Management Accounting and Systems

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Part 1................................................................................................................................................3
P1 Role of management accounting and systems........................................................................3
P2 Methods of management accounting and integration of management accounting within
organisation..................................................................................................................................7
P3 Use of techniques and methods of management accounting..................................................8
CONCLUSION................................................................................................................................9
PART -2.........................................................................................................................................10
Introduction....................................................................................................................................10
MAIN BODY................................................................................................................................11
Comparison and contrast between various planning tools of management accounting............11
Effectiveness of management accounting in dealing with financial problems..........................14
CONCLUSION..............................................................................................................................16
RECOMMENDATIONS...............................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
The study is based on management accounting. Management accounting is report of accounts
used by managers to identify, measure, interpret and make decisions regarding short term and
long-term obligations for the company. The company taken for the case study is Capital Joinery,
a UK based firm in widget manufacturing and furniture business. The report highlights the
principles of management accounting and the role of management accounting and the systems.
Use of technique and methods like variable costing have been shown. The report highlights on
how management accounting is integrated within the organisation. The benefits of the
management accounting function have been discussed. Management accounting has been
critically reflected in the report.
Comparison of companies using management accounting has been done along with comparison
on different planning tools of management accounting.
Part 1
P1 Role of management accounting and systems
Management accounting role
a) Forecasting: It entails making decisions such as which equipment to purchase, which markets
to diversify, and which regions to join. It employs its tools to predict how the investment would
yield positive results for the business.
b) Estimation of cash flows: Management accounting aids in the creation of budgets and, as a
result, the estimation of cash flows that will be expected in investment projects. The time value
of money is often taken into account by techniques such as NPV. Making a budget in this
manner aids in financial planning.
c) Variances in Performance: The projected performance of a department, a project, or the
effectiveness of a piece of equipment is taken into account and compared to actual performance.
This aids in determining when the parameters were out of sync or when they were right.
Systems of accounting for managerial purposes
Costing and valuing products

Direct and indirect costs, variable and fixed costs, and other overhead expenses are measured and
divided by the total number of goods generated. This aids in determining the cost per unit of
product produced for the business and in determining the product's price. Calculating profit
margin and then selling the commodity for sale is how this is achieved. As a result, it aids in
benefit realisation. Capital Joinery will be assisted in determining their manufacturing costs, as
well as where to cut costs and how to market their goods to maximise profits.
Analysis of cash flow
Managers calculate the money flow coming in as funds and sales and payments as cash outflow
by looking at the cash inflow and outflow of a business decision. It aids in determining whether
an expenditure has generated cash flows that meet the appropriate requirements. Managers aim
to manipulate cash flow in such a way that the company has enough money to pay off its current
liabilities (Novas, Alves and Sousa, 2017) . If Capital Joinery is considering manufacturing a
new product, cash flow forecasts would help them determine how much they need to spend and
how much money they will make right now from this company.
Analysis of Inventory Turnover
Apart from how quickly inventory is sold, managers measure inventory storage costs. This aids
in the decision-making process when it comes to the number of units to be manufactured or the
amount of inventory to be purchased. If there are excess costs in storage, the business must find a
way to deal with them and minimise them so that cash can be used for operating purposes.
Economic order quantity is defined as the amount of inventory that must be brought in to
minimise excess costs. With the aid of Economic Order quantity, Capital Joinery would be able
to order on demand, reducing inventory storage costs. The cash surplus can then be put into
research and development.
Capital Budgeting
New designs and equipment purchases are subjected to investment review in order to determine
the project's rate of return. It considers the time value of capital and the rate of return on the
project, which aids in determining how much of the present value can be held by potential cash
flows. If Capital Joinery is considering opening a new plant in a particular area, they will be able

to determine the rate of return and time value of potential cash flows, allowing them to decide
whether or not to proceed with the project (Pasch, 2019).
Financial Leverage
It implies that the company borrows money to buy new assets or expand its operations. Ratios
can be used to decide if a company is taking on the appropriate amount of debt or whether it is
taking on too much debt, which can impede the company's liquidity. Management accountants
recommend a combination of equity and debt. Capital Joinery will be able to maintain a healthy
balance between equity and debt because it will be mindful of the negative consequences of
excessive debt and will thus consider ways to create more equity.
Analysing the Trends
The company must keep an eye out for historical parameters related to consumer demographic
patterns. Accounting figures assist managers in determining where money should be spent and
which consumer segments should be targeted. These figures can assist Capital Joinery in
determining who is more likely to purchase its goods and what the consumer dynamics are
among customers; sales volume can also be measured to determine how each product is doing in
its own category (Pasch, 2019).
Marginal Analysis
When an organisation reaches break even, the managers must determine the cost of
manufacturing an additional unit, which is known as incremental cost. Now the company will
calculate the production cost for a batch of production and label it according to consumer trends
in order to sell the batch lot and benefit. This method of management accounting aids the
corporation in gaining income. Capital Joinery will determine the break-even point, which is the
point in which the business has covered its overall costs on a project or on itself, and then move
on to marginal costing, which involves estimating the incremental cost per good and pricing the
batch at a profit margin with market survey and gain profits.

Principles of management accounting
• Planning and compiling: Accounting data, records, reports, and the most relevant financial
statements from the past, current, and future must all be tailored to the company. It means that
the Management Accounting system must be structured in such a way that it reflects accurate
and appropriate data about the company Capital Joinery and that it must adhere to all of the
company's rules and regulations.
• Inflation accounting: In order to assess the true performance of a corporation, the company's
management must factor in the rate of inflation when making decisions. It is because the value of
money does not remain constant over time and fluctuates. That is why it is important to gain
access to capital's value in order to turn it to real value. The corporation would need to use the
revaluation accounting technique for this (Zahid and Vagif, 2020).
• Integration: This refers to the ability of organisation administrators to make reasonable and
relevant decisions at the same time when a problem occurs by using and incorporating
management accounting tools and techniques. Accounting services are offered at a low cost, so
businesses can easily incorporate them into their operations. Capital Joinery has benefited from
integration of management accounting.
• Controllable and uncontrollable costs: A business's costs can be divided into two categories:
controllable and uncontrollable. Since there is no technique available to businesses for managing
the uncontrollable expense, the organisation should monitor this controllable cost by using the
management accounting technique. Capital Joinery has used this to manage the costs.
• Appropriate means: It is specified that the organisation should use the most appropriate
method for accumulating, recording, and presenting financial information such as ratio analysis,
cash flow statement, break-even analysis, budgets, and so on. SME businesses, such as Capital
Joinery, would use advanced technologies and appropriate software to accomplish this.
Benefits of Management accounting functions to company
• Improves company efficiency: By analysing and comparing results, Capital Joinery can
improve the efficiency of its performance. In essence, Management Accounting indirectly aids in
inspiring company workers and assisting them in meeting their daily goals in a timely manner.