Sample Management Accounting : Assignment

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
PART 1...................................................................................................................................3
A) Management accounting and requirements of different types of management accounting
systems...................................................................................................................................3
B) Methods used for management accounting reporting.......................................................4
C) Benefits of management accounting systems and its application within an organisation.5
D) Evaluation of the way management accounting systems and management accounting
reporting integrate within Eymen Ltd. processes...................................................................6
PART 2...................................................................................................................................7
Planning tools that are used in management accounting and its advantages and disadvantages 7
TASK 2............................................................................................................................................9
PART 1...................................................................................................................................9
Produce a portfolio of completed calculations and analysis on company financial statements
and income statements using variable costings......................................................................9
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is the procedure that helps the organisations to provide financial
information and resources to the manager so that manager can make a right use of the
information by analysing the same and making the right decision. (Bromwich and Scapens,
2016). This process basically includes collection, analyses and reporting information about the
different operation that are been conducted in the business. Present study will include the basic
needs of various types of management accounting systems and in the report various methods are
explained for the management accounting reporting. This report is based on the Eymen Ltd
company. Further, report calculates cost with the help of different techniques of cost analysis in
order to prepare an income statement with the use of marginal and absorption costs. Report will
also include advantages and disadvantages of planning tools that are used in budgetary control.
TASK 1
PART 1
A) Management accounting and requirements of different types of management accounting
systems
Management accounting is defined as a process in which financial information and
resources are provided to the manager so that manager can make a right decision. Generally
management accounting is used by the internal team of the organization, and this is the only
thing which makes it different from financial accounting. management accounting helps
financial information and resources are provided to the manager of the company so that these
information can be used by the managers for effective decision making process. This process
usually includes collection, analyses and reporting information with respect to the different
operation that are been conducted in the business.
Management accounting systems:-
Management accounting system is the internal systems which helps the company in
measuring and evaluating different processes that can help in managing business financially. In
these systems, financial information of the business are collected by the managers and then
report is been prepared for internal use of the managers in order to come up with appropriate
decisions in order to run the business smoothly.
The different types of management accounting systems are as follows:

 Inventory management system:- As the name suggests it is an management accounting
system that specify placement of stocked good and processes in Eymen Ltd. (Ismail, Isa
and Mia, 2018). It involves processes that maintains stocked products that are assets of
company, raw material and finished products. These generally are placed at different
locations as part of supply network so that regular and planned course of production can
be there Cost Accounting system:- It is a management accounting system which helps the Eymen
Ltd in ascertaining the cost involved in a product or process to evaluate organisation’s
profitability. This management accounting tool is used to estimate the cost related to
products so that they can analyse profitability of the business and also inventory
valuation. It is basically used by manufactures of the business in order to record the
different production activities by using inventory system. Price Optimization System:- It is mathematical analysis that Eymen Ltd uses in order to
determine customers respond at different prices for its offerings with the use of different
channels. This system is used in an organisation to ensure that their products are sell
quickly by satisfying the customers with respect to prices of product.
 Job Costing System:- Job costing system is used by the managers in Eymen Ltd to assign
and accumulate the cost related to manufacturing of individual unit of output. It is
basically used in the situation where items produced generally differs and have a
significant cost (Bromwich and Scapens, 2016).
B) Methods used for management accounting reporting
Management accounting reporting is generally used by the managers in order to monitor
the performance of the Eymen Ltd. These reports are required quarterly, monthly, weekly and
even for daily purposes. Different methods that are used for management accounting reports are
as follows:- Budget report:- Budget report is the tool in which the actual result is a comparison of the
actual result with the actually setup budget of the company. This report is used by t
Eymen Ltd to analyse company's performance. The estimated budget is based on the
actual expenses from the previous years and if the company had over budget than future
years may required to have increased budget. Mangers of the firm use some of the funds

from budget to give employees bonus in order to motivate them for some financial goals
of the business (Maas, Schaltegger and Crutzen, 2016). Accounts Receivable aging reports:- This tool is used for managing cash flow for the
Eymen Ltd for extending the credit of their potential customers. Managers basically uses
this report in order to analyse the problems that company usually face related to
collection process. There are some cases when customers do not pay their balances, in
such situations company tighten its credit policies in order to overcome these issues. The
analyse the accounts receivable aging at the end of financial year. Job Cost reports:- Job cost report are the process of coding and allocating project
expenses to track financial efficiency and profitability These reports are used by the
managers of Eymen ltd. to analyse the expenses related to specific project. In order to
evaluate profitability of the business, this report is matched with the estimated revenue as
this helps in identifying higher earning areas for the firm and firm can put its efforts for
high profit margins.
 Inventory and manufacturing- Eymen ltd basically uses these reports to make the
manufacturing process of the business more efficient. Report includes inventory waste,
hourly labour costs and overhead cost and these helps the company to make comparison
between different assembly lines in order to improve them. This also helps in analysing
the best performing departments so that they can be offered bonuses in order to motivate
them to keep their performance high.
C) Benefits of management accounting systems and its application within an organisation
Management accounting is having following benefits within organisation context:- Formulation of financial strategies:- Financial strategies will help Eymen ltd in
formulating with the different management accounting systems by the managers and they
can use sales forecasts and budgets and also job costing techniques for the organisation.
Financial statements will help the Eymen ltd in incorporating different data of the
company so that different strategies can be developed in order to enhance net profit and
gross income of the firm. Accounts managers can use these methods for implementing
financial strategies in planning for operating cost reduction. This helps the company to
reach out its goals in an effective manner (Aduda and Ndaita, 2017).

 Financial outcomes of decisions are explained with the use of accounting systems:-
Managers of Eymen ltd uses these management accounting systems to understand the
respective debt and equity related to firm and they analyse the different consequences of
adding debt and equity. These systems play an important role in understanding and
deriving the impacts of different decisions they are making over budgets and financial
statements of Eymen Ltd. Profits and losses of the company depends on the management
accounting systems used by Eymen Ltd. for decision making. It helps in Monitoring Expenses:- The major role of this system is to create budgets for
the firm that is flexible for the business. For the same managers of Eymen ltd can
prepares reports on daily bases, monthly and also yearly as it will helps them to
understand what are the requirements and they are able to monitor the expenses that
business operations will be in need.
 Maintains the profitability of the business:- Management accounting system use different
tools in order to keep organisation's profitability high and for the same as they uses break
even analysis. It is used by the management accountant of a Eymen ltd as it is helpful for
categorising production costs between variable and fixed. It also determines production
level of the company and also sales as they affect profitability of the business (Malmi,
2016). They also analyse direct and indirect cost related to manufacturing in the business.
D) Evaluation of the way management accounting systems and management accounting
reporting integrate within Eymen Ltd. processes
The integration between organisational processes and budgeting report makes a path for
organisation activities so that they reach targets in better way. Activities of the company directs
towards the cost achievement as it makes the pricing strategies easier and integration between the
report and companies activities helps the managers to plan for future production (Maas,
Schaltegger and Crutzen, 2016).
Integration of these systems with the organisation process is important. Back office
system and Inventory integration have to be flexible enough and also transparent. The reason is
that business processes may require adjustments to the integration for continuous changes.
Management accounting system usually contributes in continuous improvement in an
organisation with integration of cost accounting system. In these ways management accounting
systems and management accounting reporting integrate within organisational processes.

PART 2
Planning tools that are used in management accounting and its advantages and disadvantages
The different planning tools are as follows:-
Benchmarking:
It is one of the common internal system which is used by the Eymen ltd as it includes
comparing the policies, procedure, product or process of the company on the basis of the already
set standard of the measurement. Benchmarking system of management generally starts with
setting up of a standard which need to be achieved by the organization and comparing the actual
performance of the company with already set measurement (Parmenter, 2015). Outcome of the
benchmarking system helps the organization in the reviewing the actual performance of the
management and also in identifying the opportunities for improvement. There are generally two
type of the benchmarking i.e. internal benchmarking in which the standard are set up on the basis
of the company past performance and other one is the external benchmarking in which
companies used to compare the actual performance with the performance of other companies in
the industry. This technique is generally used to overcome the problem of the competitiveness in
the market and also to improve the productivity of an organization. This planning tool basically
helps in increasing the competitive nature of different companies that are working in the same
field (Larkin and et.al., 2015).
Advantages:-
 It helps in implementing creative ideas for the overall development of the organisation.
 Increased competition helps company to maintain their position for running a successful
business.
 It helps the company to get aware about the activities that are essential for improving the
profits of the organisation.
Disadvantages:-
 Instead of incorporating other company's ideas, it can check its feasibility in their own
company.
 Here, company usually have to keep an eye on their competition instead of their own
growth (Benchmarking, 2019).

 Increased in dependency is seen and instead of depending on other company have built
their own networks in order to make them independent for better future.
Conclusion
This is one of the best technique as it helps the company in keeping eye on both internal and
external environment at a time as it sees the growth of the company and competitor growth both
together which can help company in getting competitive advantage.
Cash flow budgeting:-
A cash flow budget is an estimate of all cash receipts and all cash expenditures that are
expected to occur during a certain time period. In this budgeting Eye men ltd used to Estimates
monthly, bimonthly, or quarterly, and can include non farm income and expenditures as well as
farm items. It is an estimate of cash receipt and expenditures that are expected to occur at certain
period of time. These estimates can be made monthly, bimonthly or quarterly.
Advantages:-
 It helps in avoiding debt as some amount of cash is set aside for the emergency situation.
Many a times company face emergency situation that can be overcome with its use.
 It became easy for the company to identify cash deficits as it determines if the company
is having enough cash in order to meet the obligations (Reichard and Van Helden, 2016).
 Company is able to communicate its financial position and it became easy for the
managers to determine the current and future issues that are needed to be addressed.
Disadvantages:-
 It usually creates a situation of theft as cash is one of the easiest asset to steal and it is
tough to trace cash in an big organisation as flow of cash is high in them.
 It may limit the amount of debt that company creates for its business.
 It forces cost to become the primary factor in making decisions.
Conclusion
This technique is good but not that proficient as compare to the other as this technique includes
assumption before hand itself which can prove difficult for the manager to assumption the
expenditure before hand itself. Wrong assumption sometime creates the situation of the wrong
result for the organization.
Break-even analysis:-

Break-even analysis is a technique widely used by production management and
management accountants in the Eymen ltd. It is based on categorising production costs between
those which are "variable" (costs that change when the production output changes) and those that
are "fixed" (costs not directly related to the volume of production). It is the relationship between
the cost volume and profits that is represented for the different levels of the activity. It emphasis
is placed on the break even point where business neither receives profit nor a loss.
Advantages:-
 It helps in measuring profit and losses with respect to production and sales of the
business.
 It is easy to analyse effect of different changes in the sales prices of products (Morano
and Tajani, 2017).
 It become easy to analyse relationship between variable and fixed cost.
Disadvantages:-
 Its assumption is that there is constant sales price at all output level and that's not true at
all.
 Another assumption is that production and sales do not differ.
 Preparing the break even chart is time consuming(Reichard and Van Helden, 2016).
Conclusion
This technique is also a good technique in measurement but this technique also used to depend
on the assumption of the sales price but on the same end it is one of the best technique to
measure the production of the business.
TASK 2
PART 1
Produce a portfolio of completed calculations and analysis on company financial statements and
income statements using variable costings.
Marginal Costing Techniques: It is that technique in which variable cost of product is
charged to the unit cost and at the other side fixed cost for the period is completely written off
against the contribution. This term implies that the rate of change related to cost of Eymen ltd .
due to increase in its production level of the product by one unit.

Absorption Costing Techniques: Absorption Costing is a managerial accounting cost
method in which all the respective manufacturing cost associated with a production process are
accumulated together. This type of cost is generally used to create an inventory valuation. Key
component of Absorption cost are Direct Material, Direct Labour, Variable Manufacturing and
Fixed manufacturing.
Marginal costing
May
Particulars Unit
Price
per
unit
(in £)
Total (in
£)
Sales 400000 10.5 4200000
Less: variable cost
Direct materials: 400000 1.375 550000
Direct labour 400000 1.88 750000
Total variable cost 1300000
Contribution 2900000
Less: fixed overheads 600000
Net profit 2300000
June
Particulars Unit
Price
per
unit
(in £)
Total (in
£)
Sales 360000 10.5 3780000
Less: COGS
Opening stock 0 0 0
Purchases 400000 3.25 1300000
Closing stock 40000 3.25 130000
COGS 1170000
Contribution /GP 2610000
Less: fixed overheads 600000

Net profit 2010000
Absorption costing
May
Particulars Unit
Price
per
unit
(in £)
Total (in
£)
Sales 400000 10.5 4200000
Less:
variable
cost
Direct
materials: 400000 1.375 550000
Direct
labour 400000 1.88 750000
Fixed
overhead 400000 1.5 600000
Total
variable
cost
1900000
GP/ NP 2300000
June
Particulars Unit
Price
per
unit
(in £)
Total (in
£)
Sales 360000 10.5 3780000
Less:
COGS
Opening
stock 0 0 0
Purchases 400000 4.75 1900000
Closing
stock 40000 4.75 190000

COGS 1710000
GP/ NP 2070000
MEMO
TO: Eymen Ltd
From: Financial consultant
CC:
Date: 20 Sep 2019
Message:
Net profit derived for the May month is 23000000 which is same in both marginal and
absorption cost method as total product which was produced was sold by the company. Net
profit derived for the month June from the marginal cost method is 2010000 and from
Absorption cost is 2070000 we will look at the absorption cost as the correct method as
absorption cost used to assess the data in more reliable way as compare to marginal cost method
Recommendation:
It has been recommend to the Eye men ltd that they should look at the absorption cost technique
as a primary technique as this technique used to take indirect expenses (overheads) as well as
direct costs into consideration, this is not the case in the marginal cost which sometimes gives
the inaccurate result.
.
CONCLUSION
From the above study it is been concluded that Management accounting helps the company
to measure and evaluate different processes that can help in managing business financially. The
different management accounting systems are:- Inventory management system, Price
Optimization System, Cost Accounting system and Job Costing System. Different types of
managerial accounting reports are:- Budget report, Accounts Receivable aging reports, Job Cost

reports and inventory and manufacturing. Report also concludes that different benefits of
Management accounting systems are:- Formulation of financial strategies, Financial outcomes of
decisions are explained with the use of accounting systems, It helps in Monitoring Expenses and
it maintains the profitability of the business. Management accounting systems and management
accounting reporting integrate within organisational processes that report concludes about. There
are different planning tools like Benchmarking, Cash flow budgeting and break-even analysis
that company uses. After calculation of marginal and Absorption cost it has been analysed that
NP for the month of May is 2300000 and for June it is 201000 from marginal cost technique and
2070000 from absorption technique.

REFERENCES
Books and Journal
Aduda, J. and Ndaita, B.S., 2017. Management Accounting Systems Changes and
PracticesAdopted by Large Manufacturing Companies in Nairobi Kenya. ORSEA
JOURNAL. 3(2).
Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years on.
Management Accounting Research. 31. pp.1-9.
Chambers, J.M and et.al., 2017. Analysis of variance; designed experiments. In Statistical
models in S (pp. 145-193). Routledge.
Duan, Y. and et.al., 2016, June. Benchmarking deep reinforcement learning for continuous
control. In International Conference on Machine Learning (pp. 1329-1338).
Ismail, K., Isa, C.R. and Mia, L., 2018. Market Competition, Lean Manufacturing Practices and
The Role of Management Accounting Systems (MAS) Information. Jurnal Pengurusan
(UKM Journal of Management). 52.
Larkin, S. and et.al., 2015. Benchmarking agency and organizational practices in resilience
decision making. Environment Systems and Decisions. 35(2). pp.185-195.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136.
pp.237-248.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136.
pp.237-248.
Malmi, T., 2016. Managerialist studies in management accounting: 1990–2014. Management
Accounting Research. 31. pp.31-44.
Morano, P. and Tajani, F., 2017. The break-even analysis applied to urban renewal investments:
a model to evaluate the share of social housing financially sustainable for private investors.
Habitat International. 59. pp.10-20.
Parmenter, D., 2015. Key performance indicators: developing, implementing, and using winning
KPIs. John Wiley & Sons.
Reichard, C. and Van Helden, J., 2016. Why cash-based budgeting still prevails in an era of
accrual-based reporting in the public sector. Accounting Finance & Governance Review.
23(1-2). pp.43-65.
Udoh, E. and Patterson, B., 2016. Using the Balanced Scorecard Approach to Appraise the
Performance of Cloud Computing. International Journal of Grid and High Performance
Computing (IJGHPC). 8(1). pp.50-57.
ONLINE
Benchmarking. 2019. [ONLINE]. Available. Through:
<https://www.toolshero.com/marketing/benchmarking/>