Management Accounting and Essential Requirements of Various Types of Management Accounting System

This report discusses the essential requirements of various types of management accounting systems, including price optimization, inventory management, cost accounting, and job costing. It also explores the advantages and disadvantages of different planning tools used for budgetary control. The case study focuses on Connect Catering Services, a family-owned catering business planning to expand their operations.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Management accounting and essential requirements of various types of management
accounting system........................................................................................................................3
TASK 2...........................................................................................................................................5
P2. Various methods of management accounting reporting........................................................5
TASK 3............................................................................................................................................6
P3. Calculation of costs................................................................................................................6
TASK 4............................................................................................................................................1
P4 Explanation of advantages and disadvantages for various types of planning tools which is
utilised for budgetary control:......................................................................................................1
TASK 5............................................................................................................................................2
P5 Comparing how businesses are adopting systems of management accounting for
responding to financial problems:................................................................................................2
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting are techniques which supports business plan, control and
examine performances of concern entities. It provides various ways by which managers can
manage finances within an entity in order to enhance their business performance (Anderson,
2017). Its practices are are made by internal controllers and for the internal controllers to achieve
desired goals. In this report we are going to discuss about Connect Catering Services, which is a
run catering service and family owed business. They are from Oxfordshire and planning to
enlarge their business by selling home made pizzas to superstores in this regard they should use
various management accounting systems to do so.
This report covers essential requirements of various types management accounting
systems, various methods that are used in management accounting reporting, advantages and
disadvantages of different tools of planning. Further this includes estimation of cost with the use
of proper techniques of cost analysis in order to prepare income statement by using absorption
and marginal cost. Tools of budgetary control, their advantages and disadvantage are also
discussed in this report.
TASK 1
P1. Management accounting and essential requirements of various types of management
accounting system
Management accounting refers to utilisation of accounting informations in order to solve
organisational problems and to take scientific decisions on their basis. They derive their solutions
from budgeting, variance analysis, BEP, and cost-volume-profit(Christ and Burritt, 2017).
Management accounting systems comprises of all those internal systems that an entity uses to
estimate and evaluate its procedures to manage organisation. Connect Catering Services with
these system can manage their internal affairs without any disruption. For this they should go for
following systems-
Price Optimisation- Organisations get actual cost of each transaction of every goods
they sale with the help of this system (Fleischman and Parker, 2017). They get full knowledge of
market conditions such what customer want?, how much they are ready to pay?, and how will
customers react to any change in price of goods. Connect Catering services can generate full
knowledge about customers purchasing power and their taste which will help them in expansion.

Essential Requirements:
 This system helps companies to find and maintain their loyal customers and motivate
them to attract others to grow market share. Company with help of this system can
determine its potential buyers that will lead to in knowing accurate demand level.
 Entities can change prices of their goods and services according to the current trends of
market and help them to sustain for long period of time. In this connection Connect
Catering services can switch to different rates according to competition and customers
willingness to pay. This will create boom for their pizza's in market.
Inventory Management- In this system managers of enterprises find out the actual
amount of stock that they hold or have any shortfall in it (Georg and Justesen, 2017). This
system provides proper planning for future in order to meet upcoming requirements of
customers. Connect Catering Services can easily figure out its stock level and can keep sufficient
inventory in their warehouses.
Essential Requirements:
 Enterprises can easily keep a track on their goods and services. Connect Catering
Services in this regard can keep an eye on correct amount of stock that they require to
make their pizzas in meeting their demand.
 Stock management is done with the help of technology and software which leads to less
error and save time. Company can create clarity in their working and work accordingly to
maintain stock.
Cost Accounting System- With this system organisations can incur actual cost of
production so that they can earn more profit. This cost generation method can make thinks easy
in order to improve quality and quantityn (Tucker, 2019). Connect Catering Services can easily
figure out the actual cost they have derive in making their pizzas.
Essential Requirements:
 This system provides accuracy in order to generate correct value of product. Connect
Catering Services can get actual cost and make profit margin accordingly.
 It helps in finding competition level in market and strategies to beat competition level in
market. Company can consider competitors cost and than can make their strategies
accordingly in order to generate profit by selling more and more pizzas.

Job Costing- Managers or accountants can easily find cost which they have accrued from
each and every job with this system. Informations provided from these cost help them to do
proper planning and act accordingly (Warren and Farmer, 2020). They get to know which job is
getting them more profit and which job is increasing their expenses. Connect Catering Services
can easily make out which job is costing them more or less in monetary terms.
Essential Requirements:
 Company can easily make out which job is costing them more and provides full strategy
how they can resolve the problem.
 Connect Catering Services can determine contribution of each and every employee in
making pizzas to know individual profitability. This will provide them an idea about their
employees skills.
TASK 2
P2. Various methods of management accounting reporting
Management accounting reporting show the financial status of entities for present and
future period. Information regarding accounting records such as product profitability,
transactions, regional sales and operating cost are provided by these reports(Schmidt and
Günther, 2016). In this context, Connect Catering Services with these reports can see if they are
making profit or not in making pizzas. They should prepare following reports in order to see
their financial position-
Budget reports- These reports helps in making comparisons of actual performance with
the pre budgeted ones. They act as road maps for enterprises to achieve their goals my
monitoring there performance and to control them if there is any deficiency. Budget reports help
companies in coping with difficult situations and provide strategy to deal with such problems
((Russell, Milne and Dey, 2017). Connect Catering Services with these reports can find there
traits and opportunities to make better decisions. Company will be motivated to do its
functioning to its best capacity in order to improve efficiency and to find out its expenditure and
earnings.
Performance reports- Performance reports always provide the outcomes of practices or
work of individuals (Pangaribuan, 2016). They help in making comparisons of actual outcomes
to the standards ones in order to take action against any type of variation between these two. This

variation between standard and planned performance always create a scope of improvement in
entities performances. Connect Catering Services with these reports can make out if they are
working towards the set desires. They can know how many more pizzas are required to be sale
in order to maintain enough supply to superstores. This will motivate them to perform their work
according to their full capacity and keep improving their performance.
Inventory reports- These reports provide summary to all the information relating to
inventory of organisations. Inventory reports keeps stock data such as its quantity, performance
and its status (Jiambalvo, 2019). Correct movement of inventory and accurate stock accounts are
ensured by these reports as computerised data maintain efficiency. They provide details
regarding any deficiency of stock and helps in taking decisions regarding so. In context to
Connect Catering Services these report will provide them full details regarding amount of
material they should stock in order to fulfil level of demand. Usage of software's will save there
time and they can modify there requirements intermediately. With these reports they also make
out how much warehouse area they require to store there merchandise.
TASK 3
P3. Calculation of costs
Organisations always uses different types of costing methods in order to do detailed
assessment of different types of cost . The explanation of the costs which can be used by them is
given as follows-
Marginal costing- Marginal costing can be define as any change (decrease or increase)
in cost of manufacturing one extra units or delivery of goods and services to one more customer
(Kocsis, 2019). Connect Catering Services with this costing can ascertain their real profit and
can effectively control cost as fixed costs are excluded in this costing. This costing will help
company in forecasting each and every element in advance due to flexible budgets. Finding
expenses at every level and any time will help them to control cost in making pizzas.
Absorption costing- It is a managerial method of accounting which acquire all costs
relating to manufacturing a specific product (Kokina, Mancha and Pachamanova, 2017). All
direct and indirect costs like direct rent, materials, rent and insurance, are accounted from this
method and used for external reporting. Connect Catering Services from this costing can assure

carrying out of its overhead in order to separate them. It will provide correct calculation of profit
at the time of festivals or holidays. In this way company can target higher sales and attain
maximum profit level.
Formulation of income statement through absorption and marginal costing of Connect
Catering Services are as follows:

TASK 4
P4 Explanation of advantages and disadvantages for various types of planning tools which is
utilised for budgetary control:
Budget is said to estimate the income and expenditure over a particular period of time to plan
objectives of company (Schmidt and Günther, 2016). It is important to make decisions, planning
and gives them a path to management to guide employees clearly about their budget. Budgetary
control is to manage revenue and expenses of the company, it compares difference between the
budgeted result and actual result of the company. Connect Catering Services use this budget to
control income and expenditure in the business, to coordinate budget with various departments
to accomplish the goals. Mentioned below are certain planning tools that are part of budgetary
control of Connect catering services:
Cash budget: Cash budget is method to evaluate cash receipts and cash expenditure of a
particular period in the company (Kokina, Mancha and Pachamanova, 2017). Connect catering
services use cash budget to estimate whether company has adequate cash position in future.
Advantages: Cash budget helps managers of Connect Catering Services to ascertain
whether company has sufficient cash position to invest in purchasing a raw material and goal of
company to prepare budget is to determine every items to prevent from overspending and to
develop the financial awareness.
Disadvantages: In context to Connect Catering Services, cash budget limits flexibility as
it records only cash related transaction of the company.
Operating budget: Operating budget explains revenue generating activities which
include sale, finished goods and production. Operating budget comprises expenses and revenue
created from routine activities of the organisation (Anderson, 2017). Connect Catering Services
makes this budget in advance to achieve the future goals of the business. This include fixed cost,
variable cost, non-cash expenses and non-operating expenses. In context to company these cost
and expenses calculate the percentage of profit and income of the company.
Advantages: Operating budgeting helps Connect Catering Services to plan its cost and
control company's spending as to reach its long term business responsibility and can make
decisions to invest in business.

Disadvantages: When company not change their figures time to time it leads to
inaccuracy in the information and this cannot meet its financial responsibilities.
Capital budget: Capital budget is useful for long term financial investment in company
(Kokina, Mancha and Pachamanova, 2017). This budget is to estimate funds for capital or
financing in the business and to maximize the worth of the company to the investors. In context,
Connect Catering services can use this budget to estimate long term capital such as plant and
machinery and to compute inflows and outflows to ascertain the returns to reach standard.
Advantages: It helps company to choose which investment alternatives will give
expected return. With the help of this budget Connect Catering Services can make decision
related to long term investment. Company may know whether it would maximize the wealth of
the company or not.
Disadvantages: While evaluating investment strategy this only consider business aspects
and eliminate the non business aspects in business. In context to Connect Catering Services it
requires detailed and long term forecast to execute a project.
TASK 5
P5 Comparing how businesses are adopting systems of management accounting for responding
to financial problems:
Financial problems: It indicates issues that are faced in a business related to finance.
Such financial problems arises due to inadequate management of funds in an organization
(Anderson, 2017). Improper management of financial activities in an enterprise serves as a
reason for arrival of difficult financial traits. Financial problem which are faced by Connect
Catering Services are mentioned below:
 Problems related to cash flow management: Cash flow problems is one of the major as
well as most issue related to finance which are faced by businesses (Russell, Milne and
Dey, 2017). Connect Catering Services is also facing problem regarding management of
cash flow. Impact of improper management of cash in a business is that, company faces
difficulty in maintaining workable cash flow in an organization. Due to it, daily
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operations of Connect Catering Services are hindered which negatively impacts its
efficiency.
 High expenditures: As, it is known that increment in expenses leads to decrement in
profitability of a business. Business expenditures of Connect Catering Services is very
high which negatively influence the earning capacity of an organization.
There are various types of tools or techniques which can be utilised for monitoring
financial activities of an enterprise. These techniques are stated below:
 KPI: Key performance indicator can be described as a set of measurements which are
quantifiable. It is utilised for the purpose of gauging overall and long term performance
of a company. It helps in determining strategic, operational as well as financial
achievements of an enterprise. In case of Connect Catering Services, application of key
performance indicator helps in measuring success of a business in comparison to its
industry peers and achievement of targets that are set. KPIs are of two types, that are,
financial key performance indicator and non-financial key performance indicators. Key
performance indicators vary among companies or industries in dependence of
performance criteria.
 Benchmarking: It can be explained as a practice of comparing processes of a business or
its performance metrics with best practices of another organizations or industry.
Benchmarking is utilised for the purpose of measuring performance of business on the
basis of some specific indicators. Such indicators can be, cost per unit, productivity per
unit etc. Application of technique of budgeting in Connect Catering Services enables
evaluation of various aspects of business operations in relevance to operations of best
practice organizations. It ultimately helps in development of plans or formulation of
effective strategies that leads to elimination or reduction of financial problems that are
faced by company. Apart from it, benchmarking fosters adoption of best practices in
Connect Catering Services that enhances sustainability of an organization.
Financial governance: It indicates way of a company for collecting, managing,
monitoring and controlling its financial information. Financial government involves how an
organization is tracking its transactions related to finance (Tucker, 2019). Other activities which
are incorporated in financial governance are, internal controls, financial policies, internal as well
as external audits, workflow, financial controls, data tracking, data validation and data security.
3

Hence, implication of financial governance in Connect Catering Services ensures monitoring of
activities related to fund transactions, management of business performance, controlling of data,
operations, disclosures as well as compliance.
Following is the comparison of adoption of management accounting system in an enterprise as a
response to problems that are faced in relation to finance:
Connect Catering Services Eden Caterers
Financial problem related to improper
management of cash flow is faced by Connect
Catering Services. Because of it, company
have to face issues related to availability of
workable cash for conducting daily operations
of business. This problem can be solved by
implementing cash accounting system.
Application of this system ensures recording of
payments and receipts related to cash during a
specific period of time. It facilitates effective
monitoring of cash flow in a business.
Eden Caterers faces financial issue of
inadequate management of inventory. Poor
management of inventory causes inefficiency
in an organization as accurate information
related to stock available and required is not
there with managing team of a firm. Hence,
problems related to overstocking or under-
stocking is faced by business. Former leads to
increment in business expenses related to
maintenance of inventory, while later comes up
as a hindrance in business activities which
negatively impact productivity of Eden
Caterers. This problem can be solved by
incorporation of inventory management
system, as it enables tracking of position of
inventory in an enterprise.
Another financial issue which Connect
Catering Services faces is regarding incurring
of high expenditures. If business incurs high
amount of expenses than its profitability is
reduced automatically. For the purpose of
solving problem of high expenses, Connect
Catering Services must implement technique of
benchmarking which facilitates comparison
Eden Caterers also faces issue related to
mispricing. This issue can be solved by
applying price optimisation system. This
system ensures alignment of price of products
or services of Eden Caterers with the demand
of its customers. This enhances profitability of
business in longer run.
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with another entity that is performing well. It
helps in identification and elimination of
unnecessary expenditures. Further,
management accounting system with is
suitable for solving this financial problem is
job costing system. This system of
management accounting fosters monitoring of
cost related to each process of job so that any
loophole or unnecessary costs can be tracked.
CONCLUSION
From the above report it can be concluded that management accounting fosters effective
decision making of managers of a company. Cost accounting system, job costing system, price
optimisation system and inventory management system are four types of management
accounting systems. Further, there are various types of management accounting reports. Further,
different types of planning tools are there for budgetary control. Apart from it, Financial
problems comes up as a major hazard that leads to failure of a business. Apart from it, problems
related to finance arrival of in a firm pertains high amount of negative impact on operations of
business.
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