Unit-5 Management accounting

Management
accounting

Table of Contents
INTRODUCTION ..........................................................................................................................4
TASK 1............................................................................................................................................4
P.1. Management Accounting and important needs of various types of management
accounting system?.....................................................................................................................4
P.2. Methods used for the purpose of management accounting reporting ?...............................6
M.1. Management accounting system benefits and their application in context to organisation?
.....................................................................................................................................................8
D1 How management accounting systems and reporting is integrated in the organisation........8
TASK 2............................................................................................................................................9
P.3. Ascertain cost with the help of using suitable cost technique to make income statement by
using marginal & absorption costing?.........................................................................................9
...................................................................................................................................................12
M.2. Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents ?................................................................................................13
D.2.Produce financial reports that accurately apply and interpret data for range of business
activities?...................................................................................................................................14
TASK 3..........................................................................................................................................14
P.4. Explain advantage & disadvantage of various types of planning tools used for budgetary
control?......................................................................................................................................14
M.3. Analyse the use of different planning tools and their applications for preparing budgets
and forecast?..............................................................................................................................16
TASK 4..........................................................................................................................................16
P.5. Compare how company are following management accounting system to respond to
financial problems ?..................................................................................................................16
M.4. Analyse, how , in responding to financial problems, management accounting can lead
organisation to sustainable success ? .......................................................................................17
D.3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success..............................................................18
CONCLUSION .............................................................................................................................18

REFERENCES..............................................................................................................................19

INTRODUCTION
Management Accounting is the process in which records of internal information is to
maintained by finance team of the organisation so it become possible to do effective decision
making. On the basis of these record performance of business is analysed by workforce,
managers etc. It is also helpful for externals such as shareholders, investors, financial institution
that to analyse the actual position of company so that it they can take whether to invest or not in
the respective project and how much risk is involved in it. With the help of these data return on
investment can also be calculated. The organisation that was chosen in this assignment is a
consultancy firm whose name is Pearl Chartered Accountants. It was established in London also
it serve the services related to auditing, taxation, Accounting Standards , corporate laws etc. firm
has client Connect Catering as it deliver quality catering service solutions, specialising in
managing clients on site catering as it deliver delicious food , with exceptional services. The
topics that are included in this project are demonstration of need of management accounting
system (Cheng, M.T., 2012). Application of wide range of management accounting technique,
use of planning tool in context to management accounting is also explain in it. Comparison in
different ways in which company could use management accounting with respond to financial
issues are also discuss in this report.
TASK 1
P.1. Management Accounting and important needs of various types of management accounting
system?
Management accounting is the presentation of accounting information in such a way as to
assist management in the creation of policy as well as day to day operations of an undertaking. It
is a combination of both the activities such as management and accounting. Connect catering use
this method to measure actual performance of the company and to take effective decision making
.
Difference between financial and management accounting:
Financial Accounting Management Accounting
 It is done by finance team of connect  In this organisations performance

catering to analyse actual financial
status of the company which tends to
provide support to external like
creditors, underwriters, shareholders,
merchant bankers, etc.
 Accounting Principles as well as
applicable accounting standards must
be follow by connect catering company
to conduct the task of financial
accounting.
information is given to internal stake
holders such as managers, Chief
executive officers, chief financial
officers etc.
 For performing management
accounting, no specific standards are
follow by staff members of connect
catering firm (de Lautour, V.J., 2019)
There are different type of management accounting system used in business, few example
of these are as follows such as -
Inventory management system- As inventory in the organisation changes constantly
due to the reason of daily sales, receipts, returns, damage, theft etc. that leads to develop various
problems also in the company. So to overcome with the issues of overstocking and under
inventory, proper stock management system is used. There are various methods like LIFO,
FIFO, HIFO, weighted average are followed by manufacturing concern to make control over
their inventory. As connect catering services use inventory management system to track all their
stock that are used to serve their services. The storekeeper of company use FIFO method but in
some cases HIFO method is adopted by them. For effective results storekeeper maintain bill of
material and proper recording of stock receipt, sales or return is done on cards. The need of this
system in connect catering is that it helps to avoid problems of obsolence. If inventory is over
than it tends to create difficulty to manage and to place such extra stock. It leads to increase
expenses related to carrying cost which indirectly makes negative impact on profitability of
connect catering so their requirement is must in business to eliminate unnecessary expenses
(Garrison, R.H. And et. al., 2010).
System relates to cost accounting- It is generally adopted by manufacturing company
to ascertain the indirect , direct cost that are implied in producing particular product in the
industry. In this system costing of specific item is to be calculate for the purpose to set profit
margin and fixing selling price. As organisation connect catering follow this system for the

purpose to analyse fixed , variable and semi- variable cost. The basic requirement of such system
is in the organisation is to ascertain the cost as well as to do allocation in appropriate and
effective manner (Kibangou, S.R., 2019)
Job order costing – In this method costing is differ from product to product. As per
specification of customer , order is completed and each order has different prices. It is commonly
used in producing company. The need of this system in connect catering company is to traced the
cost of direct material and direct labour as well as direct overheads. so that smart work force
take most appropriate decision and frame smart strategies to lower the cost of production.
Price optimisation system- It is a strategy with which a company, after getting to know
how sensitive its existing clients are to changes in product prices. It is most significant
component for over all price management which is crucial to profitability. The organisation
connect catering use this system because it help executives to set most suitable prices for their
product & services to serve the purpose of selling the product to customers. It also help to
identify that cost which is fixed for services or items are capable to satisfy clients expectations or
not (Lukka, 2014)
P.2. Methods used for the purpose of management accounting reporting ?
Management Accounting reporting is the process in which various management
accounting reports are generate, also in these reports detailed information regarding performance
of organisation is mentioned. The use of management accounting reporting is very important in
business because in the business various activities related to decision making, planning,
performance measurement, book keeping, regulating etc is to be done and it become possible
only with the help of it. Managers of connect catering time to time analyse such reports to
highlight some specific patterns as well as to convert them into important data and useful
information with is beneficial for organisation (Relander, 2020).
In the below paragraphs some examples of management accounting reporting is describe
such as -
Performance report- this report is maintained in company to review their performance
at particular period of time. Top manager can take investment decision and other import
decisions on the basis of these reports only. With the help of these report connect catering

company decide and give incentives to workforce. To make increment in the performance of
employees as well as on business operations, entities framed various smart strategies after
analysing these reports. As per the efforts put by employees in completing the task which were
given to them, and on the basis of financial performance dividend & bonus is decided
(Rosenthal, 2019)
Inventory management report- This main objective behind preparation of such report is
that it become possible to track record of inventory. It is most valuable for manufacturing
company. Connect catering through preparing this report easily analyse their stock level and take
effective decision to solve the problem of under stocking and overstocking. It also provide
information regarding ordering cost and carrying cost. For the entity it is most advantageousness
because stock status that whether the inventory is in warehouse, transit or delivered is to be
analyse with the help of this.
Budget report- It is an internal report of the firm which is used by management for the
purpose to make comparison between estimated and actual results during particular accounting
period. Connect catering company maintained various budgets like master budget, overhead
budget, sales budget, cash budget, etc and conclusion of all these budgets are mentioned in the
main report so that they can easily compare and take effective decision to meet the difference
that exist. This report help firm to determine in advance that whether staff members &
organisation meet the projections or not (Suomala, 2012)
Accounts receivable report- this report cover the information related to credit sales.
This report gives an overview of credit balance during the financial year. On the basis of credit
days, category are set such as one month late, 45 days, 120 days etc. so that it become simple to
observe the total outstanding during particular period of time. Credit policies can also be
adjusted by Connect catering company with the help of this report. The finance team of Connect
Catering services prepare this report after analysing vouchers. These reports also support to
collect money in exchange of bills. Connect catering prepare such reports and mentioned the
details of debtors such as their name, credit value, recovery date , address and other personal
information. On the basis of these report follow up regarding is taken by their executives at
regular period of time as it is done with the intension to fast recovery (Warren, 2020)

M.1. Management accounting system benefits and their application in context to organisation?
Management Accounting system as well as their benefits
Management accounting system Benefit
Inventory management system Connect catering company use this system for the
purpose to ascertain better product visibility in the event
of recall. By using this system , company avoid the
problem of excess stock as well as eliminate unnecessary
charges such as ware house cost, lighting expenses,
ordering cost, carrying cost etc.
Price optimisation system As connect catering fix different suitable prices for
different styles and menus of food and for services as per
the occasions so this system supports the company to
meet expectations of customers.
Cost accounting system As by using this system connect catering can easily
collect the information which is relates to cost and
proper planning is done on the basis of it so that
company can get competitive advantage.
Job costing system It is most flexible method. With support of this system
connect catering can easily analyse indirect cost that are
incurred at the time of performing task related to
business operations. And if the cost is unnecessary than
effective strategies are formulate as well as initiative
steps are taken to decrease such indirect cost.
D1 How management accounting systems and reporting is integrated in the organisation.
For beneficial to connect catering it is most significant for company to integrate both the
activity such as accounting reporting and management accounting system for the purpose to

resolve financial issues. It also supports management team to do effective decision making as
well as to prepare plan so that goals and objectives can easily achieve by the organisation.
Through preparing and maintain detailed transactional records which are perform by prime
furniture in managerial reports can tends to become possible to prepare only if correct
management accounting system are used like inventory management system. As it helps to
provide appropriate information regarding present inventory level that tends to be further
recorded in inventory management report. It tends to give true and fair information regarding
stock.
TASK 2
P.3. Ascertain cost with the help of using suitable cost technique to make income statement by
using marginal & absorption costing?

M.2. Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents ?
Management accounting techniques provide more benefits to the organisation because it
support company to prepare and maintain financial statements as well relevant financial
reporting documents like cash flow statement, balance sheet, profit & loss A/c etc. By using
accounting tool correctly the organisation Prime furniture can easily identify the actual financial
position of the company by using various techniques like cost accounting system , financial
statement analysis etc.

D.2.Produce financial reports that accurately apply and interpret data for range of business
activities?
Every organisation prepare financial statement to analyse the performance of the
business. For this cash flow statement, Balance sheet, P&L A/c are prepare by accountants on
the basis of supporting documents such as vouchers , bank statements, Bills etc. Connect
catering industry maintain all their financial documents so that true and fair financial position is
reflected. On the basis of Accounting standards these financial statement are prepare and it is
also signed by Chartered Accounts as it gives surety that all the information are correct in these
financial documents. Financial reports are beneficial for both internal as well for outsiders.
Because investment decisions are taken on the basis of these documents only.
TASK 3
P.4. Explain advantage & disadvantage of various types of planning tools used for budgetary
control?
Budget is a statement where estimation of expenses and revenues are done over certain
period of time and on the basis of period it is generally compiled as well as re evaluated. It can
be develop for a person, business , individual groups , government etc. It is a financial plan
which is done by staff members of finance team as it is consider as formal statement. As per
need various budgets are formulate by executives of Connect catering firm. In budgetary control
procedure it is used where for long term organisation set financial objectives with the reason to
raise performance. With the help of these budgets Connect catering can compare their actual
figures with standards . And smart strategies are made to tackle or control major deviation.
Various budgets are prepare by Connect catering staff such as master budget, fixed
budget, overhead budget, flexible budget etc for smooth functioning of business. Few more
examples are exp[lain as follows along with their merits and demerits.
Cash Budget- It is statement which is prepare by making recording of all monetary
transaction that deals during the financial year. On the basis of quarter or month, recording of all
cash outflows or inflows is done. Organisation Connect Catering developed and maintained
budget so that human resource of company can easily track actual position of cash during a
period.
Advantages:

 It helps to identify deficit fund on time so that they can make arrangement to meet the
demand of cash.
 It also support Organisation to eliminate the unnecessary expenses and leads towards
profit maximisation.
Disadvantages:
 Some times it not reflects true and fair position due to the reason of errors or value skips.
 It is time consuming process and it involves large number of transactions in it.
Operating Budget – It is prepare by the executives to analyse the working capital need
so that regular activities of business can easily functions smoothly. Managers of Connect
Catering prepare this budget to analyse how much amount is need to perform operational
activity.
Advantages:
 It gives information that whether company earn sufficient profit or not.
 By using this current expenses can easily be analyse.
Disadvantages:
 manipulation of figure is the most problem of this budget.
 Long range planning require to prepare budget.
Few planning tools used in the organisation are describe in below maintained paragraphs -
Master budget- In this various budget are included which are prepare by different
department of the company. As it most complex budget because it includes various information.
Variable analysis- As it is a most common feature of quantitative results , it helps to find
out the solution of hardest problem which company face at the time performing the task. In this
variable cost can analyse easily and some strategies are frame to know that in what manner
variable overhead are charge to inventory.
flexible analysis – After the ending of the month it is generally prepare so that adjustment
on static can be done . The main objective of this budget is to determine production cost and
overhead cost that has incurred to produce some unit.

M.3. Analyse the use of different planning tools and their applications for preparing budgets and
forecast?
Contingency tool, forecasting tool etc. are some planning tools which is used to control
the unnecessary expenses that are not covered under the pre-determined budget. LM Engineering
Ltd should use these tools in order to reduce cost of operations and complete the business
activities within pre-determined allotted budget amount. For example, forecasting planning tool
assist management to make proper estimation of future expenses which makes easy for
management to formulate actions and plans in advance to reduce wastage of funds.
TASK 4
P.5. Compare how company are following management accounting system to respond to
financial problems ?
Financial issues are the problems that develops in the organisation with the reason of
insufficient amount of money. Through making proper control over the performance of business
, financial problems can easily be eliminated. Following are few examples of financial issues
that are face by Connect catering company.
Workforce turnover – It is common problem which every organisation face that covers in
this industry. As workers/ employees switch to the new job that give them high wages / salary.
Also if the working environment is not good than it leads to increase labour turnover rate. For
various perquisites , and good packages employees left their current job and shift to new
organisation that serves high benefits. Due to rapid increment in labour turnover, make negative
impact on operations of business , sales, revenues of Connect catering. Because for new staff
again heavy investment is made for arranging training & development programme. It can be
done due to the reasons of superannuation, replacement etc.
Food waste- For caterers it is major issue because it is difficult to ascertain how many
members join the event so there is chances of food wastage is high. As it it is challenge for them
to prepare sufficient amount of food for the event. Connect catering take suitable initiatives to
overcome with the problem.
To overcome with these problem various tools are followed by smart managers of
connect catering industry-

Benchmarking: In this standards are set and on the basis of that measurement of
performance is done. It is most significant tool to business to do comparison .between their own
results with the competitors. Issues of late payment by debtors are easily tackle by connect
catering through comparing their credit policies with their rivals and after that if needed,
variation in their policies are done.
Key performance indicator: This tool is used by the company to analyse performance.
Two type of KPI are used in the company such as financial and non financial. Financials are
related to money like unnecessary expenses incurred . On the other hand non financial are
concerned to analyse problem which is connected to business operations of company.
Organisation connect catering use this tool to solve the both type of problems.
Comparison between two catering firms
Basis Elite catering Ltd Current catering Ltd
Problems Labour turnover is the
challenge that is generally
faced by organisation connect
catering.
Inventory management is the
great problem faced by
production department and
store keeper, Due to abnormal
losses this problems also
increase.
Techniques adopted to handle
the situation
KPI is the best tool used to
solve the issues. This will help
the management team to
improve the performance of
employees so that they get
motivated.
Proper method of cost
accounting and inventory
management system is adopted
by team to avoid the problem
of under stocking and over
inventory.
M.4. Analyse, how , in responding to financial problems, management accounting can lead
organisation to sustainable success ?
KPI, Benchmarking, Financial governance etc. are beneficial to increases the
productivity and performance level of employees. on the other hand, financial governance are
beneficial for large sized organisation.

D.3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success.
Various planning tools are used by the company such as variable budget, fixed budget,
flexible budget, master budget as well as forecasting tools to estimate the unexpected situations
so that it become possible for company to handle such activities. With the help of pre defined
budget, business activities can easily be execute. These tools also support organisation in
keeping away various financial issues.
CONCLUSION
On the basis of deep study and analysis it is conclude that activities can be measuring,
analysing, controlling performance of organisation with the help of management accounting . It
also supports in taking doing effective decision making . In this Different planning tools are
used to serve the purpose of forecasting and prepare budgets. Few examples of such tools are c
zero based, operating, master budget. Abnormal expenses,, non availability of funds, late
payment by clients can handle will the help of these tools to overcome, with these problems .
techniques like financial governance, Key performance indicator, bench marking,are adopted by
organisation to handle such situations.

REFERENCES
Books and Journals
Cheng, M.T., 2012. The joint effect of budgetary participation and broad-scope management
accounting systems on management performance. Asian Review of Accounting, 20(3),
pp.184-197.
de Lautour, V.J., 2019. Strategic Management Accounting, Volume III: Aligning Ethics, Social
Performance and Governance. Springer Nature.
Garrison, R.H. And et. al., 2010. Managerial accounting. Issues in Accounting Education. 25(4).
pp.792-793.
Kibangou, S.R., 2019. The use of management accounting tools to improve the business
performance of small and medium manufacturing enterprises in Cape Town (Doctoral
dissertation, Cape Peninsula University of Technology).
Lukka, K. and Vinnari, E., 2014. Domain theory and method theory in management accounting
research. Accounting, Auditing & Accountability Journal. 27(8). pp.1308-1338.
Relander, M., 2020. Management Accounting Change and Stability-Resistance and Barriers to
Change.
Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Rosenthal, C., 2019. Accounting for slavery: Masters and management. Harvard University
Press.
Suomala, P. and Lyly-Yrjänäinen, J., 2012. Management accounting research in practice:
Lessons learned from an interventionist approach. Routledge.
Warren, C.S., Jonick, C. and Schneider, J., 2020. Accounting. Cengage Learnin