Management Of Cost Accounting : Assignment

Management
Accounting Systems
&
Techniques

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Explain management accounting and essential requirements of various types of
management accounting systems................................................................................................3
P2. Explain different methods used for management accounting reporting...............................6
TASK 2............................................................................................................................................7
P3. Calculate costs using appropriate techniques of cost analysis to prepare and income
statement using marginal and absorption costs...........................................................................7
TASK 3..........................................................................................................................................11
P4 Advantages and disadvantages of different types of planning tools used for budgetary
control ......................................................................................................................................11
TASK 4..........................................................................................................................................14
P5. Compare how organisations are adapting management accounting systems to respond to
financial problems.....................................................................................................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17
.......................................................................................................................................................17

INTRODUCTION
Management accounting is concerned with the process of assessing costs incurred in
business operations to prepare internal financial report, accounts and records for making
informed decision to accomplish organizational goals (DRURY, 2013). It is also known as
managerial or cost accounting. UK Financial Consultants Ltd. Has been chosen for this report.
Further, it covers meaning of management accounting along with its essential requirements and
different methods used for management accounting reporting. Furthermore, calculation of costs
through appropriate techniques of cost analysis and advantages and disadvantages of different
types of planing tools for budgetary control. Lastly, comparison of organizations opting
management accounting system to address financial problems.
TASK 1
P1. Explain management accounting and essential requirements of various types of management
accounting systems
The Institute of Cost and Management Accountants, London, has defined
Management Accounting as “The application of professional knowledge and skill in the
preparation of accounting information in such a way as to assist management in the formulation
of policies and in the planning and control of the operation of the undertakings.” In simple
words, it involves business activities of planning, organising, staffing, directing and controlling
the day-to-day activities for achieving goals and objectives of an entity. Policies are a major part
of this accounting by following which decisions are made (Hilton, and Platt, 2013).
Management Accounting System comprise of actions and framework which are applied
to each departments functioning in an organization. It forms a co-ordination between internal
parties. The scope of this system is vast as it takes into both financial as well as non-financial
data. Johnson and Kaplan defined that management accounting system should effective enough
to provide accurate, reliable and timely information so that costs can be controlled, measured in
order to improve productivity by implementing better production processes.
Managerial accounting can provide numerous benefits to an entity which can have
significant impact on its operations. Further, it is importance to make a part in as internal parties
use qualitative and quantitative information to make decisions. This encourages continuous

improvement, effective management of cost, management of quality etc. Further, it helps in
measuring costs in order to reduce unnecessary costs. It has four basic principles viz. Influence,
relevance, value and trust. Management Accounting undertakes number of tasks and activities
for managing business through strategic planning. It has its roots from stewardship role in
European merchant trading venture. It evolved during industrial revolution and emerged after
financial accounting.
Basis Management Accounting Financial Accounting
Meaning It provides qualitative and
quantitative information to managers
for making decisions, strategies,
plans and policies for smooth
functioning of business.
It refers to preparation of financial
statements on the basis of historical
and current financial information in
order to provide report to outside
parties whose decisions can be
influenced by such information.
Inherent It help in making fruitful decisions by
applying which organizational goals
can be achieved.
It classifies, analyses, records and
summarizes financial data into a
report form.
Application It improves the capabilities of
management to make strategies, plans
and policies to be applicable within
the organization (Hiebl, 2014).
The financial data is used to disclose
true picture of viability of financial
affairs.
Scope It has wider scope as it consists both
financial and non-financial
information.
It is not as wider as management
accounting.
Dependence It depends on financial accounting to
make right and accurate decisions.
It is independent of management
accounting.
Basis of
decision-
making
It takes into account past as well as
forecasted information to make
decisions.
Only previous financial data form the
basis for decisions that will be
implemented in future.
Statutory There is no legal requirements or It is legally compulsory for companies

requirements obligation to prepare report under this
branch of accounting.
to prepare financial statements and
accounts at the end of each financial
year in order to present to
shareholders.
Used for Internal management Primarily for existing and prospective
stakeholders.
Rules It does not have any specific rule for
preparation of reports.
The financial statements should be
prepared per the GAAP or IFRS.
Different types of management accounting systems and their essential requirements
 Cost accounting system: This system is used to ascertain per unit cost of products in
order to have better control on profits, inventory and cost. It is used by manufacturers to
track cost that is being incurred at every stage of production of an item. Calculation of
raw materials, work in progress, and finished goods are done. Further, cost utilised in
input is compared with actual output for measuring financial performance. The essential
requirements are data to be used should be accurate, cost of installation and operating of
system should be included etc.
 Inventory management system: This system is useful managing supply chain or
delivery of goods by tracking dispatch of products (Christ and Burritt, 2013). It involves
technology, processes and procedures for the whole process which begins with suppliers
and ends with delivery of final product to final consumer. The essential requirements are
forecasting of inventory, purchasing, shipping, order management, inventory control etc.
 Job costing system: The process of gathering information regarding costs attributed with
a particular production or job is considered under this system. The information so
extracted is used to provide detail about cost to a customer for the purpose of
reimbursement. It included three types of information viz. Direct material, labour and
overhead. These cost can not be avoided in job costing system and forms basis for
calculation.
 Price-optimising system: Under this system, an organization predict or assess the
responses of customers to different prices for all the products it selling. Further, the best

price is chosen which fits all the criteria such as objectives of the entity. Such information
can be obtained by conducting survey data, operating costs, inventories etc. The essential
requirements for this system are adopting a suitable optimization model, collection of
past data, monitoring results etc.
P2. Explain different methods used for management accounting reporting
Management accounting report is made in a comprehensive way which include all
information are included so that right decisions are taken. There are many types of reports
available that are prepared in management accounting which are as follows:
 Inventory report: These are the reports prepared to track movement of inventory in
different locations such as manufacturing plant, warehouse etc. It is prepared in a
summary form comprising comprehensive accounts of stock and its supply. Further, it be
categorised into different parts for recording amount of various items.
 Performance report: This report is prepared to assess the work performed by each
individual. There are specified standard which are used as a basis to compare the actual
results obtained by each employee to find out variance. Furthermore, a company dispatch
this report to each personnel explaining their achievements along with differences that
have occurred (Schaltegger and Burritt, 2017).
 Accounts receivable report: This report comprise information about invoices of unpaid
customers and unused credit bills within date so prescribed. In other words, it
differentiate account receivable on the basis time of an invoice has been outstanding. A
inventors is always interested in knowing the time that is being taken by company to
collect its receivables. This helps in determining financial soundness of an entity. Further,
major decisions can be taken on the basis of such reports about lowering credit risk in
sales. Further, a total of receivables of a company is shown at the bottom according to
time given for such credit.
 Cost accounting report: A company selling products has to incurred costs for raw
material and each such process through which it passes in order to become a final goods.
The report contain information about expenses and revenues that have been credited to or
debited from cost centres, attribution of total cost to each element of product, transactions
of cost accounting and a summary detail financial and cost accounting. Hence, it is
prepared on the costs that have been spent in making a finished product.

 Cash flow report: It is an important part of financial statement which is prepared to
show inflow and outflow of cash in business operations. It presents an overview of
financial activity in the company for a specified time period. These may be prepared on a
quarterly basis to have better control on management of costs. Further, it may include
balance sheets, income statement, statement of changes in equity, prime transactions of
company which may have significant impact etc.
TASK 2
P3. Calculate costs using appropriate techniques of cost analysis to prepare and income statement
using marginal and absorption costs
Cost is an amount refers to an amount expressed in monetary value that is spent by
company in order to manufacture a product. This is spent for creation of a goods or service.
Moreover, profits are not included while calculating costs.
Absorption costing: It is associated with involving the cost attributed to production of a
particular product. These include direct costs such as wages, raw material etc. which form the
basis for whole calculation. It is also called full costing whereby fixed overhead charges are
included as product cost (Anandarajan , Anandarajan and Srinivasan,Eds., 2012).
Marginal costing: Under this costing system, only variable costs are considered and
fixed costs are not at all taken into account for the calculation. Further, it involves additional
costs incurred for producing an extra unit of output which can be computed by total variable cost
assigned to one unit.
Income statement using Absorption costing
Particular Amount Amount
£ £
Sales (25*100000) 250000
Less: Variable cost:
Direct material 50000
Direct labour 30000
Variable o/h 20000

Variable S & A 30000
Total variable cost -130000
Less: fixed cost
Manufacturing overhead 40000
S & A exp. 30000 -70000
Total cost -200000
Profit 50000
Calculation of per unit cost under Absorption costing
Particular Amount
£
Total variable cost 130000
Fixed Selling & Admin Exp. 30000
Fixed manufacturing o/h 40000
Total cost 200000
Absorption cost per unit:
Total cost/Unit produced:
£200,000/10,000 = £20
Income statement using Marginal costing
Particular Amount Amount
£ £
Sales (25*100000) 250000
Less: Variable cost:
Direct material 50000
Direct labour 30000
Variable o/h 20000
Variable S & A 30000

Total variable cost -130000
Contribution 120000
Less: Fixed cost:
Manuf. O/h 40000
S & Admin Exp. 30000 -70000
Profit 50000
Interpretation: The calculations done above shows that there is no change in income i.e.
£50,000. Hence, it can be said that, both viz. Absorption and marginal methods can be used for
costing as both yield same income.
Income statement using Absorption costing (when 5000 units sold)
Particular Amount Amount
£ £
Sales (25*5000) 125000
Less: Variable cost:
Direct material 50000
Direct labour 30000
Variable o/h 20000
Variable S & A 30000
Total variable cost -130000
Fixed cost:
Fixed manufacturing exp. 40000
Fixed S & A exp. 30000 -70000
Total cost -200000
Less: Closing stock (5000*20) 100000 100000
Profit/(Loss) 25000
Working note
Cost per unit using Absorption costing

Variable cost = £13
Income statement using Marginal costing (when 5000 units sold)
Particular Amount Amount
£ £
Sales (25*5000) 125000
Less: Variable cost:
Direct material (50000)
Direct labour (30000)
Variable o/h (20000)
Variable S & A (30000)
Total variable cost 130000
Less: Closing stock valuation:
5000*13= 65000
Cost of good sold -65000
Contribution 60000
Fixed cost -70000
Profit/(Loss) -10000
Working note. Calculation of per unit cost as per Marginal costing
Particulars Cost
£
Price per unit 25
Direct material (50000/10000) 5
Direct labour (30000/10000) 3
Variable Manufacturing o/h (20000/10000) 2
Variable S & Admin exp. (30000/10000) 3
Total Variable Cost 13
Contribution per unit 12

Interpretation: These two methods give different net amount when used for calculating
cost when 5000 units are sold. The absorption costing give a profit of £25000, whereas under
marginal costing a loss of £10,000 has been incurred. Hence, the company should use former
method to get profits.
Flexible budget means a budget that can be modified with changes in volume or
situations. It is useful is static budget. There is a variable rate that is applied as and when budget
is adjusted and there is no involvement of one fixed total amount.
£ £
5000 units 10000 units
Sales 125000 250000
Cost of sales 50000 100000
Production contribution margin 75000 150000
Variable selling/admin costs 15000 30000
Net contribution margin 60000 120000
Less: Total fixed costs
Fixed manufacturing OH 40000 40000
Fixed selling & admin 30000 30000
Net profit -10000 50000
Cost variance: This method is used to calculate gap or difference between cost actually
incurred and budgeted amount of cost. These are used to track the costs fr expense line items.
The difference should be noted and made a part of reporting so that such deviation can be
reduced in future. This helps in minimising wastage and utilise the costs in more important jobs
or tasks.
For fans:
Labour price variances
(Budgeted price – Actual price) x Actual hours

(5 – 5.20) x 3400
= -680 Unfavourable
Labour usage variance
(Budgeted Hours – Actual Hours) x Budgeted Price
(3000-3400) x 5
= -2000 Unfavourable
For packaging boxes:
Material Price Variances
(Budgeted price – Actual price) x Actual usage
(10 – 9.5) x 2200
= 1100 Favourable
Material usage variance
(Budgeted Use – Actual Use) x Budgeted Price
(2000 – 2200) x 10
= -2000 Unfavourable
Actual costing system: It is a process of recording product cost which is based on
various factors such as actual cost of materials, actual cost of labour, and actual overhead costs.
Along with this, the main concept of actual costing system is they used only actual cost and
allocate base experienced.
Normal costing system: In this system includes all those cost which helps in making a
product such as material cost, actual direct cost and manufacturing overhead. The key point of
normal costing system is to find the overall cost of particular product which use in making up the
product.
Standard costing system: It is a tool which use in preparing budget, managing and
controlling cost, and also to evaluate it for measuring performance. Along with this, standard
costing system main motive is to evaluate the different cost such as standard and actual for
maintaining the productivity of their organisation.
Job costing: This costing helps in determining the manufacturing costs by categorised it
in three parts such as overhead, direct material and direct labor cost for estimating its actual
value. Also it is a process of keeping an account in the form of direct cost and indirect cost.

Process costing: It is a cost accounting method in which they determine a cost of product
at each and every stage. This method is opt by Factories and Industries where they standardize
their products and make it into the final product.
Batch costing: In this method, same identical product should be taken but their batch is
differ from its manufacturing size. Along with this, it is some where similar with job costing.
Contract costing: This costing is mostly used in civil construction, engineering projects,
construction of bridges and so on. Contract costing method is applying when specific time
should be taken for completing it accordingly.
SWOT analysis
Strength: Financial sound. Weakness: Failure to adopt competitors
strategy.
Opportunities: Expansion at global level. Threats: High competition from new
companies.
Management accounting provides various techniques that are used for calculations so that
accurate financial statements can be prepared. Further, these help analysis of costs and its impact
on business activities. UK Financial Consultants Ltd. Can use methods of management
accounting for preparing balance sheet, income statement etc. This will enhance quality of
reports and information that will be presented to internal management and investors for making
informed decisions (Wickramasinghe and Alawattage, 2012).
TASK 3
P4 Advantages and disadvantages of different types of planning tools used for budgetary control
Budgetary control refers to the procedure through which financial objectives of company
are formulated by evaluated budget of previous years. It can be said that leaders and managers of
business organisations are monitoring operational activity related to finance and then control it
by adopting this technique. It can be said that this control in business activities helps an
organisation in enhancing their business growth. This is effectively done by monitoring
operational activities which maximises their profits as well. The specific technique helps an
company in forecasting their income and expenses. Along with this, budgetary control is also
used by business organisations in evaluating financial positions for enhancing their knowledge

on competitive market. In context to UK Financial Consultants Ltd. , its leaders are mainly
identifying different elements of monitoring and controlling financial operations. Advantages
and disadvantages of different planning tool for budgetary control are described as:
Contingency Planning- This planning tool is mainly used to control risk which develops
because of uncertain situations at the time of implementing operational activities at organisation.
Contingency planning tool helps business organisation in creating various strategies, tools and
plans that supports in overcoming and handling different situation. In relation to UK Financial
Consultants Ltd., management team of this company is using this specific planning tool for
formulating various policies, plans and strategies so that they can handle risky situations and also
reduces impact of non-adjustable situations at workplace (Schaltegger and Csutora, 2012).
Advantages
 The first and foremost advantage of this planning tool is that it reduces risk of uncertain
situations which might occur at workplace. This is effectively done by planning effective
strategies and plans.
 Along with this, this planning tool helps company in formulating corrective steps so that
business problem can be resolved effectively. It also guides management team that how
they can handle different but uncertain organisational situation. It also provides solutions
for the same.
Disadvantages

 It has been analysed that main drawback of this contingency planning is that the company
might face difficult situations as excessive planning includes more interaction of
employees during planning or strategy formulation. This might create conflicts among
team leaders as they supports only their provided suggestions.
 The next disadvantage of this planning tool is that it is time consuming method. This is
because every planning is done evaluating each and every fact which consumes excessive
time of individuals. Along with this, it also requires huge amount of money so that they
could cover each area effectively.
Flexible Budget- It is another effective tool which is used by business organisations for
making valuable changes in overall budget. In context to UK Financial Consultants Ltd., its
manager is using this tool in their company for controlling budget effectively. This kind of

planning tool also helps company in deciding revenue and expenses of company. Further, it can
be said that this flexible budget helps businesses in evaluating key successful and unsuccessful
operational areas of finance department. It can be said that with the help of this budget manager
of UK Financial Consultants Ltd. Can easily executes changes at workplace effectively without
facing much difficulty.
Advantages
 Main advantage of flexible budget is that it helps in co-operating with different business
activities. It also provides irregular earning to company. This is because their managers
grabs advantage at convenient and feasible time. Along with this, it also helps them min
us8ing funds at most needed time that can save them from big uncertain situation
(Chenhall, and Moers, 2015).
 Another advantage of this budget is that it provides effective results to the UK Financial
Consultants Ltd. This is because, management of this company evaluates each and every
aspect at the time of preparing this budget. As a result, company gains profits rapidly.
Disadvantages
 Flexible budget are more confusing because they includes numerous of variables. Thus,
its difficult for management team to cover each and every thing in single budget. As a
result, it creates difficulty for management team to rely on the single budget.
Forecasting Tools- This type of planning tool basically focuses on making prediction and
assumption for future by evaluating current and previous budget records of company. It can be
said that this financial tool helps company in enhancing their financial performance and make
future plan for the same. In context to UK Financial Consultants Ltd., it can be said that its
managers are using this forecasting technique which helps and guides them in forecasting future
estimation on needs and requirements of company.
Advantages
 The main advantage for forecasting tool for UK Financial Consultants Ltd., is that it
satisfies clients at highest level as it provides them rough estimation in advance which is
completely based on budgetary report.
 At next, another advantage of this planning tool states that it improves decision making
power of managers as well as leaders effectively. It also helps them in formulation and
implementing plans, procedures and strategies at workplace in effective manner.

Disadvantage
 The information that is collected through several department of UK Financial
Consultancy Ltd may not proof adequate for formulating effective strategies as well as
plans regarding the actions to be taken in future.
 In case of implementing budgetary control UK Financial Consultancy Ltd is required to
allocate resources and personnel for effective budget control. But when workforce is
limited it become difficult as company have to divert employees and payroll hours from
activities which support them in producing income.
TASK 4
P5. Compare how organisations are adapting management accounting systems to respond to
financial problems
Financial problems refers to situations which impact the financial viability in a significant
and negative way. The after effect can be for number of years which may cause huge financial
loss. Every business organization suffer from such difficulties during the lifespan of the business.
Such circumstances can be made good by formulating effective plans, policies and strategies
together with, making adjustments in procedures as per the situation demands. UK Financial
Consultants Ltd. Can assess its financial position and viability so that desired results can be
achieved and sustain for a long term by resolving the problems (Arroyo, 2012). The common
financial problems that a business face irrespective of its nature are as follows:
 Cash flow: It is associated with inflow and outflow of cash in the business. Cash is a
vital requirement which should be managed in an effective way so that entity does not
run out of it. There may arise situations such as failure to repay obligation or liabilities,
purchasing of assets, blockage of funds etc. These may have major effect on operations
and profits of business. Hence, UK Financial Consultants Ltd. Is a growing company
which needs good amount of working capital and other resources to conduct business
activities. Further, its face credit risk at high level.
 Risk management: A business has to make strategies and plans to survive in the cut
throat competition. Further, all the risks that could affect entity should be assessed and
evaluated in order to minimise their impact. Risks should be balanced as higher the risks

higher the chances of failure of business. UK Financial Consultants Ltd. Should hire an
expert to evaluate the degree of risks on the business for reversing their impact and create
opportunities for future expansion and success.
 Capital assets: A business has day-to-day work or tasks which should be achieved.
There comes a huge requirement of working capital in order to accomplish such tasks. It
is calculated by deducting current liabilities from current assets. These should be a
sufficient amount of working capital which should be utilised in an efficient manner. UK
Financial Consultants Ltd. Has been suffering from debt issues due to insufficient
working capital, hence, it should have strong rules and procedures for its application.
Financial governance: It is the procedures through which a company collects, manages,
monitors and controls information that are important for preparing financial statements. Further,
these can be used to manage the amount of financial transactions, performance, compliance with
legislation, business activities, reporting and disclosures (Strauß,and Zecher, 2013).
Management accounting approach: There are different techniques which are used to
resolve problems arising in the business of company. Some of the approaches that can be used by
UK Financial Consultants Ltd. Are as follows:
 KPI: It is the abbreviated form of Key Performance Indicator which is opted and applied
for assessing strategies and procedures by comparing with other business organizations.
The main aim of KPI is to make the entity capable to accomplish its goals and objectives.
 Benchmarking: This technique is used for to evaluate co-ordination and efficiency with
the existing competition. This helps in improving performance by addressing challenges.
Comparison between UK Financial Consultants Ltd. And Ultra Financial Services
Basis UK Financial Consultants Ltd. Ultra Financial Services
Problem The company faces difficulties in
meeting financial obligations.
Further, working capital is also a
huge problem and require effective
management. Moreover, company is
facing problem with in managing
cash in order to meet day-to-day
Ultra Financial services problems
of employee turnover, due to
which it is failing to manage its
resources. Further, it has not
utilised its funds in an optimum
manner which can cause long

activities. Apart from this, company
has failed to manage its risks in a
way as to reducing the effects.
term effect.
Approach The company can use variety of
techniques to overcome the issued
faced by it. It can adopt KPI to
assess the viability of strategies
which are formulated by its
competitors.
Ultra Financial services can use
benchmarking technique to form
co-ordination for minimising risk
of employees turnover and fund
management.
CONCLUSION
From the above report, it has been concluded that, management accounting is a branch of
accounting that deals with non-financial information and shows its impact on business
operations. Further, there are various techniques and methods that should be used according to
situation in order to attain goals and objectives by removing the problems. Along with this,
importance of reporting should also be understood so that each information can be included
before presenting investors. Furthermore, system of management accounting should be used so
that cost element of managerial activities can be disclosed in the financial statements.
REFERENCES
Books & Journals:
Anandarajan, M., Anandarajan, A. and Srinivasan, C.A. eds., 2012. Business intelligence
techniques: a perspective from accounting and finance. Springer Science & Business
Media.
Arroyo, P., 2012. Management accounting change and sustainability: an institutional
approach. Journal of Accounting & Organizational Change, 8(3), pp.286-309.