Unit 5 – Management Accounting

Management
Accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explanation of different types of systems of management accounting along with their
essential requirements..................................................................................................................1
P2 Explanation of various methods that are used for reporting of management accounting......3
TASK 2............................................................................................................................................4
P3 Calculation of costs using cost analysis techniques and formulating of income statement
under absorption and marginal costing........................................................................................4
TASK 3..........................................................................................................................................10
P4 Explanation of budgetary control along with description of planning tools and advantages
and disadvantages of all of them...............................................................................................10
TASK 4..........................................................................................................................................13
P5 Comparison of organisations on the basis of use of management accounting to respond
financial issues...........................................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is a wider concept which is required to be understood by all the
managers so that they can improve performance of company in which they are working. It is a
technique which helps internal stakeholders to determine that the entity is performing
appropriately or not. All the information regarding business execution is recorded with the help
of it. In order to reach all the predetermined goals and objectives it is essential for all the
enterprises to make sure that they are paying attention towards it (Christ and Burritt, 2017).
Maim aim of this report is to understand concept of management accounting and its use within
the organization to carry out operations systematically. This project is based upon Cream
Limited which is one of the medium sized companies of United Kingdom. The entity is selling
different types of food items in the market. Some of them are waffles, ice creams and doughnuts.
This assignment covers various topics such as understanding of management accounting, its
systems and reports, application of various cost analysis techniques to formulate income
statement of the organization. Apart from this, various types of planning tools that are used in
budgetary control and comparison of organizations on the basis of use of management
accounting are also covered in this report.
TASK 1
P1 Explanation of different types of systems of management accounting along with their
essential requirements
In all the organisations a specific technique is used by the managers for the purpose of
analysing that the efforts that are made by them to enhance performance of business are resulting
positively or negatively. It is known as management accounting which helps all the internal
stakeholders to analyse performance of the company (Cooper, Ezzamel and Qu, 2017). In Cream
Limited management accounting is used to assist the board of directors to analyse actual progress
of the entity. With the help of it, employees also determine that the organisation in which they
are working will provide them growth in future or not. While planning to achieve all the long-
term business goals it is very important for the managers to make sure that they are using it as it
will guide them to monitor and control the performance of business.
Most of the business entities are using different types of management accounting systems
to make sure that the planned activities are performed in systematic manner or not. In order to
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conduct all the operations properly it is essential for managers to use different types of systems.
Management in Cream Limited are paying attention towards various types of them such as cost
accounting, price optimisation, inventory management and job order costing (Granlund and
Lukka, 2017). With the help of all of them internal records are generated by managers to analyse
actual performance of organisations. All of them are described below in detail in context of
Cream Limited:
Inventory management system: In most of the companies it is used by managers to
keep detailed information of all the items that are used by them to produce products which are
sold to clients. In Creams Limited it is implemented to make sure that all the items that are
required by customers are made according to their choices by keeping all the ingredients. It helps
managers to make sure that they are having all the goods to make ice creams, waffles, doughnuts
etc. according to requirement of consumers. There are various types of inventory management
systems which could be used by the organisation to manage goods. Description of all of them is
as follows:
 AVCO (Average Cost Method): In this method of inventory management all the goods
are used or production by taking average cost as a basis (Hall, 2016).
 FIFO (First in First Out): While using FIFO all the entities use previously undertaken
stocks for performing operational activities.
 LIFO (Last in First Out): Under this method of inventory management system newly
bought items are used for manufacturing products.
From all the above described methods of inventory management systems FIFO is used in
Creams Limited so that the managers can utilise all the ingredients properly before they
become expired.
Essential requirements: It is very important for the organisation because it helps to perform
all the operations properly by managing the goods in systematic manner. It also helps to make
sure that all the ingredients are kept by the entity to meet requirements of customers (Hopper and
Bui, 2016).
Job order costing system: It is one of the main systems which is used in all the
companies that are performing different types of activities. Main purpose of it is to record
information of all the operations separately. In Creams Limited it is used to record requirements
of all the customers distinctly so that all their demand could be made. With the help of it,
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