Management Accounting and its Types

This study evaluates different fundamental aspects of managerial accounting such as multiple systems, system's requirements, reporting approaches and planning tools in context of Alpha Limited. This corporation belongs to mid-size manufacturing corporation It involve application of various distinct-distinct techniques and how these help in responding to financial problems. Study also contains comparative analysis of adaption of MA in order to respond to different financial-problems.

Management
Accounting

INTRODUCTION
Each company wishes to achieve their individual goals and targets in the present
competitive corporate environment in order to maintain market share. Management Accounting
is a central process that allows companies to successfully accomplish their objectives. As its
name suggests it includes various accounting mechanism and management components. It
provides a comprehensive and efficient mechanism for improving operational and financial
efficiency, as it comprises of appropriate methods of reporting relevant data to upper
management in order to make important decisions (Burritt, 2017). The primary responsibility for
creating managerial accounting framework rests with managing personnel.
This study evaluates different fundamental aspects of managerial accounting such as
multiple systems, system's requirements, reporting approaches and planning tools in context of
Alpha Limited. This corporation belongs to mid-size manufacturing corporation It involve
application of various distinct-distinct techniques and how these help in responding to financial
problems. Study also contains comparative analysis of adaption of MA in order to respond to
different financial-problems.
TASK 1.
P1. Management accounting and its types.
MA relates to explicit management framework which establishes cooperation between
management accounting operations with the aim of transmitting substantive and pertinent
information to top-level management to help them in decision-making processes (Schaltegger,
2018). It is a key mechanism that enables managers to determine organizational goals and
objectives. Organizational leadership is key people for implementing the whole accounting
management system. This is a broader dimension that encompasses all basic principles and
practices that allow organizations to track their overall performance and achieve goals. MA plays
a valuable role in gathering, expressly recording and reporting corporate budgetary and financial
information and evaluating enterprise budgets. It also plays a major role in assigning resources
and arranging funds to improve efficiency of business.
Management Accounting Systems: Management accounting draws up various systems to meet
specific organizational necessities. Different organizations adopt these systems as per their
needs. MA systems are structural frameworks that handle various internal procedures to support

organizational processes that help achieve business goals. Various distinct MA systems enact
different requirements for the systematic regime of such systems. Alpha is also applying multiple
systems in management framework to accomplish different goals, as follows:
Cost Accounting System: This system contains of all management operations that require
executives to evaluate each unit's expense and regulate expenses. It also promotes the
acknowledgement of needless spending by businesses like Alpha Limited and decreases these
cost forms to maximize cost-effectiveness (Soderstrom and Stewart, 2017). This requires all
costs' efficient identification and categorisation as fixed-costs, variable-costs, production cost,
overheads etc. This management system is imperative for companies to screen the use of money
and overall costs taken place in the processes of operating various functions. They are utilizing
such accounting system to retain costs low than projections in chosen corporation.
Inventories Management System: This system allows entity to regulate stocks and other
inventories items effectively. Managers apply it to tracking unusual inventory expenses in Prime
furniture and taking action to streamline such costs. It is vital for manufacturers to reduce storage
and handling costs of stock-items and to retrieve information about inventory use in performing
manufacturing-related activities. As regards the above-mentioned Alpha limited corporation,
they use this MA system which allows them to measure raw material usages, manufactured
goods including many other. This includes the use of approaches for valuing inventories such as
Average costs, LIFO-approach, FIFO-approach etc. and for effective inventories/stocks
categorisation.
Job-costing system: The system establishes the specific crucial jobs/tasks for creating
transparency within the enterprise. Here in job-costing system, managers systematically
categories all the processes and activities, and then classify them as Job-task. This ensures
accountability within organisational framework, as under it all the costs/expenses are assigned to
these classified jobs. It supports momentous and quick decision-making framework. Alpha Ltd's
managers utilising this system to assess the cost incurred in any particular job-process and in
some division. In attempt to evaluate and maintain costs jobs as cheap as possible, It is crucial
for businesses. As regards the above-mentioned Alpha limited corporation, they use this system
to continue providing their finance unit with valuable information about costs of each movement
and job allocated to complete various portions of operations.

Price optimisation system: This mechanism makes it smoother to controlling and monitoring
the prices of products while keeping the demand and profits at same or greater level (Nuhu,
Baird and Appuhamilage, 2017). This system allows managing staff to determine the connection
between demands and price of various products as they provide business competitive benefits.
Price of Pizza and other beverages are determined applied this system in Alpha corporation.
Managers under it determines factors which affects price and demand of its products directly or
indirectly. This system defines the unique correlation between price and demand of products,
which eventually assist in setting goals and objectives.
P2. Management Accounting Reports:
Each function of a business enterprise relies on core information or the facts condensed.
Management decisions and other operations are carried out in business centred on various kinds
of information so that any minor error or misunderstanding in information will result in incorrect
decision making. Reporting of business related information is critical task, thus managers in
corporation like Alpha limited relies on multiple methods of reporting prescribed under MA
systems. Management's decisions are purely depending on reporting approach and
comprehensiveness. In this regard, here following is discussion on multiple reports of MA, as
follows:
Cost Report: In this method, reports prepared are comprises of extensive, standardized
information of costs/expenses incurred through various tasks and procedures. Using this report,
unit of finance may be ready to find variation among actual and projected efficiency. Managers
create it in sense of above-mentioned Alpha to document deviations and to maintain an
additional sheet of eye on overall performance. This determines each pizza and other product
item' cost which help them in assessing the overall cost effectiveness of operations. It
summarises all the costs as per their significance, extent of relevancy and nature that assist
managers in controlling different costs.
Performance Report: This report emphasises on reporting of human-resources and personnel
engaged in different organisational activities. Objective of report is to assess the performance
and efficiencies of personnel across the enterprise and allocation of works among employees
efficaciously (Quinn, Strauss and Kristandl, 2014). This enables managers to optimise utilisation
of human resources. To control employee turnover ratio management in Alpha, use this report as
it offers comprehensive information about each employee personnel and support evaluation of

performances within enterprise over the specific timespan. This report further assists in
determining appraisal policies and other employee benefits.
Inventory reports: It specifically records and offers inventories details. Management apply this
report to take decision regarding order placement, re order level, inventories maintenance. This is
critical report which shows how much inventories are in stock as well as ascertain the
requirements of inventories and stock-items. As in Alpha, inventories managers list all the raw
items of food and other related materials which are essential for production of Pizza along with
costs and number of items stored as inventories. They also maintain inventories register which
help in preparation of inventory report. Also production managers determine how much stock in
process and processed. Both inventory and production managers, with coordination frame such
report.
Accounts receivable ageing report: For ensuring the timely collection of debtors and
receivables, this report is as it holds all the essential data which help managers in assessing the
average period of collection (Johnstone, 2018). One of key features of such report is that data is
systematically reported under it, such that managers can effectively target the portion of debts to
be recovered. In Alpha limited corporation, they use this report to concentrate on those clients
whose sum is to be receivable within one year. This is main report which assist in maintaining
the working capital by ensuring regular receipt of amounts. In Alpha this report also help to
maintain cash flows of entity since managing staff with assistance of this report collects all the
sums within reasonable time.
M1. Benefits of MAS.
MAS Benefits
Cost accounting system It is consistent with mechanism to reduce costs under requirements
for different operations and functions. It is being implemented to
monitor the expense for each activity as part of the Alpha limited
company and to maintain direct control of expenses.
Price optimisation system This concerns the process of setting prices of products in keeping
with the appropriateness of various external actors. Their sales team
employs this management system for the price of their produced

pizzas in the Alpha limited company.
Inventory management
system
This is linked to the successful control of the quantity of inventory
stored in stores. They employ this management system for the best
use of their processed raw resources under Alpha Limited
Company.
Job costing system I allows the independent monitoring of expenses for each task. This
accounting system is used by the above firm to determine the cost of
jobs assigned to various operations and tasks.
D1. Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes:
Integration of described systems in corporate processes and primary role is critical for
successful adoption and adaptation of various MA systems (Krumwiede and Charles, 2014).
Such Integration encourages effective alignment among systems and various practices that
enables staff management to develop direct control over important tasks. As in corporation
Alpha, their revenue division is incorporated within system of price optimization and inventory
management to enhance their revenue level. Therefore, their procurement department uses
relevant inventory data reports and the accounting department even analyses essential
information from cash receivable ageing report etc.
TASK 2
P3. Preparation of income statement by help of absorption and marginal costing.
Problem 1.

Problem 2a

2d. Should company install machine?
As described above, it can be suggested that business install the machine because it may
lose £ 18,000 if the machine is not installed. At the other hand, the benefit will be £ 1,04,000.00

if they purchase the machine. Therefore, machine installation may be useful for above business
entity.
M2. Role of accounting techniques to produce income statements.
In accounting, range of practices are used for reporting income and many more financial
reports (Botes and Sharma, 2017). For example, two costing methods are used for the production
of profit and loss account of certain data in the sense of the above calculations. These are
absorption and marginal costing techniques. Marginal costs are a strategy where fixed and
unfixed costs are taken into account in a different way. Fixed expenditures are treated as time
costs in this method, and unit costs are classified as non-fixed costs. In absorption costs methods,
at the other hand, all the forms of costs that arise are taken into account similarly to the unit
costs.
D2. Interpretation of produced financial statements.
In the above part two income statements are primarily drawn up under absorption and
marginal costs. As with the absorption costing method, net profits for the duration of April, May,
June, July, August and September are 175000, 130000, 220000, 175000, 140000 and 200000.
During the margin, net income for the timespan of the same period varies from 175000, 100000,
250000, 175000, 150000 and 200000. The information is the same for both methods, but the
amount of total profit is different when preparing the income statement.
TASK 3
P4. Advantages and disadvantages of different planning tools of budgetary control.
Planning tools are methods used by different type of organization to take appropriate
measures and for analysing performance of various aspects. These resources provide
extensive information about resources used in different kinds of activities. The Alpha
Limited Company uses various kinds of tools such as:
 Cash budget- This can be described as a budget that contains information on projected
cash invoices and pay-outs for a given period (Grabner and Moers, 2013). Different types
of operations such as income collection, loan receipts etc. is included in these cash
outflow and inflow. In general, this budget is a form of budget that helps to prepare the

potential cash situation of corporations. In the context of above company, they prepare
this budget to manage activities regards to cash management.
Advantage- This allows companies to ensure an accurate position in liquidity from
time to time.
Disadvantage- The major limitation is that the estimation by which companies
cannot expand.
 Capital budget- It is budget that is correlated with the calculation of businesses'
lengthy-term investment. Different forms of activities such as the purchase of land,
construction etc. are covered under lengthy-term investment. In addition, this
budget provides a mechanism for vast properties to be acquired and sold. In Alpha
limited, this budget is prepared and information is used by finance managers to take
further actions.
Advantage-It helps to pick projects that favour businesses. This becomes possible
by evaluation of different projects under techniques like ARR, NPV and many
more.
Disadvantage- It is quite costly to prepare this budget which is not possible for
small businesses.
 Operating Budget-It provides information for the estimated revenue and costs of an
organization for the future period (Halbouni and Nour, 2014). The projected cost
and profit of each expenditure is included in this budget. This budget is prepared in
the above organization for an assessment of each operating activity. It has below
mentioned benefits and drawbacks:
Advantage- It helps to handle current and future expenditures effectively.
Drawback-False estimates of future revenues and expenses may sometimes lead to
large losses in businesses.
M3. Various kind of planning tools and their application for preparing and forecasting of budget.
The planning tools include various budget forms like the cash budget, operating budget
and the capital budget, etc. In the preparing and projection of the budget, all these contribute a
key role (ter Bogt and Scapens, 2014). Therefore, these forecasting instruments are financial

framework that makes the detailed prediction of future revenues and expenditures in a systematic
structure.
TASK 4.
P5. Role of management accounting in solving financial issues.
Financial issues- There are different types issues that ruins the smooth conduct of business
operations. Such financial difficulties are caused by a lack of funding in businesses to carry out
various activities and procedures on time (Bjørnenak, 2013). In this regard, it is their obligation
to identify options to sort the issues. There are different types of strategies for minimising impact
of these financial issues on company’s performance. Herein, underneath some types of monetary
issues are mentioned that are as follows:
 Lack of sales revenues- This is defined as a sort of problem in companies that evolves
because of low sales. It means businesses do not sell more products under this issue. This
leads to a decline in total revenue and problem arises in enterprises. Sainsbury’s plc face
the issue and cannot generate more income.
 Increased expenditures- This is a problem in enterprises which occurs due to a lack of
control over total expenditures. In a wide manner, the primary reason of this issue is that
funds are poorly managed and allocated for various activities. In the Tesco plc context,
their costs increased significantly that resulted in declined sales.
Identification of financial issues:
 Benchmarking- Benchmarking is described as the system of assessing goods, services
and procedures against organisations recognized as rulers (Ashraf and Uddin, 2015). It
provides a sense of how company measures up with similar groups, even though they
have a distinct set of customers. Due to this actual issues can be identified. In Tesco
company, this technique has been applied to find out monetary issues in their operations.
 Activity based costing- It is defined as a type of method aligned to cost allocation process
for various activities individually. The objective of this approach is to minimize the
overall cost. They use this method in Sainsbury to determine the real issue of increased
costs.

Financial governance- This serves as a monitoring strategy to identify the real defect levels. It is
a sort of approach that systematically collects financial details from companies in order to
identify the real defect (Arunruangsirilert and Chonglerttham, 2017). In the aspect of both of
companies, this approach can be useful for managing financial issues by providing needed
amount of financial information on time.
Comparison:
Basis Sainsbury’s Tesco
Financial issue They face the issue of an inadequate
sales outcome. They do not have
proper source of funds to run
different activities and events.
Consequently, they are not able to
sustain in competitive environment.
There is a larger spending problem for
the corporation. As a consequence, they
cannot handle their aggregate available
resources and obtain reduced returns on
investments. This issue is impacting
their overall performance.
Accounting
system
To address the problem, the above
company applied a price
optimization system. As a result,
they have reworked and laid their
price techniques at a stage that can
generate higher revenues with the aid
of this accounting system. Due to
this their sales revenue increased and
the problem has been solved.
They used cost accounting to solve the
problem of increased costs. This
allowed them to control total costs and
to improve efficiency. This helped them
in order to sort those activities whose
cost is higher. Thus the problem fixed
successfully by the implementation of
this accounting system.
M4. Management accounting to solve the monetary issues.
There are different types of systems that contributes in providing alternative to solve
issues. (Brandau and Wömpener, 2014). All these tools help to solve problems in less time and
cost. As in the above-mentioned company, Sainsbury and Tesco have resolved financial issues
using the cost accounting and price optimization system.

D3. Planning tools to solve financial problems.
Besides the MAS, planning tools are also crucial to sorting monetary problems. It is possible
as administrators can estimate future numbers of revenue and expenses using these forecasting
methods (Goretzki, 2013). They different tools like a cash budget, a master budget etc. as with
Alpha limited company's aspect.
CONCLUSION
According to the project report mentioned above, MA's role has been stated to be too wider
or how well all accounting systems are used by firms. The reports end with different
accounts, like cost accounting, asset control and MA reports, like the progress report, the
expenditure report, etc. The measurement of the financial statements, the BEP measurement
and many more are calculated in further part of the report. The cash budget is also conclused
on the role of distinct plan tools such as the cash budget.

REFERENCES
Books and journal:
Burritt, R. L., 2017. Cost Allocation: An Active Tool for Environmental Management
Accounting?. In The green bottom line (pp. 152-161). Routledge.
Schaltegger, S., 2018. Linking environmental management accounting: A reflection on (missing)
links to sustainability and planetary boundaries. Social and Environmental Accountability
Journal. 38(1). pp.19-29.
Soderstrom, K. M., Soderstrom, N .S. and Stewart, C. R., 2017. Sustainability/CSR research in
management accounting: A review of the literature. Advances in management
accounting. 28. pp.59-85.
Nuhu, N .A., Baird, K. and Appuhamilage, A. B., 2017. The adoption and success of
contemporary management accounting practices in the public sector. Asian Review of
Accounting.
Quinn, M., Strauss, E. and Kristandl, G., 2014. The effects of cloud technology on management
accounting and business decision-making. Financial Management. 10(6). pp.1-12.
Johnstone, L., 2018. Theorising and modelling social control in environmental management
accounting research. Social and Environmental Accountability Journal. 38(1). pp.30-48.
Krumwiede, K. R. and Charles, S .L., 2014. The Use of Activity-based Costing with Competitive
Strategies: Impact on Firm Performance', Advances in Management Accounting
(Advances in Management Accounting, Volume 23).
Botes, V. L. and Sharma, U., 2017. A gap in management accounting education: fact or
fiction. Pacific Accounting Review.
Grabner, I. and Moers, F., 2013. Management control as a system or a package? Conceptual and
empirical issues. Accounting, Organizations and Society. 38(6-7). pp.407-419.
Halbouni, S .S. and Nour, M .A., 2014. An empirical study of the drivers of management
accounting innovation: a UAE perspective. International Journal of Managerial and
Financial Accounting. 6(1). pp.60-86.
ter Bogt, H .J. and Scapens, R .W., 2014. Institutions, rationality and agency in management
accounting: Rethinking and extending the Burns and Scapens Framework. Available at
SSRN 2464980.
Bjørnenak, T., 2013. Management accounting tools in banks: are banks without budgets more
profitable?. In Managing in Dynamic Business Environments. Edward Elgar Publishing.
Ashraf, J. and Uddin, S., 2015. Management accounting research and structuration theory: a
critical realist critique. journal of critical realism. 14(5). pp.485-507.
Arunruangsirilert, T. and Chonglerttham, S., 2017. Effect of corporate governance characteristics
on strategic management accounting in Thailand. Asian Review of Accounting.
Brandau, M., Hoffjan, A. and Wömpener, A., 2014. The globalisation of a profession:
comparative management accounting in emerging and developed countries. European
Journal of International Management 6. 8(1). pp.73-105.
Goretzki, L., 2013. Management accounting and the construction of the legitimate
manager. Journal of Management Control. 23(4). pp.319-344.

1