Management Accounting and Reporting Methods

This document provides an overview of management accounting and its essential requirements. It discusses different methods used for management accounting reporting and explains the cost analysis techniques for preparing an income statement using marginal and absorption costing.

Management Accounting

Table of Contents
INTRODUCTION
TASK 1
P1 Management accounting and essential requirements of its systems.......................... 1
P2 Different methods used for management accounting reporting................................ 4
M1 Importance of MAS ..................................................................................................4
D1 Integration between MAS and MA reports...............................................................4
TASK 2
P3 Calculation of cost using different costing techniques............................................. 5
M2 Techniques to prepare income statements................................................................6
D2 Interpretation of produced income statement..........................................................7
TASK 3
P4 Advantages and disadvantages of different planning tool used for budgetary control.. 10
TASK 4........................................................................................................................ 13
P5 Comparison of the way in which organisations are adapting management accounting
Systems........................................................................................................................ 15
M4 MA to respond financial problems.........................................................................16
D3 Role of planning tools to solve financial issues......................................................17
CONCLUSION
REFERENCES

INTRODUCTION
Management Accounting is known as the process in which various type of activities are tends to
be perform like analysing, observing, identifying, measuring, analysing, interpretating and
communicating .It involves all the important financial information and on the basis of that only
important steps of decision makings is tends to be perform. As various types types of related
tools are used in the company to reflect the acytual financial position of the business. These
important financial information supports the outsiders such as Banks, merchant bankers,
debenture trustee, financial institutions, Qualified institution buyers and underwriters to take
investment decision, only if the project is shown profitable than only these people ready to
deploy their funds. Financial institutions and banks give guarantee only if company is sound And
if the project has maximum chance to success than only underwriters ready to take underwriting
on behalf of the company as all these became possible due to proper Management Accounting. In
this assignment the company which is selected is Marks and Spencer. It is a famous supermarket
dealing in retail sector. The organisation was established in 1884 in the location of United
Kingdom. Steve Rove has full controlling power, it act as chief executive officer of the company.
In London it has their headquarter. In the project various topics are discuss such as management
accounting meaning along with essential requirement of various different types of MA system,
methods used for management accounting reporting, through adopting suitable technique cost
analysis are tends to be done for the purpose to prepare income statement with support of
marginal costing as well as absorption costing. Discuss merits 7 demerits of planning tools
implemented for budgetary control. In last how company follow M A system in context to
respond existing financial issues are also discuss under the assignment (Asmuni, 2020)
PART 1
TASK 1
P.1 Explain the concept of management accounting and provide essential requirement of various
types of management accounting system?

Management Accounting: MA is a broader term that all executives ought to recognize to
improve the organization in which they operate. It is a strategy that allows internal stakeholders
to assess whether or not the entity operates correctly. By help of this, all information on business
performance is captured. It is important for all organizations to make sure they pay importance to
it to meet all defined targets and objectives.
It is an activity providing financial information to top authorities in terms to do effective
decisions making that supports to fulfil the goals and targets. In the organisation finance
department of it shares different type of financial reports to the managers or executives of
different team for example, , bank statements, invoice, balance sheet, vouchers, profit and loss
statement, cash flow statement, etc, so that they can easily analyse actual financial status of
company it tends to reflect true and fair financial position and can tends to be plan for future
investments. The another name of Management accounting is called as cost accounting system,
but it tends to be differ in context to financial accounting (Bagherzadegan, 2019)
Management Accounting system: Management Accounting system is known as the financial
data which involves facts and figures which support stakeholders and financial institutions
because it reflects actual financial position of the business. With support to these system
company can easily find out their basic working capital requirement and according to needs
arrangement of funds can be done.
Types of M.A.system
To operate business in successful manner, various management accounting system which are
beneficial are adopted. Few of these are discuss as follows:
Cost accounting system: Generally it is implemented in the concern which manufactured the
product. In this types of system costing can be ascertained. Company Marks And Spencer
separate the overall cost on the basis indirect and direct cost. On the basis of following element
such as fixed, variable. Semi variable cost are tends to divided by using it and also unnecessary
expenses are tends to remove which make the product less expensive. Which results high level of
sales and revenues (Giacomini, 2020)

Inventory management system:
By adopting this system company can easily track their inventory and according to that orders
are given which helps to eliminate unnecessary carrying and ordering cost and helps to
maintaining economic order quantity which diminish the chances of under stocking and
overstocking. It tends to reflect actual status of the available stock. Marks and Spencer deals in
various products in large level so it is important to maintain inventory so that goods are make
available to customers wherever they demanded. For proper management following system are
implemented by the company.
Job order costing system: In this system orders arte given by customers so each items has
different features because it is manufactured according to the specicification of customers. It is
used in manufacturing industry as it may be in the form of single order or contract. Job order
costing is observe mostly in those organisation which is related to furniture, foundries, printing,
engineering workshops etc.
Prise optimisation system:
In this product costing are set in such a manner so that it tends to get maximise profit. To fix
product prices Marks and Spencer follow this so that to gain optimum satisfaction (Hoang, 2019)
management accounting reporting of various types such as -
Performance report: The main purpose to prepare such reports is that to understand or analyse
the actual status of the company in terms to performance. If the organisation Marks and Spencer
thought to give bonus to their staff members than first they analyse the business performance
because according to that only the rate of bonus is tends to be fixed. To pay dividend also it is
maintained and analyse. If organisation perform well they provide benefits to their employees on
the other hand if entity performance is not good than important strategies are adopted to increase
their level of sales and revenue for the purpose to improve performance (Khromova, 2020)

Budget report: It consider as internal report which helps to prepare budget to various Functional
areas . Marks and spencers managers through preparing budget compare the performance with
the estimated one. As these reports support , organisation to analyse whether the project , is
capable to satisfy the projections which previously set in advance. M&S prepare various budget
such as cash budget, master budget, zero base budget so that it can operate their business
smoothly.
Account receivable report: debtors details are maintained under such reports. These are prepare
to analyse credit sale which is done during the particular time period. In this name of party who
purchase goods on credit, quantity of product, date of purchase, repayment date are mentioned.
On regular basis it is prepare. It leads to analyse organisation credit worthiness. It help entity to
determine total unpaid amount which is not paid on their by customers at the time they
purchase the product.
To avoid delayed payment ,managers/ executives are tends to be tighten their credit
policies.
P.2. Briefly describe different method used for management accounting reporting?
Different methods of management accounting reporting are described below in detail:
Budget report: It is called as internal report prepared by a company with the objective to
allocate resources to different operational and functional unit that are available in the
organisation. For the purpose to compare actual with standard one budget reports are tends to be
prepare and it also beneficial in terms to measuring performance of the company. Because it aids
in the execution of all business activities within the allotted budget, it is regarded as very
important for the organisation. M&S follow it to analyse whether the organisation are capable to
satisfy set projections which they set in advance.

Performance report: It is prepared with the intention of keeping a record of the organization's
overall operations performance. It is most commonly used to give bonuses to company
employees. Only employee incentives are fixed or set with the help of these reports. Workers'
remuneration is determined based on their efforts to complete tasks assigned to them. This report
is very important to business entity because it helps in generating those strategies which is most
effective to improve performance and achieving competitive advantage (ebedev, 2019)
Account receivable report: It is designed to keep detailed records of debtors who
purchase a product on credit. In this information, the collection period, as well as the amounts
and dates, are typically recorded. This aids in determining a company's creditworthiness.
It is frequently prepared by organisations that provide credit to their end users and clients.
It is extremely beneficial to the organisation because it assists the business entity in determining
the actual unpaid amount by customers. The enterprise can tighten its credit policies solely on the
basis of these reports, so that late payment situations from customers can be ignored.
M1 Importance of MAS.
System Name Benefits
Cost accounting system: It is a cost accumulation system that assigns costs to cost
objectives as well as reports information related to cost. It tends to determines profitability of the
item and aids management in business planning. Costing is implemented in every manufacturing
industry, or in as public utility, public service, construction companies, agriculture, mining, and
so on. It is very important because it is used in determining selling prices, facilitating decisions
on product mix and method, and analysing profitability as well cost control technique. All the
company creates a costing system based on the nature of its business operation, and the goods or
product they manufactured.
Job costing system Job costing is tends to be known as costing method where cost unit
are leads to be identified separately and accordingly costed. In this method all the ascertained
cost are tends to be identified and bring together for the objective to complete the task. It tends

to be divided into two parts such as Contract costing and factory cost. This is very commonly
used in shops of reparirs, furniture, automobile garages, ship building and construction
companies. In this all the product and goods have unique features. As on receipt of an order, the
planning as well as production department creates suitable design for the product. As each
production order include a detailed information regarding job number, work order number, job
order number.
D1 Integration between MAS and MA reports.
In management accounting, various systems are used, and reports are prepared for each of them
in order to analyse the business on the basis of cost and other managerial activity. In order to
increase business revenues, the price optimization system is integrated with the sales department.
With these reports, analysis is become possible, and after performing it, initiative action to gain
control of the system is become possible. M&S managers, , use some particular reports for
corrective measures. For example, the finance department is in accordance with the accounts
receivable report analyse the credit facilities which was offer to customers. It tends to make link
between accounting systems and organisation and also aids to make improvement in
performance of business (Lei, 2020)
TASK 2
P.3. calculate cost using most appropriate technique of cost analysis to prepare an income
statement with the help of using marginal as well as absorption costing?
The amount of resource given up in exchange for some goods or services is referred to as the
cost. Money or money's equivalent expressed in monetary units are the resources given up. As
different costs must be determined for different purposes and under different conditions, the cost
per unit is bound to vary as the volume of output raise, while fixed expenses per unit are tends to
be decline.
Different types of cost which is observe in manufacturing company:

Indirect cost:
These are referred to as indirect costs because these are not allocated directly to a cost centre and
must be recovered through cost units. As a result, all overhead expenses are classified as indirect
costs.
Direct cost
These are the expenses that are directly chargeable to job activity. Direct expenses are those that
are identifiable easily and attributable to some specific job.
Variable cost: Variable costs are those whose total cost varies in direct proportion with regards
to volume of output. For example, suppose output improves by 7% than Variable expenses are
also affects favourably. On the other hand if decrease in output results proportionate decrease in
variable cost. In total Variable overhead are tends to be fluctuates, but it indicates that per unit
cost remain the same irrespective to number of unit produced.
Fixed cost: Except when specifically changed, fixed costs remain constant from one period to
the next. As production increases, the impact of fixed overhead over unit cost are tends to be
decreases, as it inversely make impact.
Cost analysis: It is an activity that involves cost apportionment. On the basis of fixed cost, ,
prime cost, sunk cost it tends to be modified. Cost analysis is simplified as a result of the cost
bifurcation.
Standard costing: It is an accounting system in which predetermined costs are used for variance
analysis and overall control of the organisation. It is commonly represented in quantitative and
monetary terms.

Absorption costing: It is a costing technique which involves manufacturing costs, such as, direct
labour, material , fixed as well as variable manufacturing overhead, at the time when per unit
cost is measured (Makarenko, 2018)
Marginal costing: It is system of accounting where cost related to cost variable are charged to
cost units and all period fixed costs are written off in full in context to aggregate contribution. It
is most useful in decision making. It is a method of applying cost to an existing in such a way to
reveal the relationship between profit as well as volume of output.

M2 Techniques to prepare income statements.
financial statements are generated using a variety of techniques. The reporting system they use is
actually dependent on the companies. Income statements can be prepared using absorption and
marginal costing because different methods use different costs and thus profit margins vary. To
determine financial information, various variances and ratios are calculated.
D2 Interpretation of produced income statement.
On the basis of income statements, under the method of determining marginal and absorption
costs, the estimated profit is 50,000 and -25,000. In the case of absorption costing profit,
however, it is approximately 50000 and -25000 during same time period. In both cases, income
statements must be prepared and analyses must be performed. Variances such as material
variance, overhead variances, and labour variable and various related variance are used.
PART 2
TASK 3
P.4. briefly discuss the advantage & disadvantage of various types of planning tools used for
budgetary control?

Budgetary control: It is a regular activity that helps with planning, coordination, and
control over business decisions. A budget is a means to an end, and budgetary control is the end
result. Budgetary control aids in the establishment of company objectives and the exertion of
efforts to achieve these objectives. Their main goal is to correct deviations from established
standards, and they work hard to meet these deadlines.
Various forms of budgets along with their advantage and disadvantage
Capital expenditure Budget: It contains information about fixed assets such as machinery, and
plants, land and building among other things. It is created once a year. Because it attracts a high
amount of expenses and costs, this budget is subject to strict management control. It is prepared
for a long period of time, usually more than a year, and it also leads to projecting the cost of
capital during that period in which expenditure is made as well as showing expected earnings at
that specific time period (Nkundabanyanga, 2018)
Advantages
 At the time of budgeted period, it leads to the outline of programmes related to capital
development and and leads to provide expenditure estimates.
 It serves as a tool for management control over expenses that are often present
unnecessarily.
Disadvantages
 their main disadvantage is a lack of specificity because it includes detailed collective
information about the various departments that exist in the company.
 It is difficult to observe due to the high level of collective information

Zero base budgeting : It is also known as a zero budget because each budget is prepared
and justified from the value zero, regardless of whether the previous year's budget is used as a
base. It allows you to allocate resources to various existing activities after performing the most
appropriate cost-benefit analysis
Advantages
 Through this unnecessary expense, activities can tends to be identified easily.
Disadvantages
 It takes a long time compared to the old traditional method
 Include more paper work in order to increase the cost of developing a system known as
ZBB.
M3 Role of planning tools.
Organizations use a variety of strategies to make the best budgetary decisions. Marks and
Spencer's accountants use various budgets such as capital budgets, zero base budgets, and
master budgets. Because it aids in the tracking of revenue sources as well as the prediction of
actual tasks. Capital budgeting also aids in making accurate investment projections.
TASK 4
P.5. Evaluate how company can adopt the concept of management accounting system to respond
to financial problems.?
Financial problems are mostly exist when their is shortage of fund and it is not have
sufficient working capital to perform day to day activity, It is difficult for organisation to findout
the reasons behind financial issues. In this regard, the following tools are used to identify the

causes of financial problems. Marks & Spencer faces a number of financial challenges, which are
detailed below:
Sudden expenses .Due to failure in doing planning , there is unnecessary expenses are
exist. And to tackle respective situation there is need to make arrangement of sufficient amount
of funds as it leads to develop shortage of funds. For the purpose to meet out financial problem
various tools are used by organisation Marks & Spencer so that sufficient funds are tends to be
always available and business smoothly run without facing any problems.
delayed payment by consumers or clients.: As the organisation Next plc provides credit
to their audience, it occasionally faces issues related to late payment, which tends to create
difficulty for the business due to a lack of financial resources, so working capital problems are
created, which tends to disrupt the business operation, and the business cannot run smoothly as a
result of these financial issues.
Benchmarking: Benchmarking is a measurement tool used by businesses to compare
their performance to that of competitors. M & S uses this method to identify client late payment
issues.
Budgetary targets: This is a money estimation for a specific fiscal year. This method
was used by Marks and Spencer to identify various types of variances by comparing actual and
standard figures.
KPIs : It is commonly used by organisations for performance measurement. There are
two types of KPI. The first is financial KPI, which is used to identify unnecessary expenses. The
second one is non-financial, which is used to analyse issues that arise during business operations.
Marks & Spencer uses these tools to identify unexpected expenses, which leads to the
identification of unnecessary expenditures.
Financial governance..It is used by M&S consultants to identify issues and solve
problems that the company frequently encounters, as well as to identify tools that aid in problem
solving in the context of the issue. Financial principles are followed for strategy monitoring.
Effective management accountant characteristics and how they prevent problems with the help of
these features:

Managers and accountants must have forecasting skills and knowledge to formulate plans so that
it is easy to handle the most critical situations by determining it. Decision-making abilities are
also required because they can help an organisation avoid problems by making the best decision
(Onyango, 2018)
Comparison:
Marks & Spencer and Tesco
Marks & Spencer Tesco
 Organizations use inventory
management systems to keep track of
stock and try to eliminate problems
caused by a lack of appropriate
products in their stores.
 A cost accounting system is used to
solve the problem of incorrect cost
recording by keeping a detailed record
of them.
 financial governance strategy are
adopted by M& S to disclose
appropriate position of business entity
to the outsiders.
 M& S has implemented a financial
governance strategy to disclose the
accurate position of business entity to
 A cost accounting system is used by
company to analyse various cost such
as material costs and formulate
effective plans, so that resolve
unexpected expenses .
 Tesco follow prise optimisation system
to fix appropriate prices to their items
so that endusers or clients not to think
regarding credits and it also helps to
eliminate unnecessary late payments
issues.
 price optimization system is follow by
company to set cost the product so that
end users or clients do not have to
worry about credit, and also helps

outsiders. reduces unnecessary delayed payment.
M4 MA to respond financial problems.
Using the tool, problems tend to be easily resolved. Key performance indicator because it assists
in evaluating their actual performance and efficiently addressing their financial issues through
utilising most common technique to accounting. Financial governance are tends to be used for
the purpose to demonstrate such type of accounting processes as well as technologies which are
tends to be valuable in terms to solve problems.
D3 Role of planning tools to solve financial issues.
Budgets, for example, can be used to plan for the future, and analysis can be performed by
comparing actual to estimated values. And the use of money can be determined, and after that,
the basic competitive planning framework can be determined and correlated with financial
performance forecasts (Weetman, 2019). Zero Base budgeting is commonly used to resolve
financial issues. Capital budgets, on the other hand, are implemented to address budgetary issues.
CONCLUSION
Deep analysis reveals that it is critical to perform management accounting in order to run the
business smoothly and to notice the actual state of the business. By preparing budgetary reports,
various performance can be easily compared, and the most effective decisions can be made to
improve the company's financial position. The management accounting system also assists in
determining the cost. Also, many promotional programmes are announced by organisations, and
various actions are taken by them in order to make good analysis as well as to grow the centre to
encourage the most incentive concept with the goal of capturing a large portion of the competing
market. Irrespective of the type of organisation all company perform management as well as
financial accounting so that the business can be operate smoothly in successful manner. With
thorough analysis it tends to be conclude that all type of accounting system perform significant
role as it tends to provide help to managers to take initiative active in terms to effective decision

making as well as operate the business entity in profitable manner. It helps to summarise, record,
and evaluate data as these activities help to show the actual financial position of the concern.
Managers can easily gain control of their businesses with the help of management accounting by
analysing accounts receivable ageing reports, price optimization, and cost accounting systems.
To effectively achieve the objectives, both marginal and absorption costing must be performed.
It is also concluded that by performing financial accounting, the soundness of a business is easily
reflected. It demonstrates the financial position of the company.

REFERENCES
Books and Journal
Asmuni, A., Marpaung, M. and Kamilah, K., 2020. Perspective Of Internal Process Based On
Multidimensional Performance Models In Development Of Zakat Management
Accounting. European Journal Of Mangement And Marketing Studies, 5(3).
Bagherzadegan, R. and Khanmohammadi, M.H., 2019. Investigate the relationship between the
quality of accounting information and corporate governance by investing in the main operations
of the company. Management Accounting, 12(40), pp.1-14.
de Lautour, V.J., 2019. Strategic Management Accounting, Volume III: Aligning Ethics, Social
Performance and Governance. Springer Nature.
Giacomini, D., 2020. Use of accounting information by mayors in local
governments. International Journal of Public Administration, 43(4), pp.341-349.
He, L., 2020, August. Review and Prospect of China Management Accounting in the Information
Age. In Journal of Physics: Conference Series (Vol. 1607, No. 1, p. 012125). IOP Publishing.
Hoang, T.C. and Joseph, D.M., 2019. The effect of new corporate accounting regime on earnings
management: Evidence from Vietnam. Journal of International Studies, 12(1).
Khromova, I.N., 2020, January. Conceptual Model of Accounting and Analytical Subsystem of
Management Costing. In First International Volga Region Conference on Economics,
Humanities and Sports (FICEHS 2019) (pp. 247-251). Atlantis Press.
Lebedev, P., 2019. Management Accounting Practices In Emerging Markets: A Multiple-Case
Study Of Russian Midsized Private Companies. In 6th SWS International Scientific Conferences
on social sciences 2019 (pp. 361-376).
Lei, L., Deng, Y. and Liu, D., 2020. Examining research topics with a dependency-based noun
phrase extraction method: a case in accounting. Library Hi Tech.
Makarenko, E. and Makarenko, T., 2018. The need of economic indexes' interpretation from the
perspective of managerial accounting. In Scientific achievements of the third millennium (pp. 42-
45).
Nkundabanyanga, S.K., Muhwezi, M. and Tauringana, V., 2018. Management accounting
practices, governing boards and competitive advantage of Ugandan secondary
schools. International Journal of Educational Management.
Onyango, S., Muchina, S.W. and Irura Ng'ang'a, S., 2018. Accounting Education: The Role of
Universities in Imparting Sustainability Accounting Knowledge to the Stakeholders through
Industry Linkages. International Business and Accounting Research Journal, 2(1), pp.1-12.
Pompili, M. and Tutino, M., 2019. Fair value accounting and earning management: The impact
of unobservable inputs on earning quality. Evidence from the US. Corporate Ownership and
Control, 16(2), pp.8-18.