Adapting Management Accounting Systems

This assignment delves into the topic of how organizations are modifying their management accounting systems to align with contemporary business challenges. It examines various strategies and approaches employed by companies to optimize their accounting practices in a dynamic environment.

MANAGMENT
ACCOUNTING

Table of Contents
FROM: MANAGEMENT ACCOUNTING OFFICER..................................................................1
TO,...................................................................................................................................................1
GENERAL MANAGER..................................................................................................................1
ZYLLA COMPANY.......................................................................................................................1
SUB: MANAGEMENT ACCOUNTING SYSTEM .....................................................................1
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and different type of management accounting systems...........1
P2 Different methods used to management accounting reporting..........................................3
TASK 2............................................................................................................................................5
P3 Cost techniques and income statement as per marginal and absorption costing...............5
TASK 3............................................................................................................................................7
P4 Advantages and disadvantages of various type of planning tools used in budgetary control7
TASK 4............................................................................................................................................8
P5 How organisations are adapting management accounting system to respond financial
issues.......................................................................................................................................8
CONCLSUION ...............................................................................................................................9
REFERENCES................................................................................................................................9

FROM: MANAGEMENT ACCOUNTING OFFICER
TO,
GENERAL MANAGER
ZYLLA COMPANY
SUB: MANAGEMENT ACCOUNTING SYSTEM
INTRODUCTION
Effective management and operation are the prior requirements of an organisation.
Management accounting is a known as a principle provides a path to manage the operations and
functions in systematic manner (Meaning of managerial accounting, 2017). Managerial
accounting is considered as a synonym of management accounting. This assignment is prepared
to explain the meaning of management accounting. Different type of management accounting
systems illustrate in this context. Cost accounting systems are discussed subject to deciding the
cost of the product. Advantages and disadvantages of planning tools are characterised with
practical based situations. How organisations are adapting management accounting systems to
respond to financial problems.
TASK 1
P1 Management accounting and different type of management accounting systems
Management accounting
This is the process of recording the information, keeping the records, entries of monetary
and non monetary transactions. This information helps the managers and accountants to make the
management accounting repost, financial reports and statistical information (Islam and Hu,
2012). This is the system which helps to track the day to day transactions and events happen
within the organisation.
This accounting system is also considered as managerial accounting. The information,
data and records provided under management accounting system are helpful to managers, stake
holders, business owners and financial institutions. These information helps the managers to
make strategies and business plans. Management accoutring majorly helps the internal audiences
and people of organisation.
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As per definition given by IMA (Institute of management accountants), “ Management
accounting is acknowledged as a profession. It remain connected with some managerial actions
such as decision making, strategic planning and devising planing.” this also helps to keep the
control and managing the performance of employees with in the organisation.
Management accounting is made of multiple accounting rules, financial regulations,
accounting standards. By implementing this system in organisation, managers become eligible to
analyse the financial reports, cash flow statements and financial position statements. It also helps
to analyse the cost variances, variances analysis, inventory management and statistical analysis.
Being a part of risk management and strategic planning this is illustrated as managerial
accounting. Various type of management counting systems are used by the organisation as per
business requirements and nature.
Management Information system (MIS): Management accounting system is the system
which is associated with the effective management and operations (Parker, 2012). This is the
system which is operated by the computer systems, artificial intelligence, advanced tools and
system software, electronic devices and measurement tools. This system contains high
installation and implementation cost. MIS system is used in large multinational organisations and
business, banking and financial industries and business which deals with complex equations and
solutions. Mangers and accounts could get the statistical information by MIS system.
Budgetary control system: Aim and objective of this accounting system is to control the
output cost and maximise the profitability of organisation. This system majorly used to control
marketing techniques. This system is based upon forecasting the future cost with the help of past
records like financial information, budget reports, accounting reports and annual reports. This
system helps to interoperate the budgeted results and actual results. This accounting system helps
the mangers to ascertain the cost of projects, controlling the cost and analysing the variances.
Cost accounting System: This is the most adoptable accounting system used by the
organisations. This system is majorly used in manufacturing organisation and unit organisations.
Managers and accountants would be able to determine the cost of per unit and service. This
system provides exact cost and data related to produced services and products. A firm become
eligible to bifurcate the cost as variable and fixed and set profit margin. Cost accounting system
is made of diverse cost principles and assumptions. Process costing, job order costing, traditional
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costing system and activity based accounting systems are the branches of cost accounting
system.
Inventory management System: Management of inventories and stocks is the essential
for any retail, manufacturing and production company. IMS system is beneficial for those firms
and organisations which deals in multi product and services (Mihăilă, 2014). It is considered an
ongoing process of stirring the inventories from one location to another. This system manage the
daily activities and operations related to inflow of raw material and outflow of finished products
and goods. This system helps the managers to bifurcate the goods and services by their types and
nature.
Risk management: this management system is one of the branch of management
accounting system. Analysing the future trends to identify uncertainties and business risks are
the main objective of this accounting system (Sargent, Borthick and Lederberg, 2011). Majorly
this management system is used in decision making and strategic planning. As per management
respective this accounting system contains high importance subject to deal with financial risk
and business uncertainties. This management system helps to reduce the level of risk and grab
the future opportunities for sustainable success.
Job cost system: this is considered as a method of analysing the cost of product and cost
incurred to particular job or cost centre. This accounting system is used in the organisation which
functions and departments remain bifurcated in multiple processes. By implementing and
adopting this method mangers can easily manage the cost incurred to multiple cost centres and
job. This cost accounting system is majorly used in manufacturing jobs and production firms and
companies.
P2 Different methods used to management accounting reporting
Management accounting reports are the part of managerial accounting. Accounting
reports helps the small business managers and owners to determine the financial position and
performance of organisation (Benson and et. al., 2015). There is a systematic manner used to
make accounting reports. At initial stage day to day transactions and events are recorded in the
system. Reports remain related to important subjects, projects and task. Below are some type of
accounting reports illustrated used in organisational context.
Budget report: Small business enterprises and medium size entities prepare the budget
reports to centralise the cost at optimum level. These reports are prepared subject to evaluating
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the actual results and desired results of organisation. There are various type of information and
data related to past years taken to prepare budget reports. Managers analyse the task requirement
and prepare budget reports to analyse the cost of project. Budget reports can be vary as per the
size of business. Structure in large organisation remain divided in various parts and divisions.
This helps to determine the cost and budget in respect of each department. Analysing the
performance of departments as per budgeted and actual results are the key elements of budget
reports. Managers become eligible to decide the amount of incentives and benefits.
Accounts receivable reports: these reports are prepared on the basis of cash inflow and
outflow. This is considered one of the critical tool for managing the cash flow and deciding the
credit limit to debtors and customers. These reports provides a structure to decide the lagging
process of getting payment from debtors and customers. These reports contains three time
policies of giving credit to customers such as 30 days, 60 days and 90 days policy. These reports
resolve the issues and problems remain associated with collection process. As per this method
managers become eligible to bifurcate the debtors as per their credibility. This system also used
to reduce the lagging time to get payment from debtors.
Job cost reports: Organisations which operates multiple jobs and cost centres used this
method. As job cost reports data and figures provide the information related to particular job
department and centre (Anderson and et. al., 2013). This reporting method is used to determine
the cost of specific task and projects. The estimated cost and actual cost are correlated as per this
cost reporting system and tool. Identify the higher earning centres and sectors to attain
profitability is the main objective of job cost reporting tools. It centralised the cost of product
and reduce the level of wastage and money on multiple jobs and cost centres. This remain
focused around low cost margin and analysing expenses incurred on particular task and projects.
Manufacturing and inventory: This accounting reporting tools is helpful for those
organisations which deals in physical or tangible products and goods. These reports provides
enough information about the product and inventories available in stores. Inventory reports
contains information related to wastage, hourly labour rate and cost per unit or overheads
incurred in production and manufacturing process. Managers become eligible to align the
products and inventories in single formats. It helps to improve the storage management of
organisation.
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TASK 2
P3 Cost techniques and income statement as per marginal and absorption costing
Analysing the cost of product and services is one of the essential requirement for any
business organisation (Hilton and Platt, 2013). Cost accounting techniques helps in marginal
decisions. Organisations are allow to use the cost accounting techniques independently. Small
business enterprises and manufacturing entities use various type of cost accounting techniques to
calculate the cost and analysing the profitability of organisation. Various type of cost accounting
techniques are defined as under;
Marginal costing: this cost techniques is one of the common cost evaluating technique
used by the organisations at vast level. In marginal costing cost of the product is evaluated on the
basis of all the variable expenditures, cost and overheads. All the variable factors like material,
labour, direct expenses, factory cost, wages and freight are considered in marginal costing
methods. Fixed overheads and expenses are not counted in marginal costing while calculating the
cost per unit. This cost technique is beneficial for those industries which deals in variable goods
and products.
Direct costing: this costing techniques contains all the cost and expenditures which
affect the cost of product directly (Burritt, Schaltegger and Zvezdov, 2011). Direct cost subject
to operations, manufacturing and production process, cost incurred on cost centres and
departments remain the part of direct costing. Indirect cost and overheads not included in this
cost techniques. Indirect overheads and expenses are set off with profits and surplus. Few part of
fixed cost is considered in this cost technique while preparing calculating the cost. This is one of
the element which make difference between marginal and direct costing.
Absorption or full costing: this cost techniques is also called as over all evaluation of
cost method. Absorption costing techniques contains both the variable and fixed expenditure,
costs, charges and overheads while calculating the cost of product. Manufacturing and
production firms and companies adopt this costing technique to analyse the net cost of product
and deciding the profit margin.
Uniform costing: this cost techniques is considered one of the diverse cost evaluating
method subject to evaluating profitability. This techniques contains some cost accounting
principles, standards and methods (Cugueró-Escofet and Rosanas, 2013). This cost helps to
identify the cost of multiple group of companies and entities. This cost techniques contain some
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complexities related to accounting bifurcation codes, methods used at cost centres, allocating and
utilising the cost and overheads at each cost centre and cost unit.
Post costing: Post costing system helps to identify the cost of products and goods after
complementing the production process. All the expenses and cost are incurred in the beginning
of production process and centralised in the end of period. Cost is divided in the units as per the
actual cost incurred to produce the product. Cost such as actual labour paid, material purchased
and expenses incurred in operations.
Continuous costing: this cost technique is used to evaluate the cost of product in respect
of particular job or cost centre. This cost technique helps accountants to determine and analyse
the cost of under process and work in progress units. Actual expenses and cost incurred in
production process such as material, labour and expenses are estimated in this costing system.
Further cost are estimated as per the expected ratio.
Standard costing: this costing method helps the managers to determine the cost of
product in advance (Quattrone, 2016). This cost technique also commonly used in manufacturing
firms and companies subject to evaluating the cost of product on the basis of prediction and
estimations. This costing techniques helps to analysis variances between budgeted cost and
actual cost. Material, labour and overheads are pre decided in this cost technique.
Calculation of Net profit by using Marginal costing
Income statements
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2+3 = 16*500
8000 8000
Gross profit 9500
Less:
Variable sales overhead 500*1 500
Selling and administrative cost expenses (800+400) 1200 -1700
Total Profit / Loss 7800
Calculation of Net profit by using absorption costing
Income statements
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Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2 - 7800
Closing stock: 100*13 - 1300 -6500
Contribution 11000
Less:
Variable sales overhead 500*1 500
Fixed overhead -1800
Selling and administrative cost expenses (800+400) -1200 -3500
Total Profit / Loss 7500
TASK 3
P4 Advantages and disadvantages of various type of planning tools used in budgetary control
Planning tools and equipments helps to make plans and strategies subject to budgetary
control. There are various type of advantages of budgetary control planing tools are bifurcated
below:
Advantage of planning tools
 Effective management: Planning tools helps to make effective management and
operation. This enhance the capacity of better forecasting and prediction. Managers and
leaders become eligible to bifurcate the roles and responsibilities among the staff
members and divisions equally (Gordon and Fischer, 2011).
 Quick reporting: it make smooth the process of reporting and formulating the tasks and
projects. Planing tools provides essential Information and data to make reports
immediately to the managers.
 Support to management: this helps the managers and top level management subject to
clear conflicts and issues occur in strategic planning and decision making.
 Provide authority: it provides an authority and path to maintain ethical behaviour in
organisation. Planning tools assist managers to implement the budgetary control system
in the organisation effectively.
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 Flexibility: this is one of the characteristics which helps to ascertain the cost of products
with the help of budgetary control. It helps to make flexible the structure of organisation
to implement the cost control with in the organisation.
Disadvantages of planing tools
 Cost of implementation and installation of budgetary control remain high which increase
the cost of product and decrease the profitability.
 This reduce the creativity and new modems to boost the level of organisation.
 Applied principles, standards and approaches are used to frame the budgets. This is
various type of complexities and uncertainties are found analysing the budgets and cost
of each centres.
 It not provides assurance to get sustainable success. It create critical situations in large
organisations to consolidate the cost of different sectors in single format.
TASK 4
P5 How organisations are adapting management accounting system to respond financial issues
Financial issues and problems are the parts of the organisation. To deal with day to day
transactions and financial problems organisations are adapting management accounting systems
with in the organisation (Walker, Fleischman and Johnson, 2012). Various type of financial
problems arise with in the organisational context. Financial changes such as change in rates,
alteration in financial policies, rules and legislations. Complex accounting and management
situations.
Management accounting system helps to correlate organisational goals and objectives
with the challenges. By implementing management accounting system within the organisation
managers become eligible to make strategies and track the departmental activities. It provides
better control system to manage and operate the business functions in effective and systematic
manner. Organisation use the following ways to respond the financial problems such as;
 Determine the social and environmental trends to align the departments and section of
organisation. It helps to build an strong financial structure.
 Organisations are adapting the management accounting tools to make a sustainable
structure and subject to adopt financial challenges. There are key performance indicates
found by the organisation subject to analysing the strategic goals.
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 Managers can easily bifurcate the optimum financial resources for better operation and
control.
 Management accounting system provides an over all overview subject to divisions and
departments of an organisation. It remain essential in decision making and strategic
planning.
Comparison how Zylla company is adapting management accounting system to respond
financial problems
KPI: Key performance indicators remain useful to overcome the financial problems and
challenges of an organisation. Managers would be able to evaluate the performance of every
individual.
Benchmarking: These are considered as a standards around which the employees and
staff members works to attain desired goals and objectives. Analysing the financial challenges
and uncertainties are the main objective of benchmarking.
Financial governance: Build an ethical culture to make the financial process more fluent
is the main objective of this system. SMART tools plays crucial role in making an ethical culture
and path.
CONCLSUION
Meaning of management accounting with various type of management accounting
systems defined in this report. Role of various accounting reporting methods and tools also
illustrated as per organisational type. Calculation of profit by using marginal and absorption
costing defined in this report. Advantages and disadvantages various type of planing tools
defined in this report. There is a discussion also made on the subject that how organisations are
adapting management accounting system with in the organisation.
REFERENCES
Books and Journals:
Hilton, R. W. and Platt, D. E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Islam, J. and Hu, H., 2012. A review of literature on contingency theory in managerial
accounting. African Journal of Business Management. 6(15). p.5159.
Parker, L. D., 2012. Qualitative management accounting research: Assessing deliverables and
relevance. Critical perspectives on accounting. 23(1). pp.54-70.
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Sargent, C. S., Borthick, A. F. and Lederberg, A. R., 2011. Improving retention for principles of
accounting students: Ultra-short online tutorials for motivating effort and improving
performance. Issues in Accounting Education. 26(4). pp.657-679.
Benson, K. and et. al., 2015. A review of accounting research in the Asia Pacific
region. Australian Journal of Management. 40(1), pp.36-88.
Burritt, R. L., Schaltegger, S. and Zvezdov, D., 2011. Carbon management accounting:
explaining practice in leading German companies. Australian Accounting Review. 21(1).
pp.80-98.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
Walker, K. B., Fleischman, G. M. and Johnson, E.N., 2012. Measuring management accounting
service quality. Management Accounting Quarterly. 13(3). p.15.
Gordon, G. A. and Fischer, M., 2011. Accounting strategy to improve public higher education
management. Journal of Accounting and Finance. 11(3). p.11.
Cugueró-Escofet, N. and Rosanas, J.M., 2013. The just design and use of management control
systems as requirements for goal congruence. Management Accounting Research. 24(1),
pp.23-40.
Anderson, S. W. and et. al., 2013. The use of management controls to mitigate risk in strategic
alliances: Field and survey evidence. Journal of Management Accounting Research.
26(1). pp.1-32.
Mihăilă, M., 2014. Managerial accounting and decision making, in energy industry. Procedia-
Social and Behavioral Sciences.109. pp.1199-1202.
Online
Meaning of managerial accounting, 2017. [Online]. Available through:<https://financial-
dictionary.thefreedictionary.com/management+accounting>.
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