory management reports- These reports are useful for the purpose of assessing
the level of inventory in the right manner. By using them problems and issues in the dealing of
stock can be reduced. Techniques like LIFO, FIFO, Weighted Average Cost can be used so that
a fair assessment of the costs of inventory can be made. For Capital Joinery Ltd. These are
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helpful in ensuring that the assessment of the level of stock can be done properly. This will
therefore help in reducing the costs of maintaining inventory and maximizing the level of profits.
Departmental reports- In these reports a thorough assessment of the work done by the
different departments of the organizations is made. Different departments like Production, HR,
Finance, Marketing and Sales have to ensure that they submit their overall performance which
they have made during a certain period of time. In the context of Capital Joinery Ltd. They are
therefore useful in ensuring that the efficiency and effectiveness level of the departments can be
enhanced which will thus be helpful in the enhancing the overall level of profits.
Performance reports- In these, appropriate assessment of the performance is made by
the firms. This helps the firms in raising the performance and thereby achieving the goals and
objectives. Thus in this way the different standards can be set for comparison of performance and
identifying deviations and variances if any. Therefore, for Capital Joinery Ltd. It is important
that these reports are used to facilitate an enhancement in the level of performance in the future.
Cost accounting reports- These reports are useful in the overall estimation of the overall
level of costs. Therefore in this way its use can be made by the management of Capital Joinery
Ltd. so that it is able to estimate the overall level of costs effectively and efficiently.
Inventory management reports- With the use of these reports the level of inventory can
be assessed highly effectively. Therefore in this way the management of Capital Joinery Ltd.
Will be able to ensure that the costs of inventory can be reduced effectively and efficiently.
Job costing reports- The use of these reports must be made so that the overall
assessment of the job costs can be made in the organizations. Thus in this way Capital Joinery
Ltd. Will be able to find out the job costs and can reduce them effectively and efficiently.
M1: Benefits of Management accounting systems
Cost accounting system is helpful in the determination of costs. Also it benefits the firms
by identifying techniques for reducing the costs. Inventory management system is helpful in the
management and tracking of stock level. Also it can benefit the organizations by reducing the
costs of stock maintenance. Job costing system can be helpful in the assessment of job costs
effectively and efficiently. Also it can help a lot in the taking of decisions which can result in
maximizing the profits through reduction in job costs. Price optimization system is useful in
ascertaining the prices to be set. Also it can be helpful in forecasting the price changes. Therefore
all of these systems are very useful for Capital Joinery Ltd.
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D1: Critical evaluation of Management accounting systems
The Management accounting systems are very important for being applied in the
organizations. Thus in the firms their use is crucial to analyse and interpret the given financial
data, facts and information so that crucial decisions can be taken. In Capital Joinery Ltd. These
systems can be helpful in evaluation and finding out the problems and issues which are being
faced. The managers have to make sure that the integration of these systems is done in the
overall processes and functioning of the company which can thus lead towards bringing of
improvements and maximizing the level of profits.
TASK 2
P3: Calculation of costs
In Management accounting, the use of different types of techniques can be made so that
the determination of costs can be made (Bisogno and Vaia, 2017). These techniques are not only
helpful in the assessment of profits but are useful in deriving conclusions and recommendations
which the management can use for the benefit of the company. The following techniques can be
used by the management of Capital Joinery Ltd.-
Marginal costing-
In this technique, there is an assessment of the level of profits and also the Break-Even
Point. Break-Even point is a point at which an organization neither earns profits nor incurs
losses. Therefore, In the context of Capital Joinery Ltd. It is very important that this technique is
used for a fair assessment of the level of profits in the right manner.
Advantages-
 This technique is quite simple to understand as well as use. Thus, Capital Joinery Ltd.
Has an advantage in making the use of this technique.
 This technique is helpful in the determination of Break-Even Point. Thus in this way an
advantage can be created for Capital Joinery Ltd.
Disadvantages-
 This technique is not helpful in the assessment and segregation of the overheads.
Therefore this leads towards a disadvantage for the management of Capital Joinery Ltd.
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 There is no guarantee of accuracy of this technique as it is based on certain types of
assumptions. Thus this can create a disadvantage for the management of Capital Joinery
Ltd.
Absorption costing-
In this method, a thorough assessment of the overall costs is made in the organization (Aouni,
McGillis and Abdulkarim, 2017). In it the costs, whether variable for fixed are charged to the
operations, processes and products. Also the use of this technique is made so that the
identification and segregation of the level of overheads can be done in the firm by allocating the
overheads to the different departments as per their expenses. For Capital Joinery Ltd. It is
important that the use of this technique is made so that the control over the expenses can be made
in the right manner.
Advantages-
 This method is useful for the organizations for identifying the overheads and thus
segregating them effectively and efficiently. In the context of Capital Joinery Ltd. This
can lead towards an advantage.
 Using this technique, the managers are in a position to take certain types of decisions in
the right manner. Therefore for Capital Joinery Ltd. This can create an advantage.
Disadvantages-
 This method is not simple to use and understand. Thus its usage requires the application
of skills and techniques. For Capital Joinery Ltd. A disadvantage can be created due to
this reason.
 The use of this technique is not helpful for the managers to take the decisions. Thus in
this way the managers of Capital Joinery Ltd. Face a disadvantage here.
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M2: Accurate application of Management accounting techniques
Different types of techniques can be used by the firms. Marginal and Absorption costing
techniques are both quite important from the point of view of the management. The usage of
these techniques can provide the companies with accurate results. Therefore for the managers of
Capital Joinery Ltd. They are important to be applied so that determination of the level of profits
can be done. Thus in this manner the various types of goals and objectives can be attained.
D2: Producing of financial reports
Financial reports can be useful for the purpose of right analysis and interpretation. These
reports can cover different types of business activities. In Capital Joinery Ltd. Their usage is
needed so that the conclusions and recommendations can be derived by the managers. These
conclusions and recommendations can be helpful for the management for bringing relevant
improvement in the overall processes. Thus in this way the managers can make sure that they
take decisions which can be helpful for the organization in the future.
TASK 3
P4: Planning tools for budgetary control
Budget is anticipated plan of expenses and revenues over specifies period of time
(Oyewo, Ajibolade and Obazee, 2019). It use to forecasting and planning of different resources
and allocates them into proper manner. It is made for long term purpose and ensures that it fulfil
the overall objective of company.
Types of budget used in company for planning of budgetary control -
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Cash budget – It is plan of expected cash receipts and cash flows over specified period
of time.
Advantages-
 For company Capital Joinery Ltd, Cash budget helps them to avoid debt through proper
planning of allocation of capital in different department that helps to prevent future
uncertainty.
 In Capital joinery LTD, It helps to look into financial position and according to status of
the company it formulate the strategies and find out the better uses of resources.
Disadvantages-
 It might limits the spending power of company, which restrict them to spend out of
budget. Cash could be use when it require but it become quite difficult to follow the
planned budget.
 It is not easy to go in the flow of cash budget as it forecast the future availability of cash
that not been possible for company to run according to budget.
Master budget – It is combination all the lower budget that include HR, Marketing,
Finance other departments and form overall single budget (Ostapiuk and et.al., 2017).
Advantages-
 In company Capital joinery Ltd, Master budget helps in evaluating overall efficiency and
performance of company as it considers all the departments of company.
 In Capital joiner Ltd, Master budget it ensures the proper coordination of all the
department to perform well and setting up appropriate strategies to meet the desired
objective.
Disadvantages-
 It is quite difficult to manage all the budgets of departments and sometimes it create
confusion. Changes in any budget require proper screening from starting which is hard to
execute for the company.
 It is rigidity in nature and difficult to understand as it require proper knowledge of all the
budget. It includes lengthy description and charts for any explanation for company.
Personnel Budget – It is largest part of any company's budget as it involve budget
related to employee that include Salary, insurance and all other personnel expenses (Rybicka,
2018).
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Advantages-
 For company Capital joinery Ltd, budget of personnel includes all the expenses of
employees which helps in welfare of employee as company will keep this thing in mind
while formulating the budget.
 It helps the company to identify its cost related to employees and manage in way to fulfil
the required needs of every employees in the company.
Disadvantage-
 It is difficult for any company to forecast the needs and requirement of any employees
and design the budget accordingly. It requires proper evaluation and research on needs of
employees.
 This budget is very important for the company, so it is to be design and maintain with
proper knowledge any mistake can create problem for company.
Sales budget-
A Sales budget is a forecast through which the overall sales of the organization can be estimated.
Therefore by making its use Capital Joinery Ltd. Will be able to forecast the sales for the future
time period.
Advantages-
Capital Joinery Ltd. Can make the use of Sales Budget so that the level of sales can be estimated
in the organization in the future. Also it gives an advantage to the company as it helps in the
comparison of sales revenues highly effectively.
Disadvantages-
Capital Joinery Ltd. Will be required to invest extra time for the preparation of this budget. Also
it will be required to make additional expenditure also for its preparation.
Cash budget-
A Cash budget is a forecast of the cash receipts and payments over a certain period of time.
Therefore for Capital Joinery Ltd. It will be useful as it will help in the proper management of
cash.
Advantages-
With the use of Cash Budget a proper forecast of cash can be made in the organizations. Also
through its use the company will be able to estimate the cash requirements in a highly effective
manner.
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Disadvantages-
Using the Cash Budget can affect the company as it may affect the level of flexibility in the
organization. Further its use requires application of skills and thus this may affect the
organization.
M3: Analysis of the use of planning tools
The planning tools are useful for the managers because by making their use the various
types of plans can be framed. They can be used for short-term, medium-term and long-term plans
in the future. Thus Capital Joinery Ltd.'s managers can use them for creating plans to be used in
the future. In this way the goals and objectives can be attained effectively and efficiently.
Budgets like Cash Budget, Personnel Budget and Master Budget can be used so that appropriate
decisions can be taken by the firms to raise their level of efficiency and effectiveness.
TASK 4
P5: Comparison of organizations
Financial problem- This is a situation under which the organizations face financial
difficulties. Their profits are affected as a result and this can result in problems and issues for
them (Samuelsson and et.al., 2016). Like other organizations Capital Joinery Ltd. Also faces
financial problems. The problems which are being faced by the company are as follows-
 Excessive overheads- Capital Joinery Ltd. Is facing this problem due to which the
expenditures of its different departments have been increased. This is leading towards an
increase in the expenses and reduction in the level of profits.
 Improper stock management- In Capital Joinery Ltd. the level of stock is not being
tracked properly and thus this is leading towards an increase in the overall level of
expenditure in maintaining the inventory. Thus in this way an impact has been created on
the overall level of profits.
Techniques to solve financial problems-
 KPIs- KPIs refer to Key Performance Indicators. Their use is quite essential to solve the
financial problem of excessive overheads because they can be used to identify those
departments where overheads have increased. This will this help in reducing the
overheads and thus maximizing the level of profits.
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 Benchmarking- Benchmarking refers to the setting of standards (Wilkerson and Bassani,
2020). By making their use the organizations are able to effectively identify the potential
deviations and variances and remove them. By making the use of this technique the
managers can ensure that the problem related with inventory can be resolved.
Comparison of organizations-
Basis Tesco Sainsbury's
Financial problem Tesco is facing Cash flow
management issues and due to
this reason this is affecting the
cash position of the
organization thereby impacting
it wrongly.
Sainsbury's is facing the
financial problem of Poor
Accounting Practice due to
which it has been setting its
prices wrongly which is
affecting its level of profits.
Management accounting
system used
The company can make the
use of Cost accounting system
as by using it the Cash flow
management issues can be
identified and thus appropriate
actions can be taken to solve
these issues.
The company can make the
use of Price optimization
system so that prices are set
according to the market trends
which in turn will solve the
problem of Poor Accounting
Practices.
Application of the system The application of this system
can be made in the
organization and thus in this
manner the company will be
able to ensure that the cash is
managed properly and a track
of inflows and outflows of
cash can be kept.
The application of this system
can be made in the
organization and thus in this
manner the company will be
able to ensure that the prices
are set correctly to earn higher-
level of profits.
From the above comparison, it can be stated that learning form the mangers of Tesco and
Sainsbury's the mangers of Capital Joinery Ltd. Can make the use of Management accounting
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systems to solve the financial problems. Thus in this way the management of the company can
make sure that the use of following systems is made-
Cost accounting system- Cost accounting system can be used in the organizations so
that the excessive overhead costs can be identified. Thus in this way the management of Capital
Joinery Ltd. Will be able to ensure that these costs are identified and appropriate steps are taken
to reduce these costs effectively and efficiently.
Inventory management system- Inventory management system can be used in the
organizations so that the management of stock is done correctly. By using it the mangers of
Capital Joinery Ltd. Will be able to ensure that the problem related with the stock can be
identified and appropriate solution for the same can be used.
M4: Analysis of response to financial problems
The organizations can provide a response to financial problems by using Management
accounting systems effectively and efficiently. Capital Joinery Ltd. Therefore can use them so
that it is able to solve its financial problems. In this way the overall efficiency and effectiveness
level can be enhanced which will help them a lot in earning higher-level of profits.
D3: Evaluation of planning tools
The use of planning tools can be made in the organizations so that they are able to
identify the course of action which can be taken in the future. Capital Joinery Ltd. can make sure
that it is able to evaluate the decisions it has to take in the future. This will help it in taking
decisions effectively and efficiently.
CONCLUSION
From the above report, it can be concluded that Management accounting is a process of
making the use of different types of financial data, facts and information in the right manner so
that appropriate decisions can be taken. Its use is therefore crucial to analyse and interpret the
financial information so that decisions can be taken highly effectively. There are different types
of systems under it which can be used by the organizations. Its reports are useful for deriving out
conclusions and recommendations. Calculation of costs can be done effectively and efficiently
by using different techniques. Planning tools for budgetary control can be helpful for framing the
right plans in the future. The organizations are making the use of management accounting
systems to solve their financial problems.
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