Different MA Systems and Methods of MA Reporting

This study material provides a critical evaluation of different management accounting systems and methods of reporting. It covers topics such as cost accounting system, inventory management system, job costing system, and price optimization system. It also discusses the advantages and disadvantages of various planning tools used in budgetary control.

UNIT-5 MANAGEMENT
ACCOUNTI NG

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P-1 Critically analysing different MA systems............................................................................1
P2 Different methods of MA reporting........................................................................................3
TASK-2............................................................................................................................................4
2a..................................................................................................................................................5
2 b.....................................................................................................................................................5
2 c.....................................................................................................................................................6
TASK-3............................................................................................................................................7
P-4: Advantages and disadvantages of various planning tools used in the budgetary control....7
M-3...............................................................................................................................................9
P-5: Adaptation of the management accounting systems to respond to the financial problems..9
M-4.............................................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting (MA) is the accounting system which deals with the managing
the business decision of an organization. Under this, the information is gathered from the
accounting team and is further analysed by the internal management team based upon which the
final decision is being made. In this report, Connect Catering services is taken as an organization
which is small and medium-sized business running in Oxfordshire. This report presents a critical
evaluation of the different management accounting system and the methods used for the purpose
of accounting reporting. Along with that it involves the making use of the MA techniques for
analysing the cost and determining the pros and cons of planning tools for the purpose of
budgetary control. It also covers comparing the ways the MA system being implemented by the
organizations.
TASK 1
P-1 Critically analysing different MA systems
Management accounting basically accounts for the application of the different types of
the professional skills and knowledge in regard to the preparation of the financial and accounting
information. This is needed to be done in such a way that it will assist the internal managerial
team in the formulation of the policies and the planning strategies of the firm.
Different types of MA system
Cost accounting system
The cost accounting system is the process or the framework through which the firms can
estimate their product related cost and expenses in order to carry out the profitability analysis
and in exercising the cost control techniques (Abdusalomova, 2019). By making use of this
system, Connect Catering services can effectively arrange the records and determine the suitable
investment allocation.
Benefits
 It helps in eliminating the wastage of resources and inefficiencies by fixing the standards.
 This system assist in carrying out the cost reduction process through the way of
implementing new and improved approaches of production.
 It helps in determining the profitability related to the product so that remedial action can
be undertaken.
Essential requirements
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This system requires highly competent personnels who are having knowledge and
relevant skills in carrying out cost accounting.
Applicability
This is mainly applicable to the organizations which are involved in the production or
manufacturing.
Inventory management system
This system is implemented with the purpose of effectively determining and managing
the inventory of the organization. It is the combination of the procedures and the processes which
helps in effectively handling the movement of the inventory and maintaining the required stock
level. It can be utilized by the Connect Catering services in order to manage its inventory
appropriately.
Benefits
 It helps in reducing the risk of overselling through the way of synchronizing the
inventory.
 This also supports in overcoming the situation of stock out or the excess stock.
 Better understanding of demand and availability helps in meeting higher inventory
turnover.
Essential requirements
It requires effectively tracking of the inventory and interpreting the same which can be
met by the professional making knowledge pertaining to inventory management.
Applicability
This MA system is applicable for the organization which are needed to handling bulk of
products or material as inventory either for production or supply.
Job costing system
This accounts for accumulating all the relevant information pertaining to the specific
production or the job. This can be further used for submitting the information to the customer
under the contract. The information gathered can be used for assigning the inventoriable cost or
the manufacturing the goods (TRUHACHEV, KOSTYUKOVA and BOBRISHEV, 2017).
Therefore, if implemented by Connect Catering services then it can be able to effectively manage
the job pertaining to the specific product or services.
Benefits
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 The costs are determined at the various stages of completion which provides scope of
cost control by undertaking suitable steps.
 The management can determine the cost per job based on the past record.
 It also helps in determining the overhead recovery rates based upon the budget prepared.
Essential requirements
The essential requirement of this system is in determining the cost at various stages of
completion so that it can undertake corrective actions at right time.
Applicability
It is applicable to the organizations where the products or the services are offered in
accordance with the customer's specification and preferences.
Price Optimization system
Under this, MA system, the price of the product or service is determined based on the
demand of that in the market. It is basically a mathematical program which helps in determining
how the demand changes with the change in the price at different levels (Cooper, Ezzamel and
Qu, 2017). The Connect Catering services can combine this data with the information on cost
and inventory level in order to determine the suitable price.
Benefits
 It is entirely an automated process which reduces the manual work.
 It also helps in undertaking better and quick decisions.
 This provides chance to concentrate on various goals like margin of sales and make
financial benefits.
Essential requirements
The essential requirement of this is that it helps in regulating the and controlling the
pricing decisions of the company.
Applicability
It can be implemented by Connect Catering services in order to determine right price and
maximize its profitability.
P2 Different methods of MA reporting
There are various types of MA reporting which can be used by the organization for
purpose of undertaking better and informed decisions. A detailed evaluation is given below.
Account Receivable Aging Reports
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This report is mainly useful for the organization's who are dependent heavily on the
credit being offered to the customers (Drury, 2018). Through this, the company can get an
insight into the account balances of each of its customer along with the due date and amount due.
It helps in determining any issue in its collection process. Also, it can identify the potential
customer who have become bad debts and required to be written off.
Budget Reports
This report is very important in measuring the performance of the company and in case of
big firms it is done department wise. This will helps Connect Catering services in making
estimation based on past experience and cater to the unforeseen circumstances and meeting with
goals and objectives within the amount budgeted.
TASK-2
Marginal Costing Income Statement
Particulars April May
Sales revenue (2000*8) 16000 16000
Less Marginal cost of sales -8000 -10000
Opening inventory (500*4)
Variable manufacturing cost per unit (2500*4= 10000) (3000*4)
(-) Closing Inventory (500*4= 2000) (1000*4)
Contribution 8000 6000
Fixed Non-Manufacturing Cost -4000 -4000
Fixed Manufacturing Overhead -15000 -15000
Marginal profits -11000 -13000
Absorption Costing Income Statement
Particulars April May
Sales revenue (2000*8) 16000 16000
Less Marginal cost of sales -8000 -10000
Opening inventory (500*4)
Variable manufacturing cost per unit (2500*4= 10000) (3000*4)
(-) Closing Inventory (500*4= 2000) (1000*4)
Less Fixed Manufacturing Overhead -15000 -15000
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Gross Profit -7000
Less Fixed Non-Manufacturing Cost -4000 -4000
Absorption profits -11000 -13000
2a.
1. Fixed and variable costs
Variable cost Per unit Fixed cost Amount
a) Direct material cost £3.5 a) Manager's salary £5000
b) Direct labour cost £1.5 b) Rent £5000
c) Direct overhead cost £0.5 c) Insurance £500
d) Advertising £1000
e) Utilities £500
Total £5.5 Total £12000
2. Margin of safety at the sales level of 2500 Pizzas
Sales per unit £9.5
Direct material cost £-3.5
Direct labour cost £-1.5
Direct overhead cost £-0.5
Contribution per unit £4
Break even sales (in units)= Fixed costs/ Contribution per unit
£12000/ £4= 3000 units
Margin of safety= Current sales- Break-even sales
2500units- 3000units = (500) units
3. Change in BEP with increase in manager salary by £6000
Fixed cost= Manager's salary+ Rent+ Insurance+ Advertising+ Utilities
£6000+£5000+£500+£1000+£500= £13000
Break-even sales (in units)= Fixed cost/ Contribution per unit
£13000/£4= 3250 units
Break-even sales (in value)= 3250units* £9.5= £30875
2 b.
Units 500 1000 1500 2000 2500 3000 3500 4000 4500 5000
Fixed costs 12000 12000 12000 12000 12000 12000 12000 12000 12000 12000
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Variable
costs 2750 5500 8250 11000 13750 16500 19250 22000 24750 27500
Total costs 14750 17500 20250 23000 25750 28500 31250 34000 36750 39500
Revenue 4750 9500 14250 19000 23750 28500 33250 38000 42750 47500
The break even point arises at the 3000 units where the company is able to earn no
profits. It is just able to cover the costs that are incurred.
2 c.
Particulars Budgeted data Actual data Variances
Qty. Price Amt. Qty. Price Amt. Absolute %
Sales revenue 10000 9.5 95000 12000 10 12000
0
25000 26.31%
Less Variable costs 10000 5.5 55000 12000 5 60000 5000 9.09%
Contribution 4 40000 5 60000 20000 50.00%
Less Fixed costs 12000 15000 3000 25.00%
Operating Profit 10000 2.8 28000 12000 3.75 45000 17000 60.71%
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0
1000
2000
3000
4000
5000
6000
0
10000
20000
30000
40000
50000
Chart Title
Fixed costs Variable costs Total costs Revenue BEP in Units

Actual Flexible
Variance
Flexible budget Sales volume
variance
Static budget
Units 12000 12000 10000
Sales 12000*10=1200
00
6000F 12000*9.5=11400
0
19000U 10000*9.5=95
000
Variable
Cost
12000*5=60000 6000F 12000*5.5=66000 11000F 10000*5.5=55
000
Contribution 60000 48000 8000 40000
Fixed Cost 15000 3000U 12000 Nil 12000
Profit 45000 36000 28000
TASK-3
P-4: Advantages and disadvantages of various planning tools used in the budgetary control
Several types of budgets can be used as the planning tools for the budgetary control
activities in Connect Catering Services. It governs the optimal utilization of resources and
ensures the profitability in the business. Some prominently used budgets are:-
Cash Budget- The cash budget is used in an organization to check the inflows and
outflows of cash during a particular period. The budget accounts for the receipts and
disbursements of money in particular activities (Ameen, Ahmed and Abd Hafez, 2018). It helps
in showing the liquidity position of Connect Catering Services and the ability to meet its short
term obligations. It maintains a balance where neither surplus nor deficit is obtained. It's
applicability as a planning tool can be used when if there is excess cash, then immediately it is
invested in the activities that can generate returns for the company.
Advantages:-
 Cash budget shall reveal the liquidity position of the company which can be used by the
internal and external users of the financial information in the process of decision-making.
 It shall help Connect Catering Services to become more resourceful in nature and save
the costs to generate operational efficiency by proper allocation of the resources.
 It ensures avoiding unnecessary creation of the debts by timely meeting the liabilities and
obligations of the company. This also increases the credibility which can be utilized at
the time of arranging for finance.
Disadvantages:-
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 It reduces the flexibility in building the credit profile, spending power and initiating new
plans in Connect Catering Services (Van Helden and Uddin, 2016).
 It is based on the estimates and assumptions that are made by the company. It neither
reflects the profitability nor the future growth prospects, which means it cannot be
utilized for the major decision-making.
Zero based budgeting:- It is a technique of budgeting wherein Connect Catering Services
starts the preparation of the budget from the scratch that is the zero level. This is undertaken by
not referring any of the past items rather assess the incomes and expenditures by taking the base
as zero. It involves justification of each and every expense that is being accounted for in the
budget. It ensures the highest degree of accuracy in its predictions regarding the future.
Advantages:-
 It is more efficient and accurate as reduces the redundancy of activities in the
organization.
 The major advantage is that all the expenses are being involved with proper justifications
so it avoids wastages of resources (Alborov and etal., 2017). It also maintains better
coordination and communication.
Disadvantages:-
 It requires higher cost, time consumption which may delay the routine activities of the
business.
 Higher degree of expertise and efficiency is required by the manpower of Connect
Catering Services.
Expenditure budget:- This budget shall consider all the expenditure that can arise in a
particular period. It is essential to plan for the expenditures and compare with the simultaneously
generated income in the business. This helps in avoiding the wasteful expenses and thereby
optimizing the financial resources of the company. Prior forecasting helps in creating reserves
for the future expenses which does not disturb the financial position of Connect Catering
Services.
Advantages:-
 Facilitates effective coordination in the various departments of the business.
 Ensures optimal utilization of the financial resources which ultimately helps in generating
better returns for the company.
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Disadvantages:-
 Brings rigidity in the operations of employees where their initiative taking capacity
reduces.
 It does not facilitate employee engagement and participation which lowers down the
morale of the workforce.
M-3
These planning tools can be used by Connect Catering Services, for the efficient and
effective budgeting and forecasting the future level of activities and operations that are to be
undertaken for ensuring profitability and future growth prospects. This optimizes the activities
and reduces the scope for wastages, miscommunication and conflicts.
P-5: Adaptation of the management accounting systems to respond to the financial problems
Management accounting systems can be used by Connect Catering Services for the
resolution of its financial problems like enhancement of profit-margin, planning expansion,
optimal utilization of the resources, maximize the wealth of shareholder and the achievement of
the organizational objectives.
Benchmarking:- It is an essential technique that is used for facilitating the comparison of the
business's performance with that of the leader in the industry. The comparison may be with the
performance of the competitor or internally within various departments. This helps in gaining
operational efficiency by establishing targets as per the one who is best in the business. The
standards in respect of production, sales, expenditure etc. are set which ensures the smooth and
efficient accomplishment of the goals of Connect Catering Services.
Applicability:- Benchmarking is most importantly used to handle the competition in the
business and for the survival of the company. The financial problems like wastages, idle money,
miscommunication and lack of operational efficiency can be tackled by the application of
benchmarking technique in the business.
Variance Analysis:- It is another technique that can be used for the resolution of the various
financial problems that are faced by the business (Quattrone, 2016). This is done by comparing
the actual performance of the company with the set standards that were prior established. This
comparison helps in finding out the deviations that are caused due to some inefficiencies in the
business. Further these variances shall be studied and the reasons behind its occurrence shall be
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found out. Improvisation in the shortcomings shall be undertaken such that the operational
efficiency can be boosted and better results can be generated for Connect Catering Services.
Applicability:- The variance analysis can be utilized to increase the production capacity,
attain economies of scale, reduce the cost per unit and optimize the financial utilization of
resources. All such financial incapabilities of the company can be solved and the growth
prospects can be effectively determined.
Key performance indicators:- The key performance indicators are used by the company to
measure their performance against the measurable values and find the deficiency of the business.
This shall help the company receive the desired level of outcome and will be able to develop the
competitive edge in the industry. The key performance indicators guide the employees in the
right path for the achievement of organizational objectives.
Applicability:- In Connect Catering Services it can be ensured that the staff is working as
per the provided performance indicators and accordingly the set targets are being accomplished
in the company. It ensures the maximum output in terms of profitability from the minimum input
that is the cost of productions (Kostyukova and etal., 2018). Optimization of all the processes can
be ensured by using this technique in the business.
Connect Catering Services Chefs on the move
The Connect Catering Services uses the
benchmarking technique to ensure the
resolution of the financial problems in the
business. They establish the targets of their
business as attained by the leading firm in the
industry. This helps them develop operational
efficiency, work at 100% capacity and reduce
the cost. It ascertains profitability and future
growth prospect for the business.
The Chefs on the move uses variance analysis
system to improvise its operations by resolving
the deviations by taking measures against the
same. These variances are discovered by
comparing the actual performance with that of
the standards.
M-4
The efficient and effective manner of handling the issues shall be leading to the growth
and development of the organization in a sustainable manner. The optimal utilization of the
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scarce resources shall help in sustainable development of the business. It shall maintain long
growth and prosperity of the business.
CONCLUSION
It can be summarized from the above project report that management accounting is very
important for the company in a way that it facilitates the decision-making process and helps in
fulfilment of the organizational objectives. Management accounting systems are used by the
internal managers to make essential decisions regarding the future with the use of the available
financial reports. The major management accounting systems like the cost accounting, job
costing, inventory management are used by the company to optimize the operations of the
company in a way that profitability and future growth prospects of the business can be enhanced.
Apart from that profits can be analysed using the marginal as well as absorption costing methods.
The break-even point of the company shows the point where company earns zero level of profits.
The margin of safety shows the amounts of sales that are generated over and above the break-
even level. There are various planning tools that can be used by the company to forecast the
future level of activities of the company like the cash budget, operating budget and zero based
budget. Various management accounting systems are used in order to resolve the financial
problems that are arising in the business like wastages, high cost per unit, low capacity etc.
Benchmarking, key performance indicators and the variance analysis are some of the techniques
that can be used by the company for solving the financial problems of the business.
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REFERENCES
Books and Journals
Abdusalomova, N., 2019. PROBLEMS OF MANAGEMENT ACCOUNTING AND WAYS TO
SOLVE THEM. International Finance and Accounting. 2019(3). p.2.
Drury, C., 2018. Cost and management accounting. Cengage Learning.
TRUHACHEV, V. I., KOSTYUKOVA, E. I. and BOBRISHEV, A. N., 2017. Development of
management accounting in Russia. Revista Espacios. 38(27).
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.991-1025.
Ameen, A. M., Ahmed, M. F. and Abd Hafez, M. A., 2018. The Impact of Management
Accounting and How It Can Be Implemented into the Organizational Culture. Dutch
Journal of Finance and Management. 2(1). p.02.
Van Helden, J. and Uddin, S., 2016. Public sector management accounting in emerging
economies: A literature review. Critical Perspectives on Accounting. 41. pp.34-62.
Alborov, R. A. and etal., 2017. The development of management and strategic management
accounting in agriculture. Journal of engineering and applied sciences. 12(19).
pp.4979-4984.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
Kostyukova, E. I. and etal., 2018. Improvement cost management system for management
accounting. Research Journal of Pharmaceutical, Biological and Chemical
Sciences. 9(2). pp.775-779.
Online
Management Accounting - Meaning, Advantages & Functions. 2021. [Online]. Available
through: <https://cleartax.in/s/management-accounting>
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