Unit 5 – Management Accounting

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explaining management accounting and providing some essential requirements of various
types of management accounting systems:..................................................................................1
P2 Explaining different methods used for reporting of management accounting:......................2
M1 Evaluating benefits that management accounting systems persist as well as their
application within business:.........................................................................................................4
D1 Critical evaluation of management accounting systems and reports in integration with an
organization:................................................................................................................................4
TASK 2............................................................................................................................................5
P3 Calculating costs with the utilisation of appropriate techniques of cost analysis and
preparing income statement by using marginal as well as absorption costs:...............................5
M2 Accurate application of management accounting techniques and production of financial
reporting documents:...................................................................................................................8
D2 Producing financial reports which accurately applies and interprets data for activities of
business:.......................................................................................................................................8
TASK 3............................................................................................................................................9
P4 Explaining advantages and disadvantages in relation to different types of planning tools
that is used in budgetary control:.................................................................................................9
M3 Analysing uses of different planning tools along with their application for preparation of
budget:........................................................................................................................................11
TASK 4..........................................................................................................................................11
P5 Comparison of ways in which management accounting systems are adopted as a response
to financial problems:................................................................................................................11
M4 Analysing how management accounting leads to solution of financial problems in an
organization which lead to sustainable success:........................................................................13
D3 Evaluation of planning tools as a response to solution of financial problems for success of
business:.....................................................................................................................................13
CONCLUSION..............................................................................................................................13

REFERENCES:.............................................................................................................................14
.......................................................................................................................................................14

INTRODUCTION
The term Management Accounting is refers about procedure of keeping record that
enhance to internal information which effectively information about company is having strategic
decision through betterment for stabilise organisation which is formulated (Abdusalomova,
2019). Through helps whee the internal stakeholder are enhance their work responsibility to
commence for internal manager, employees, executives are better mapping all facts and figure
towards performance in market. It also helps towards external effective determine through actual
status of the enterprise in effective manner. The major objective of preparing management
accounting that to better maintain overall financial structure towards better consultancy firm in
making established towards United Kingdom.
As per this report, it is taken company such as Capital Joinery Ltd. It is a medium scale
business which is having where they tend to provide better services of financial products as well
as consulting towards furniture made to optimum quality that get to attain more competitive
advantages by following United Kingdom legislation by reducing bills. They ensure as their
every furniture to allow better traditional modern look alike. In this report the topics are covering
about requirement for different types of management accounting system. Different method in
assort in accounting report. Cost using appropriate technique for costing analysis for prepare an
income statement, to elaborate about advantages and disadvantages types of planning tools used
for budgetary control. By adapting management accounting system to better respond to financial
problem.
TASK 1
P1 Explaining management accounting and providing some essential requirements of various
types of management accounting systems:
Management accounting is the procedure of examining and communicating company's
data with managers, so firm can observe the performance from plan of action and enhance it.
Management accounting system enables managers to Capital Joinery to adequately monitor
business operations and improvise decision making by management. Mentioned below different
type of management accounting system along with its essential requirement:
 Inventory management system: This technique helps in tracking position of inventory
in an organization. It keeps record of entire procedure of Capital Joinery from its
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purchase of raw materials, supply chain, production to sales of finished product
(Alsharari and Youssef, 2017).
Essential requirement: This system simplifies management of inventory in business and
reduces risk of over stocking or under stocking. Reason is that over stocking can cause increment
in cost of maintenance while under stocking hampers daily operations of an organization.
 Cost accounting system: It is a platform where management of company records costs
incurred in an enterprise. In other words, this system records expenses that comprised in
various activities of business.
Essential requirement: Cost accounting system is an effective framework as it provides
platform to management of Capital Joinery for adequately monitor expenditure that incurs in
business. It helps in identification of unnecessary costs, by eliminating which company can
improve its profitability.
 Job costing system: It enables company to accumulate information regarding costs that
is associated with each job or process of an organization. Therefore, expense of Capital
Joinery in relation to specific job can be determined with job costing system.
Essential requirement: Job costing system monitors expenditure associated with each process
of manufacturing activities of Capital Joinery. It provides flexibility to management of company
to identify productivity of process of an entity so that firm can imply cost control activities in
accordance to information gained. It improves efficiency of Capital Joinery.
 Price optimisation system: This system keep tracks of variations in demand in
accordance to changing levels of product prices (Alborov and et. al , 2017). It provides
platform for efficient analysis of results consisted with changing prices.
Essential requirement: Price optimisation system helps Capital Joinery to align prices of its
product with expectations of customers. This leads to increment in satisfaction level of customer
and helps company in attracting large number of customers.
P2 Explaining different methods used for reporting of management accounting:
Management Accounting Reporting is defined as the formulation of reports in context
of managers or chief executive officer associated with the various business operations related
with the total quality management, logistics, human resources. Information technology, research
and development, marketing and many more operations as per the company requirements (Ax
and Greve, 2017). Reports on all such operations helps the managers and CEO of an organization
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in functions of the management like planning, organizing, staffing, directing and controlling.
They used to analyse and interpret such reports in order to forecast and predict the
implementation of new ideas within the budget and report structure. Observation these
management accounting reports helps the firm in gaining the desired sales and objectives goals
for an organization.
Methods
 Budget reports enables budgetary control of each and every operation or department of
the firm. It basically consist that how much budget is set for the research and
development department or marketing department (Cooper, Ezzamel and Qu, 2017).
Within the funds set to spend, at that limit only, team member of each department can
spend their money accordingly.
 Account Receivable Ageing Reports is a type of report where all the receiving money is
calculated and stated by the finance department. It mentions all the invoices by the
customers, suppliers, internal and external stakeholders of an organization. It is important
measure such report because it helps in analysing the future budget or funding in an
organization.
 Cost Managerial Accounting Reports ensures that costs and expenses are recorded and
calculated by the finance team of an organization (Drury, 2018). It mentions all the cost
which are occurred in raw materials, production purposes, marketing expenses, employee
expenses, electricity and many more cost which overall business has to bear is stated in
this type of report.
 Performance Reports is a type of report where all the performances are measures in
terms of monetary basis. It mentions the comparison between the planned budget and
outcome of investing of such funds from the business. It helps the company in comparing
the cost which was estimated and which was actually being spend.
 Job Cost Reports provides platform for evaluation of ongoing cost are measure and
stated in this type of report (Hiebl and Richter, 2018). It mentions the everyday expenses
which are being bear by the company which are occurred in a regular business operations
in an organization. This helps the firm in getting the day to day report of the expenses in
a company.
Benefits:
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 Improvement in profits: Using such reports in a company help the firm in improving
the profits and revenues. Because these reports assist the company in observing and
analysing the reports which gives them the direction that where they can cut the expenses
and where they can increase the prices for the products and services of an organization.
 Future planning: Management accounting reports supports the firm in forecasting and
prediction in upcoming cost and expenses so it basically it also helps in future planning in
terms of investments and funding regarding the salary of employees and many more as
per the business needs and requirements.
 Regulation to activities: By analysing the cost of the company, it becomes more easy for
the organization to regulate their activities accordingly in terms of each and every
function or department of the firm (Langfield-Smith, Thorne and Hilton, 2018). If
company already knows that how much they have to spend in every operations of the
company then the regulation of the activities can be automatically performed.
M1 Evaluating benefits that management accounting systems persist as well as their application
within business:
Management accounting system tracks financial information of an organization which
enhances its strategic formulation and improves productivity.
 Inventory management system helps in reducing risk of high cost or hindrance in
business activity due to mismanagement of inventory.
 Cost accounting system records expenses of Capital Joinery which helps in
implementation of cost control activities.
 Job costing system keeps track of expenditures incurred in each jobs of company.
 Price optimisation system provides platform for setting optimum price of products.
D1 Critical evaluation of management accounting systems and reports in integration with an
organization:
Management accounting systems and report improves monitoring or management
activities of Capital Joinery. Cost accounting and job costing system helps in cost reduction
whereas price optimisation leads to high profit generation with effective price setting. Inventory
management system improves efficiency of company. Budgetary reports estimates revenues and
expenditure of an organization.
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TASK 2
P3 Calculating costs with the utilisation of appropriate techniques of cost analysis and preparing
income statement by using marginal as well as absorption costs:
It is defined as the expenses occurred in the operations of the company. These expenses
includes the basic like electricity, water, facilities and many expenses, Heavy expenses includes
the raw materials cost, expenses in marketing, HR, IT, R&D and many more departments.
Expenses on assets like machinery, building and other assets of the firm.
Types of cost: Fixed cost: It evaluates costs incurred either every day, week, month or year. Like salary
of the employees, machinery depreciation cost, building cost, rent cost and many more
cost which are to be fixed by the firm and which cannot be changed in any way. That is
why it is known as the fixed cost. Variable cost: It is type of cost which are incurred on variable basis like sudden cost.
Like electricity bill, damage of machinery cost, raw materials cost, technology cost and
many more cost which changes from time to time and can occur on a sudden basis. That
is why it is known as the variable cost. Sunk cost: This cost incurs if any recovery of loan or non repayment is not dome by the
external or internal stakeholders (Lindholm Laine and Suomala, 2017). It is the cost
which are non recoverable and cannot be recovered at any cost by the company. That is
why it is known as the sunk cost. Explicit cost: It is a type of cost which are incurred externally from the company. Like
wages, rents, raw materials and many more. These are those cost which are directly bear
by the company and either fixed or variable cost in terms of monetary amount. It is also
known as the external cost which are generally shown in the books of accounts. That is
why it is known as the explicit cost.
 Implicit cost: It is a type of cost which are incurred as an opportunity cost which are not
actually paid by the firm directly. It uses the resources directly of the company which are
already owned by an organization. It is also known as the internal cost which are
generally not shown in the books of accounts. That is why it is known as the implicit
cost.
Cost analysis
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It is defined as the analysis which are done on the cost of an organization. Each and every
type of cost requires the analysis for the better functioning of the company and so that the
company can improve it's operations in every department of the firm and can meet their goals
and objectives of the company. Analysis includes the forecasting, interpreting and observing the
various cost which are to be bear by the company.
Types of cost analysis: Life cycle cost analysis: It is the type of analysis which is done according to the life cycle
of the company. For example, life cycle from purchasing of raw materials to the selling
of the products and services with the maximum return in terms if profits and revenues.
 Cost benefit analysis: It is the type of analysis which is done for the extra benefit of the
company that means more than the assumptions or expected return by the firm (Malina
ed., 2017). This analysis finds out the best approach to generate more benefit to the firm.
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Marginal Costing: This costing costing methods computes per unit cost of company.
7

Absorption Costing: It considers variable as well as fixed cost of an organization.
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9

M2 Accurate application of management accounting techniques and production of financial
reporting documents:
Management accounting techniques is an effective approach which enables Capital
Joinery to adequately prepare financial reports. Reason is that due to application of this
technique financial information can be tracked or recorded in efficient manner which enhances
effectiveness of financial reports.
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D2 Producing financial reports which accurately applies and interprets data for activities of
business:
From the above financial reports it can be interpreted that profit of Capital Joinery under
absorption costing for May is 6500 while for June is 4000. while considering under marginal
costing its profitability for May is 14500 and for June is 10400. hence, company is required to
focus more on increasing profit by reducing cost as fixed expenditures of business is high and it
as profit earning reduced over time.
TASK 3
P4 Explaining advantages and disadvantages in relation to different types of planning tools that
is used in budgetary control:
Budget can be defined as depicts about to enhancing forecasting towards approaching
tools that is determine for enhance estimating towards future incomes and having expenses that
for highlight for specific time period (Pelz, 2019). The concept of Equilibrium Asset
Management that formulates that different budget that approach by client Capital Joinery Ltd on
the basis of requirement. There are important used in Budgetary control practises through which
company design long term objectives in order to enhance performance. The major objective by
differentiate within actual and existing for better forecast towards accomplish objectives.
Budget Preparation: As per this design to formulate different steps which is major
follows through manager. At the first situation, in organisation a manager major role to better
identifies about required future. Furthermore, there are different plans which is needed to be
formulated for creating better budget that is essential for upcoming period. As per current
scenario of manger perspective for their approval. In the last, as per final approved one single
budget to effective implement towards better work for organisation. In order to formulate a
proper towards monetary plans, as per this procedure towards follow on the basis of predict high
succession planning from Capital Joinery Ltd.
Different types of Budget:
Capital Budget: It is budget which is assort to keep formulate information related with
capital base budget through different types of activities in which it creates large capital
investment that is involved. Equilibrium Assets Management also design about towards better
master budget for better formulate result towards maintaining financial plan that specific time
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period of better future (Phan, Baird and Su, 2017). In perspective of Capital Joinery Ltd, their
financial team tries to invests more capitalism towards investment to gain high potential growth.
Through better construction about project towards require capital creates more budgeting in
proper way to better accomplish.
Advantages Disadvantages
Capital Budgeting helps to keeping
record of all project where wide range of
people monetary resources are invested in
optimum manner.
As per capital budget there is lack of
specifically where it because it mainly
consist to better collective by
formulating information of all
department.
On basis of Capital Joinery Ltd within
view towards business towards
stakeholder in which they majorly
determine financial of organisation.
Through better budget formation which
is difficult to observe due to high level of
collective information.
Operation Budget: It is budget which is generate towards making estimation of overall
project that tends to incomes and expense that are based on increase or promoting or forecasting
sales which is totally depends upon on revenue of particular company (Rikhardsson and
Yigitbasioglu, 2018). To optimise and effectively generate through Equilibrium Assets
Management for Capital Joinery Ltd which is order to helps to scrutinize better level of
executives or other base superiors which is utilised towards about enterprise. Some of advantages
and disadvantage are as follows:
Advantages Disadvantage
To provide guidance particular business
base owner that is ensure about to
utilised through appropriate or not.
This is overstate revenue and other
figures in statement of organisation
which allows more complexity.
Through support within the evaluation
where current and past through can be
conducted.
To making manipulate towards figure
that enhance to be accomplish target
on the basis of better operating
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manner.
Alternative method of Budgeting : In following various alternative methods that enhance are as
follows:
Zero based Budgeting: this type of budgeting states from a zero base. It is type of
budgeting planning where the expenses that are expensive which are justified of each new
period. It is generated by Equilibrium Assets Management towards Capital Joinery Ltd that helps
to reduce for cost of operation that justifying all costs recorded in financial books. For each
accounting year a new budget is effective that enhance towards Zero base through accuracy in
productive way. According to this type of budgeting towards better short term planning but it
implies by manager where it shows decision making in business.
Cash or Traditional budgeting: It is type of process that shows inflows and outflows
about cash receipts and payment practises through over period of time. It is expected to occurs
monthly and quarterly base in which overall task is accomplish in target in better overall
objectivity. As per Capital Joinery Ltd where their financial expert keeping the records of
tracking organisation in effective manner by approaching valuable resources. This helps to
provide overall information related with allows profit and loss statement through financial
statement. Through approaching limits where the ability organisation deals for credit transition.
M3 Analysing uses of different planning tools along with their application for preparation of
budget:
Planning tools helps business in effective implementation of budgetary control measures
in company. This leads to improvement in efficiency of of Capital Joinery as revenues and
expenditures is estimated and control over unwanted cost is applied. Capital and operation
budgets are two techniques applied by of Capital Joinery for this purpose.
TASK 4
P5 Comparison of ways in which management accounting systems are adopted as a response to
financial problems:
Financial problem can be defined as per the situation when an organisation faces issue
due to enhance better lacking monetary resources. This is one of major important for overall
business entities that identify which major causes of all such problem that effective strategies to
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better overcame. By having Capital Joinery Ltd where they face various traits of challenges
which needed to overcame from it effectively. Here, some of the issues are presently in highlight
below:
 Sudden expenses: This financial problem is undertakes place in Capital Joinery Ltd is
having occurs when organisation fails to approach planing about financial way that takes
place to evaluate problem which is essential to optimise lack of problem that need to
deals by Capital Joinery Ltd manager (Samuel, 2018). It enhance better issue of lack for
day to day activities business operation.
 Late payment by customers : The Capital Joinery Ltd when they provide particular
sample product to their client due to some financial issue or intentionally enhance to
payment in late process creates high problem to survive through organisation satisfaction.
For the purpose of monitoring performance of company some techniques can be applied
which are further discussed below:
 KPI(Key Performance Indicators): These are mainly used for the purpose of measuring
performance of company. There are two main type of KPI which is one of financial that
is assort to seeking through essential expenses through organisation. Second factor is non
financial which is to analyse problem that tends to organisation that enhance to Capital
Joinery Ltd for identified for further expenditure.
 Benchmarking: This is factor which is tools which mainly utilise business entities to
compare their performance with high competitors. This tools is formally comes under
Equilibrium Management that in order to making investigate through approaching late
payments by clients and within compare its credit base policies with competitors and
making changes in them.
Financial Governance: it is comprises by setting of different financial principles which
is required to be followed through companies where in perspective deals with different money
problem. In perspective of Capital Joinery Ltd that enhance to create an issue through resolve
all daily payments as well as within better appropriate sources. It is also used for purpose for
monitoring strategy of organisation through measure financial to be track in effective manner.
Capital Joinery Katie Walker Furniture
Sudden expenses refers to unidentified
expenses of business. Job costing system helps
Financial problem related to ineffective
management of inventor is faced by company
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manager of Capital Joinery to evaluate
performance of each business activity and
identify expenses which may arise.
which can be resolved with utilization of
inventory management system, as it tracks
position of stock in business.
Problem of late payment by customers can be
identified with the use of cost accounting
system as it tracks the flow of cash in Capital
Joinery which warns management to receive
payments.
Issue of high price is faced by Katie Walker
Furniture which can be resolved with
application of price optimisation system.
Because this system helps is setting optimum
price.
M4 Analysing how management accounting leads to solution of financial problems in an
organization which lead to sustainable success:
Management accounting serves as an effective tool for elimination of financial problems
in an organization. It enhances decision making of management by recording and analysing
financial information of Capital Joinery. Hence, through this framework financial issues can be
identified and solved by an enterprise.
D3 Evaluation of planning tools as a response to solution of financial problems for success of
business:
Planning tools is adequate approach that enables of Capital Joinery to eliminate its
problem. For example, issue of unidentified capital can be addressed by preparing operation
budget as it tracks cost of each business operations. Along with it, cash flow can be maintained
through it by reducing late payments by debtors. Further, capital budgets reduces high risk of
investment in fixed capital.
CONCLUSION
This report concludes that management in accounting is an essential part in every
organization as it gives the calculative and analytical skills to the human mind which sharps the
thinking ability of a person. Company benefits in financial management because as it helps the
firm in balancing the cash flow, budgeting, cost management and many more accounting and
financial basics which are highly required by the firm to invest their funds either in other
businesses or in research and development part of the company. Forecasting and interpretation
are main motive of financial management because it helps to analyse the upcoming control in
budget and funds of an organization. This report covers the concept of management accounting,
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various methods that can be used in management accounting, cost accounting, merits and
demerits of planning regarding budgetary control process and comparison between the
organization in terms of response to financial problems. Analysis of management in accounting
brings the firm to achieve their goals and objectives associated with their financial management
of the company.
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REFERENCES:
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Abdusalomova, N. B., 2019. DIRECTIONS FOR DEVELOPMENT AND IMPROVEMENT
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implementation of GFMIS: a Jordanian case study. Asian Review of Accounting.
Alsharari, N. M., 2019. Management accounting and organizational change: alternative
perspectives. International Journal of Organizational Analysis.
Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational
culture compatibility and perceived outcomes. Management Accounting Research. 34.
pp. 59-74.
Cooper, D. J., Ezzamel, M. and Qu, S. Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research. 34(2). pp.991-
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Drury, C., 2018. Cost and management accounting. Cengage Learning.
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Lindholm, A., Laine, T. J. and Suomala, P., 2017. The potential of management accounting and
control in global operations. Journal of Service Theory and Practice.
Malina, M. A. ed., 2017. Advances in management accounting. Emerald Group Publishing.
Pelz, M., 2019. Can management accounting Be helpful for young and small companies?
Systematic review of a paradox. International Journal of Management Reviews. 21(2).
pp. 256-274.
Phan, T. N., Baird, K. and Su, S., 2017. The use and effectiveness of environmental management
accounting. Australasian Journal of Environmental Management. 24(4). pp.355-374.
Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
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Samuel, S., 2018. A conceptual framework for teaching management accounting. Journal of
Accounting Education. 44. pp .25-34.
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