Management Accounting System and Techniques for Cost Analysis

This document provides an overview of management accounting systems and their essential requirements. It discusses the different types of management accounting reports and their importance to management. It also explores cost analysis techniques for preparing income statements and calculating costs. Additionally, it examines the advantages and disadvantages of various planning tools. The document offers expert guidance and insights to improve knowledge of management accounting.

Unit 5 Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................4
TASK 1 ...........................................................................................................................................4
P1 Management accounting system and their essential requirement..........................................4
P2 Type of management accounting reports and its importance to management.......................7
M1 Various type of system and their benefits ...........................................................................8
TASK 2............................................................................................................................................9
P3 Cost analysis techniques to prepare income statement to calculate cost...............................9
M2 Range of management accounting techniques....................................................................14
P4 Advantage and disadvantage of various types of planning tool..........................................14
M3 Evaluation of planning tool for preparing budgets.............................................................15
P5 Adaption of management according to respond financial problem.....................................16
CONCLUSION .............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Management accounting known as managerial accounting system that aid organisation to
operate their business operations. Management accounts are of different types which is essential
for managers to undertake as to formulate decisions in best effective manner. With the help of
accounting system managers can make internal decision-making process related to financial and
non-financial aspects in best effective manner. Management accounting system benefits
organisation to take advantage of different tools, techniques and methods and conduct operations
of company in best effective manner. As to effectively understand concept and practices of
management accounting Essentra Packaging is used in present report. In this project formative
discussion has been made on management accounting concepts. Further report include
managerial techniques along with disadvantages and advantages of planning tool.
TASK 1
P1 Management accounting system and their essential requirement
Management accounting: It is a systematic process that include different types of
activities such as presentation, analysation and collection of non-monetary and monetary terms.
By undertaking management accounting organisation can effectively able to take numerous
advantages through which their can further able to accomplish their daily basis operations related
to planning, organizing, staffing, decision-making and controlling in best effective manner. Thus,
it is essential for Essentra Packaging to understand importance of management accounting in
order to conduct their daily basis operations. This will significantly aid them to accomplish their
short as well as long term objectives in best effective manner.
Reliability:
It is essential for an organisation to have all the essential and related data as well as
information in reliable manner. This will further aid company to undertake best effective form
decision-making process in order to improve future performance of organisation.
Up to date:
It is the basis responsibility to company managers to make sure that informations that are
covered in accounting statements are accurate and up-to-date. With the help of best effective
form of accounting system organisation can effectively able to maintain financial records as to
operate their business functioning in best effective manner while assuring market stability.
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Different Types of accounting system:
Price optimisation system –
Price optimisation system aid organisation to evaluate price of their related products as
well as services. This will allow Essentra Packaging to review perceptions of customers on
different pricing level. With the help this company can able to gain sustainable advancements in
marketplace with larger competitive edge organisation is required to set price of products and
services in a well structured manner. This will allow company to significantly increase overall
profitability of organisation. In order to accomplish this organisation is required to identify
behaviour of customers related to products and service.
Inventory management system -
Organisation is required to manage their day to day function, for this they are required to
keep constant track of their inventory segment. Inventory management system allow company to
have regular track on their utilization of resources. This will allow them to reduce unnecessary
amount of wastage. Further it has been identified that, it is essential for Essentra Packaging to
undertake different strategies related to inventory management as this will benefit them to
control their excess wastage and expenses. With the help of this company can effectively able to
engage in cost-effective manufacturing process. This will significantly aid company to enhance
their profitability and productivity. Thus, It is essential for Essentra Packaging to implement
inventory management system within their operational system as to gain maximum advantages
while reducing necessary amount of wastage.
 LIFO –
◦ This method indicates that those stock that come at the end will go out first. Thus,
LIFO method is last in first out.
 FIFO –
◦ FIFO method is stock coming first and sale out first. Thus, in FIFO there is the
process of first in first out.
 AVOC –
◦ AVOC method included calculations of cost of inventory on average basis.
Cost accounting system –
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Cost accounting system benefits company with numerous form of benefits for an instance, it will
allow organisation to effectively manage their cost input in each and every activity. With the
help of this they can enhance organisational overall profitability in best effective manner. In
addition with this, organisation can conduct their activities related to understanding, evaluation
and summarising of cost of services and goods in a well define manner. It has been further
identified that cost accounting system benefit Essentra Packaging to operate their business
functions with estimated cost and further increase overall profitability of organisation in best
effective manner.
Job costing system –
Job Costing system allow organisation to evaluate organisation overall expenditure rate
during the process of particular job. This method is mainly suitable in those organisations those
who are engage in providing multiple products and services to customers. As Essentra Packaging
engage in the process of offering different form of manufacturing services to customers. Thus, it
becomes important of company to make effective evaluation of every single individual unit cost.
Essentra Packaging by udertaking job costing system can able to gather required data which is
affiliated with particular assigned job. There are some certain data as well as information which
is being defined below that can be undertaken by company with the help of job costing system:
Direct material –
It is most crucial element in variable cost. This will allow organisation to have
continuous track on this manufacturing segment. This will benefit them to manage their
organisational cost linked with particular job.
Direct labour –
This factor signifies that organisation can have regular track on their specific job. With
the help of this company can effectively able to accomplish their tasks and operations within
specified period of time .
Overhead -
At the last ending phase of every accounting period all sum of every cost to apply
methodology linked with allocation.
Difference Between Management Accounting and Financial Accounting
Management Accounting Financial Accounting
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 In management accounting there is no
internal regulations and it is mainly use
of internal use only.
 Financial accounting is mainly
regulated by law and are basically for
external use.
 Management accounting provide
detailed analysis of qualitative,
financial and non-financial form of data
and information.
 In this there is a overview of
performance of organisation that
mainly include financial information.
 In this there is no indulgence of legal
requirements in order to prepare
management accounts.
 In this, organisations have limited
liability as per law as to develop
financial accounts.
P2 Type of management accounting reports and its importance to management
There are numerous form of management accounting report that aid an organisation to
maintain proper record of their financial informations. With the help of this they can
significantly able to manage their day-to-day functioning while assuring sustainability increase
in organisational profitability. Mentioned below there are some system that will aid beneficial
advantages of organisation in order to increase efficiency of daily basis functioning:
Cost managerial accounting report:
Cost managerial accounting effectively aid organisation with management of their daily
basis cost and expenses accurately. In order to effectively operate their functions company is
required to evaluate cost of products as well as services. With the help of this company can
effectively able to identify their ratio of profit as well as loss of products and services. This
further allow company to control their unnecessary cost and expenses. This will also benefit
company to conduct their operations in cost effective manner and further offer their products and
services to customers in cost effective manner.
Budget report:
With the help of budget report organisation can effectively able to determine the overall
amount of spending on organisation on annual basis and can further further able to control
unnecessary expenses and waste. In addition with this, it is essential for organisation to ensure
that budget should be genuine and are must be presented at the year end. Thus, it is essential for
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organisation to undertake this form of budget report in order to conduct comparison between
actual report and budget within accounting. After the completion of this report it is essential to
present this in front of upper level of manager in order to effectively access budget authenticity.
With the help of this company can effectively able to manage their cost as well as expenses in
best effective manner.
Performance report:
It is a systematic layout that basically include cost that incurred during the completion
of project. In this leader of an organisation effectively consider all essential resources in order to
achieve long term and short term objectives of organisation. With the help of performance report
organisation can effectively able to have accurate information related to organisation actual
position. This will further aid them to balance performance with set standards. With the
effectively evaluation of performance leader can able to undertake strategies and can further
implement plans and policies in order to effectively accomplish organisational goals in best
effective manner. In addition with this, it has been determined that performance report aid
organisation to accomplish their organisation goals and objectives in best effective manner. With
the help of performance report organisation can effectively able to identify the fund that are
required by them in order to expand their short and long term goals. This will allow them to
expand their services at international market in best effective manner. In order to ensure
efficiency of performance it is the basic responsibility of supervisors as to effectively have track
on their plan in order to ensure that all the activities are operated on continuous basis. With the
help of this managers can effectively able to expand their business while gaining more
competitive advancements.
M1 Various type of system and their benefits
System Benefits
Cost Accounting system  This system aid an organisation to identify
unnecessary and unexpected cost that prevails in an
organisation. With the help of this they can
effectively able to improve profit holding capacity
of organisation.
Inventory Management System  Inventory management system aid company to have
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proper and effective record of inventory ratio. This
will allow organisation to offer their products and
services according to defined cost.
Job Costing system  Job costing system benefit organisation to identify
their functioning in best effective manner and can
maintain profit holding capacity of organisation.
Price Optimisation System  Price optimisation system aid organisation to
effectively analyse current market condition and
then offer their products and services according to
need. With the help of this they can effectively able
to gain more competitive advancements while
increasing consumer base.
TASK 2
P3 Cost analysis techniques to prepare income statement to calculate cost
Marginal Costing:
It is termed as a techniques that are mainly undertaken in order to evaluate marginal cost
of units. Most important aim of this method is to identify expenses that undertake because of
production of additional unit of juices. In context with Essentra Packaging this technique is
undertaken by manager as to identify cost of every unit. Mentioned below cost of profit with the
help of this techniques is defined below:
Particulars November (£) December (£)
Sales 500000 600000
Less: Cost of sales
Direct Material Costs -180000 -216000
Direct Labour costs -40000 -48000
Variable Production
Overheads -30000 -36000
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Contribution 250000 300000
Less:
Variable selling
overheads (10% sale
value) -50000 -60000
Fixed selling expenses -14000 -14000
Fixed Administration
Overhead -26000 -26000
Fixed production
overheads -99000 -99000
Net Profit 61000 101000
Absorption costing:
It is consider as a costing technique that are undertaken by organisational manager to
evaluate cost that are mainly linked with manufacturing activities of particular product. In
Essentra Packaging that technique is undertaken by organisational management to ensure that
costs that have taken place because of production of diverse unit get duly absorbed from the
revenue of then same. Mentioned below calculation of profit with the help of this method is
being defined:
Particulars November (£) December (£)
Sales 500000 600000
Less: Cost of sales -340000 -408000
Gross profit 160000 192000
Variable selling
overheads (10% sale
value) -50000 -60000
Fixed selling expenses -14000 -14000
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Fixed Administration
Overhead -26000 -26000
Under/overabsorbed prod
expenses 9000 -9000
Net Profit 79000 83000
M2 Range of management accounting techniques
Organisation can effectively able to perform their operations with the help of
management accounting techniques. These techniques are most important tool that aid company
to effective-d prepare their financial reports and techniques in best effective manner. In order to
ensure smooth functioning management accounting will effectively benefit company to measure
to effectively determine variance in variable cost treatment.
P4 Advantage and disadvantage of various types of planning tool
Budget is known as an one of the important instrument which helps organisation to make
an estimate about the expenses that occur in the organization. It help companies to achieve their
task on time in an effective manner. In the organisational structure of Essentra, manager can
control their expenses with the help of different form of budgets. In addition with this, it also
permit organisation to solve different types of uncertain situations. There are two types of budget
which are discussed below:
Budgetary control:It is a system as to effectively monitor process in organisation in
terms of budgetary, monetary types, operating and non-monetary budgets. This budget
significantly aim towards provide benefit to manager as to help them to coordinate their
functions as to effectively fulfil organisational goals. This budget provide clear set of guidelines
related to expectation and organisation resource.
Operational budgetary control: This process effectively aid manage to frame performance and
financial goals in accordance with budget. In addition to this, it has been identified that
comparing budget with actual set of operational result is mainly termed as budgetary control.
With the help of operational budgetary control manager can define organisational goal and
further make formative efforts as to achieve them in well defined manner.
Advantages:
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 It aim towards making significant increase in organisation profitability and further
formulate coordination. It is also use in measuring performance and significantly reduce
the cost that are associated with manufacturing process.
 This helps in increase organisation productivity while maintaining cost margin. In
addition to this, it also aid in making introduction of incentive schemes of remuneration.
Disadvantage
 It may increase number of conflicts among various department as every manager have
different set of perception.
Variance analysis:
Variance analysis is termed as a study of derivations of actual behaviour against planned
behaviour within budgeting. In addition to this, it is also signified as quantitative investigation of
difference among planned and actual behaviour. Along with this there are distinguish variance
like labour rate, variable overhead variance and purchase price.
Standard costing:
This is mainly a standard costing that are undertaken by manufactures as to make
significant difference in between actual and desired cost that has been undertaken as to produce
goods. In this the cost that mainly take place for actual good output is termed as standard cost.
Fixed Budgets:
Fixed Budget effectively aid managers to allot funds in a fixed manner as to conduct
activities in best effective manner and also in perfect time frame. By undertaking fixed budget
managers can not change allotted funds in any possible conditions. This will effectively allow
company to operate their functions in best effective manner.
Advantages: With the help of fixed budget organisation can effectively able to
accomplish their short as well as long term goals and objectives in best effective manner and
further can accomplish their organisational objectives.
Disadvantage:In this there are many changes occurred within external and internal
environment. Thus, fixed budget create numerous obstacles in front of organisations that may
lead towards downfall of company.
Cash Flow Budget: In Essentra Packaging it is considered as total computation of outflow of
inflow of funds for particular time period.
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Advantages: With the help of this company can effectively able to monitor cash as to
operate their essential functions in best effective manner.
Disadvantage: This budget have lack of flexibility along with this, it is a time consuming
process.
Capital budgeting:
A capital budgeting is mainly termed as cost take undertake to decide its capital structure
within organisation. In this process evaluation of project cash inflow and outflow takes place as
to identify whether pre-established return effectively fulfil already set benchmark. Main method
of budgeting include payback analyses, throughput and discounted cash.
Advantage:
 It significantly aim towards identifying risk along with its effect.
 In addition to this, it increase wealth of shareholders and further undertake effective
control over expenditure.
Disadvantages:
 This does not aid organisation in their short term investment and are mainly used for long
term decision.
NPV:
It is termed as net value present value of project. With the help of this organisation can
able to identify best price for their project. In addition to this management can effectively select
effective profitable investment for entity.
ARR:
Annual rate of return is mainly undertakes by an organisation as to decide where to make
significant investment of money. It is mainly percentage rate of return which is expected on
investment.
IRR:
IRR ( Internal rate of the return) is mainly a rate of return at which IRR is to NPV. With
the help of this organisation can significantly able to identify attractiveness of investment. In this
if Internal rate of the return exceed organisation need rate of return that project is effectively
desirable.
Payback Period:
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It is mainly a period that depicts initial investment cost can be effectively earned in the
particular period. In addition to this, it is mainly a recovery of cost that undertake during starting
period. Organisation take advantage of this method as to identify when it will start providing
profit over cost for the investment.
M3 Evaluation of planning tool for preparing budgets.
As to perform functions and activities of organisation in best effective manner budget
play key essential role. This will allow company to prepare their plan, strategies, procedures and
policies in best effective manner. With the implementation of different types of planning tools
managers can effectively able to operate daily basis of organisation in well defined manner.
Thus, it becomes essential for Essentra Packaging managers to ensure that they use proper
planning tool as to frame their budget. With the help of this company can effectively able to
increase their productivity and profitability.
P5 Adaption of management according to respond financial problem.
According to the present scenario, The situations of the organizations turns into business
difficulties. Accounting system is responsible for the financial problems of organization.
Financial problems arises when company is not able to meet its outstanding debt. Organisation
have problems that varies according to the performance of employees. Some of the business
problems are discussed below.
Problems of cash flow: The problem of cash flow arises when cash inflow is not equal to
cash outflow or organisation have no amount to pay for their liabilities (Roslender, R., 2016).
The reason behind the problem is either the company is in losses or profit earned by the
company is low. Essentra Packaging is invested high amount in marketing of their brand due to
which their credit increases. Expenses arises in the form of taxes also that has to be paid by the
company to the government. It has been determined that Essentra Packaging is facing this issues
as they are more concerned towards marketing of their company brand. Within this they spend
lot of funds and cannot repay back to creditors on perfect time frame.
Risk management: To remain competitive in the market, risk is to be identified that involves in
the activities of the organization. Risk is eliminated if organizations have proper strategies.
Sometimes Risk leads to financial losses that effect the performance of companies. Essentra
Packaging have designed their own policies and strategies that eliminates the level of risk.
Money management:
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 It is a method related to budgeting, saving ,spending or tracking of the monetary
resources that is controlled by the organisations. This method helps organisation to make
effective use of resources that can lead to generation of profit. Essentra Packaging have
team who can handle and manage money in an effective and efficient manner.
Management accounting approach: It is a technique that helps organisation to solve the
problems that arises in the organisation. The approach provides relevant information to the
employees as well as managers to how to optimize the use organisational of resources. In context
to Essentra Packaging, the financial problems are resolve by different techniques which are
discussed below:
Key Performance Indicator (KPI): This technique is used to ascertain the performance
of the company in relation with other competitors. The main purpose of this approach is to
determine the long term and short term goals. It is considered as an important tool to measure the
performance of the organisation. With reference to Essentra Packaging, the technique is used to
formulate and measure the performance, goals and progress of the organisation.
 Benchmarking: It is a method that helps an organisation to measure the performance in
relation to its competitors. Comparison is done on the basis of quality, strategy and
programs with respect to competitors. This approach monitors day to day performance
and find out the better opportunities for the organisation. It measures and interpret the
performance of the individuals that helps them in achieving their goals.
Financial Governance:
It is mainly termed as a procedure that organisations undertake as to gather data and
information in order to effectively execute their functions in best effective manner. In addition to
this, in relation with Essentra Packaging it is essential for management to implement rules and
regulations as to significantly increase overall productivity of organisation.
Comparison among Essentra Packaging and TPG
Basis of Difference Essentra Packaging TPG
Problem Late payment is the major problem
faced by Essentra Packaging.
Expenses of the company is more
as compare to the profit earned.
The problem that is face by
TPG is management of cash
flow as they spend higher yhe
amount than they earned. The
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These problem affect the working
capital of the organization.
company is not succeeded to
formulate as well as analyse
the strategies that helps in
reducing the level of risk.
Approach Key Performance Indicator is the
approach used by the organisation
to do the comparison in an effective
way and formulate the strategies
against their competitors.
To eliminate the risk or to
manage the working capital,
Benchmarking approach is
used by the organisation.
Management accounting
system
All the above mentioned problem
can be duly resolved with the help
of price optimising system. In this
entity set numerous prices for
products and further select most
suitable one. In addition to this it is
essential for organisation manager
to frame strict policies that further
force creditors to significantly pay
due amount.
By taking use of cost
accounting system within
organisational structure
managers can effectively able
to solve their problems related
to finance.
M4 management accounting system lead to long term sustainable success.
Management accounting system plays a crucial role in every organization to solve the
problems that is related to finance (Anderson and Sedatole, 2013).It provides an organisation to
work in systematic manner. With the help of Management accounting system, large
organisation saves and maintain a record of transactions related to money. It also helps in
maintaining stock. Applying this method helps an organisation to increase the quality of their
product and services that automatically leads to increase in profits.
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CONCLUSION
It has been concluded from the above mentioned report that, management accounting
effectively benefit an organisation to conduct their functions in best effective manner. In order to
operate daily basis functions in best effective manner company is required to frame budget in
order to maintain their financial data. In addition with this, it has been identified that, in order to
determine financial problems organisation is required to take advantage of financial tools and
techniques as to gain more competitive advancements. In this report different types planning
tools with the help of which company can ensure best effective form of profitability and
productivity.
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REFERENCES
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Ittner, C. D. and Larcker, D. F., 2012. Quality strategy, strategic control systems, and
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