The Impact of Cost Accounting on Profitability

The assignment delves into the impact of cost accounting systems, particularly inventory management, on product profitability. It analyzes different management accounting practices employed by Small and Medium-Sized Enterprises (SMEs), focusing on how these practices are influenced by organizational DNA, business potential, and operational technology. The document also touches upon budgeting and financial management in higher education, the dominance of financial accounting over product costing, and the link between rolling budget forms, uncertainty, and strategy.

Management Accounting
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Table of Contents
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Introduction
Management accounting is a vital tool for the management of the company because it
helps the manager to make strategies and plans for business activities. By management
accounting reports and system, the manager can take effective control on the unnecessary
activities and also control the expenditures in the business operations. In this report, Jupiter PLC
information will be taken for further investigation. Jupiter PLC uses management accounting
tools and techniques to enhance their productivity and profitability in their business operations.
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Task 1(LO1):
1. Explain what is meant by ‘Management Accounting’ and give the essential requirement
of different types of management accounting systems.
Management Accounting: This simply refers to accounting which is used for the management,
i.e., this is the accounting which provides useful and essential facts to the management for
settling its functions. The management functions are: planning, organizing, directing and
controlling. It gives the required information to the management for efficient and effective
performance of these functions (Wouters, et. al., 2018).
The essential requirement of different types of management accounting systems which are
summarized below:
Various types of accounting systems and their role in integration with different organizational
process related to Jupiter PLC are discussed in below table:
Management Accounting Systems Description and uses in Jupiter PLC
Job Costing System As job costing is a system, with the help of
this manufacturing cost is assigned to an
individual product or batches of products.
Usually, job costing system is used only when
the products manufactured are sufficiently
different from each other. As Jupiter PLC can
implement this system when the products are
same to keep the track of order expenses. The
price estimation of job is done by accountant
keeping customer taste and preference in
mind. As after receiving the order, company
start the production and record cost in books.
And at time of completion of job comparison
is made with reference to estimated cost. So,
Jupiter PLC can use this, can get benefit out
of this job costing system (Wouters, et. al.,
2018).
Price Optimizing System This system is optimizing the product price so
that consumer would able to purchase at
agreed price. As, this system assist
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organizations to determine how demand will
fluctuate at different price levels. Jupiter PLC
can use this system for tailoring the prices for
customer segment by getting their responses
to different price levels. This type of systems
will help Jupiter PLC to decide pricing
structure for initial pricing, discount pricing
and promotional pricing (Cooper, et. al.,
2017).
Cost Accounting System It is a framework which is normally executed
by organizations to forecast cost of products
for profitability analysis, inventory valuation
and cost control. As it will be useful for
Jupiter PLC to know which products are
profitable for the organizations and which one
are not through estimating accurate cost
(Azad, et. al., 2016). Two types of costing
which can be used by organization to estimate
accurate cost:
Actual Cost:
The cost which is actually incurred or
paid. Actual cost is realized and does not
depend on an estimate. It is the cost which
included in financial statements. This cost is
recorded during the year while the company
is conducting business. For an example, for
company, Jupiter PLC, the standard cost for
manufacturing unit is 10 pound per unit and
actual cost is 8 pound per unit. And company
manufactures 100 units. So, the actual cost
which is going to be record in books is 800
pounds.
Standard Cost:
Standard cost is that, estimated
standard cost is set for the products. For an
example, Jupiter PLC, manufactures the
goods for the retailers, and they set the
standard cost for that is 25 pound per unit.
But actual cost occurs that is 30 pound per
unit, so the actual is more than standard cost,
there is variance of 5 pound per unit (Cooper,
et. al., 2017).
Inventory Management System It refers to the procedure of ordering, storing
and implementing a company's inventory: raw
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materials, components and finished goods.
Inventory is one of the most valuable assets of
company. In manufacturing, retail and food
and another sector which are inventory
intensive. And it is very important to manage
the inventory because shortage and excess
inventory both can leads to loss for company.
As it is necessary to know that when to
restock items, at what amount to produce and
at what price to pay. Jupiter PLC use this
system to check the inventory level in the
business operations. The proper inventory
supply in entire system reduces the time and
expenses for the organization. The Jupiter
PLC can use the different method of this
system like: FIFO, LIFO, JIT, etc (Wouters,
et. al., 2018).
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2. Explain different methods used for management accounting reporting.
Management accounting reports are very important to store and convey the information in the
form of figures and facts which are related to the business operations of the organizations. In
order to study the relevant information about the problems which are incurred in the
organization it is important and necessary maintain the records and review them in appropriate
manner (Demirag, 2017). Jupiter PLC use various management accounting reports to rectify the
problems associated with its operations, budgeting and investments. Some of the management
accounting reports maintained by Jupiter PLC are as follows:
Budget Reports: Budget report helps medium sized manufacturing organization to review their
business operations performance with the budgeted figures. The forecasted budget is usually
depending on the actual costs which are incurred in previous or past years. Jupiter PLC use to
maintain budget reports so that they can make planning to invest their fund according to
function, time and flexibility. Budgets reports also enable to organization to control research and
development and invest budget as per as to requirement (Cooper, et. al., 2017).
Accounts Receivable Reports: Jupiter PLC is concerned with their account receivables reports
as this report assists the management to know about the debtors and how much payment is still
in due and they need to receive payment in the form of bills receivable or other promissory
notes. Accounts receivable reports assists to the organization in preparing credit policy that is
related to investment in receivables (Wouters, et. al., 2018).
Operating Reports: Operating records are prepared and managed by Jupiter PLC to focus on
their operations. This reports also help then to improve supply chain management and deliver
finished products to customer when there is demand. Operating reports helps in calculating
break-even point both for product quantity and sales. This report helps in determining amount of
financial leverages of Jupiter PLC (Chiwamit, et. al., 2017).
Cost Accounting Reports: Jupiter PLC maintains the cost accounts and statements records as it
supervises and provide the management new methods and techniques of costing that is used in
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planning and decision making. The management can record the essential information in this
report so that it can utilize in the future for new product development (Azad, et. al., 2016).
Inventory Management Reports: Jupiter PLC manages inventory management reports to
holds the finished products in the stock and transfer in the market at valuable state. The main
purpose to maintain inventory management report is that it allows Jupiter PLC when to get
orders and in how many units’ order will they get in future. All the inventory cost which
includes carrying cost of holding any items, ordering cost of replenishing any item and shortage
cost comes under inventory management reports (Barr and McClellan, 2018).
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3. Evaluate the benefits of management accounting systems and their application within an
organizational context.
The various advantage of management accounting systems and their application in context of
Jupiter PLC is shown in a tabular format as under:
Management Accounting Systems Benefits
Price Optimizing System  With the help of this system, Jupiter
PLC can easily find out the attitude,
taste and preference of customers
which are based on different prices.
 It is also increasing the organization
operating profits with the best and
suitable prices according to the market
demand.
 With the help of this system, the
management can easily segregate the
customers (Lin, 2017).
Inventory Management System  Jupiter PLC can also enhance and
improve the accurateness of inventory
orders with this effective system.
 This system improves the business
operations effectiveness and efficiency
and also helps in saving money and
time.
 This system reduces wastages of raw
materials and manage entire supply
chain of the organization (Jeste and
Childers, 2017).
Cost Accounting System  Jupiter PLC can evaluate and measure
the business operations efficiency in
procedures and also helps the
management in making changes with
the use of this system.
 This system assists the management in
reduction and fixation of different
prices for the different product.
 It also gives important information
which are required for planning and
also in decision- making.
Job Costing System  This system assists Jupiter PLC in the
assessment of all kinds of cost during
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the manufacturing process.
 This system also avoids repetition of
efforts in the similar job will be
reflected.
 This system assists the management in
assessment of the quality of job done
(Demirag, 2017).
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4. Critically evaluate how management accounting systems and management accounting
reporting is integrated within organizational context.
Management accounting systems assists the Jupiter PLC in order to prepare the management
accounting reports to make and records effective and efficient decisions so that the management
could achieve pre-decided goals and objectives. Management accounting systems is the definite
process which is utilized by the management of an organization for smooth and flexible the
entire business operations of Jupiter PLC. Both management accounting reporting and
management accounting systems are required and also necessary in achieving their pre-decided
goals and objectives. With the help of it the organization can achieve their targets on timely
manner and also maximize their profits (Azudin and Mansor, 2018).
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Task 2 (LO2):
Apply a range of management accounting techniques.
Income Statement as per Absorption Costing Method
Particulars Amount
Sales (16,000*50) 8,00,000
Less: Cost of Sales
Opening Stock Nil
Manufacturing Costs (16,000*35) 5,60,000
Closing Stock (2,000*35) 70,000
Fixed production Overhead Costs 1,00,000
Net Profit for the period 70,000
Working Note:
Direct Material 10
Direct Labour 20
Variable Production Overhead 5
Total variable production cost 35
Income Statement as per Marginal Costing
Particulars Amount
Sales (16,000*50) 8,00,000
Less: Variable Costs (16,000*35) 5,60,000
Contribution 2,40,000
Less: Fixed Costs 1,00,000
Net Profit 1,40,000
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Income Statement as per Absorption Costing Method
Particulars Amount
Sales (16,000*50) 8,00,000
Less: Cost of Sales
Opening Stock Nil
Manufacturing Costs (16,000*35) 5,00,000
Closing Stock (3000*35) 1,05,000
Fixed Costs 1,00,000
Net profit for the period 95,000
Income Statement as per Marginal Costing Method
Particulars Amount
Sales (16,000*50) 8,00,000
Less: Variable Costs (16,000*35) 5,60,000
Contribution 2,40,000
Less: Fixed Costs 1,00,000
Net Profit 1,40,000
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Task 3(LO3):
1. Explain the advantages and disadvantages of different types of planning tools used in
budgetary control.
It is a process which is use by the organization to manage their finances. It includes
comparing budgets to actual financial results. The budgetary control seeks to compare results
with budget which would take similar period to recognize under ages or overages and gain
information that will be useful in near-term spending decisions as well as future budgets. Now a
day’s an organization are becoming more in advanced in planning their strategies which has
changed the trends of traditional budgeting tools towards cloud- based budgeting tools which
reduces time and costs for the organization (Lin, 2017). Online budgeting methods also give an
effective and useful option to an organization which reduces work load and manage the budget
in an efficient and effective manner. These online budgeting methods need less training and
supervision and very simple to manage by any one in an organization (Azudin and Mansor,
2018).
Types of planning tools and their usage for forecasting budget preparation are described
as below:
Prophix: Prophix has been created as a software solution for an organization to manage
business operations in an efficient manner. This tool helps the management in planning the
budgets and fulfill the requirements of an organization (Barr and McClellan, 2018). Following
are the main features of this tool are listed below:
 It assists the management of Jupiter PLC in planning, managing and forecasting.
 It also assists the management in accurate planning of cash inflow and outflow which
confirms liquidity aspect of an organization.
 This software prepares proper financial, management and statutory reporting which helps
the organization in better evaluation of performance and also in decision making.
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 It also plans for personnel and management of an organization which ensures and
maintain human resource, finance and also marketing management.
 Profitability and optimization modelling which objects for sustainability and high
profitability.
SCORO: This kind of planning tool assists the organization in gathering various features of
budgeting with other useful tools to manage the entire business operations in one system which
gives combined information for the organization as a whole. SCORO provides the facility to
manage various resources and expenses which are related to the organization business
operations and this information will use by the management in preparation of budget (Barr, et.
al., 2018).
The key features of SCORO are as follow:
 The main features of this tool are planning and forecasting.
 The financial analysis and reports assist in the assessment of the budgeted targets and
actual results.
 This tool also gives a computerized revenue stream from invoices which assists in better
planning and forecasts.
 Invoicing and professional services automation.
 Financial KPI dashboard
SCORO combines the tools for CRM, budgeting and project management so that manager can
manage the entire business operations in one solution and access all the financial data in one
place.
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2. Analyze the use of different planning tools and their application for preparing and
forecasting budgets.
Planning Tools Applications
PROPHIX PROPHIX tool will provide Jupiter PLC
with a sound thing that updates and scales
ceaselessly with the advancement of the
organization and envisioning ends up being
significantly less requesting due to
adaptability and flexibility of the tool. The
course of action of spending designs will be
better and the advantage dissemination can be
evaluated and examined in a way which will
ensure that the organization achieves
adequacy in undertakings (Barr and
McClellan, 2018).
SCORO SCORO gives the administrators of Jupiter
PLC with various spending designs and
instead of using assorted instruments for
administering asset, work and customers it
carries on as a singular response for
budgetary control. It is also gathering
budgeting with CRM and online endeavor the
board which in turns helps in the organization
of the entire business in one single game plan
and access to the complete budgetary
database at one only (Chiwamit, et. al., 2017).
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Task 4 (LO4):
1. Compare how organizations are adapting management accounting systems to respond
to financial problems.
Following five management accounting systems are used by the company to respond to financial
problems which are summarized in the table:
Management accounting systems Use in the Jupiter PLC
Benchmarking It generally equates two things:
 The performance level in
manufacturing products and services
and other activities which are related
to manufacturing.
 The best performance levels in
competing companies having the same
business operations.
The benchmarking is a very important tool for
a manager which helps them to determine
whether the company is performing specific
activities and functions in an effective and
efficient manner. It looks overall performance
level of the company whether it is internal
performance or against external competitors
(Bhimani, et. al., 2018).
Key performance indicators A key performance indicator is a quantifiable
value that shows how efficiently a business
operation is attaining main business purposes.
It may be non- financial or financial. The
financial KPIs examine productivity, return
on capital, efficiency, liquidity, and risk
whereas non- financial KPIs examine
competitive and manufacturing environment,
alteration in structures of cost, etc. It helps the
Jupiter PLC to enhance its productivity and
profitability (Lin, 2017).
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Balance scorecard The balanced scorecard is a management
system and strategic planning which assists
the company to do work according to the
strategy. Balance scorecard helps the Jupiter
PLC to arrange work for everyone according
to the strategy. It is also monitor and measures
progress towards strategic goals and
objectives. The balanced scorecard
contributes to top management a fast but
complete view of a company’s performance
and includes both process and results
measures (Brierley, 2017).
Activity-based costing The activity-based costing is able to enhance
profitability by saving a business time,
resources and money of the company.
Applying the activity-based costing method
needs an investment of resources and time
from the management as well as dedication
and attention from all members of the
company. The Jupiter PLC use this method to
increase the productivity, profitability and
overall performance of their business
operations. The activity-based costing
identifies the correct cost drivers and
overhead cost to streamline the business
processes (Bhimani, et. al.,2018).
Financial governance Financial governance refers to the way a
company manages, control, collects, and
monitors information which is related to the
finance. It also includes how the company
manages performance, monitor financial
transactions and control operations,
compliance and disclosures. Financial
governance is an important part of the overall
corporate governance of the company. Sound
financial governance assists the Jupiter PLC
to create goodwill in the eye of investors and
other stakeholders of the company. It also
helps the company to identify risks and rectify
them in a fast manner (Brierley, 2017).
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2. Analyze how, in responding to financial problems, management accounting can lead
organizations to sustainable success.
The important role of management accounting lead to the sustainable success of a company and
their business operations in the following ways:
 The sustainable success is achieved by the company when the employees and
management do work together to achieve to the strategic goals.
 The appropriate use of management accounting tools and techniques in business
operations helps the company in sustainable development.
 The management accounting reports and systems solve the financial problems of the
company and also enhance the productivity and profitability of the company.
 The management accounting methods such as standard costing, absorption, and marginal
costing, etc. will assists the manager into several different decisions- making process.
 It also helps the company in preparing the future plan which provides an accurate
roadmap to the company's departments.
 With the help of management accounting, the manager can evaluate the actual
performance with the planned performance if there is any variation arises in performance
it is rectified by the manager by applying appropriate methods on it.

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3. Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organizations to sustainable success.
There are so many planning tools and techniques help to the management of the company to
resolve their financial problems in an appropriate manner. The company can use these
aforementioned tools and techniques to minimize the financial problems and compete in the
market in order to become the leader in its segment (Dale and Plunkett, 2017).
Diverse planning tools of management accounting that would assist the management to resolve
its financial issues are:
 Marginal costing techniques could be required by the management to evaluate its
performance.
 Crucial tools offered by accounting is Budgets and budgetary control which have been
discussed in previous questions.
 Business forecasting and project appraisal likewise emerge in handy in the evaluation of
the performance of the company.
 Various other tools like managerial reporting, integrated auditing, revaluation
accounting, management information system (MIS) etc. can also prove to be of great
help.
 By assisting management could assess its performance and develop a strategy to address
its financial problem.
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Conclusion
This report concluded that management accounting is the key to the success of every
organization. The management accounting provides appropriate tools and techniques to the
manager of the company. Proper reporting system assists the manager to prepare the strategies
for all departments of the company. Jupiter PLC can use the effective methods of management
accounting to maximize their profits and compete with the competitors in the market. The
company can use the marginal costing method to increase their profits and reduction in the costs
in an appropriate manner.
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