Role of Management Accounting and Different Types of MAS

This article explores the role of management accounting and different types of management accounting systems (MAS). It discusses the benefits and drawbacks of planning tools in budgetary control. The article also includes a case study on Associated British Foods Plc.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1............................................................................................................................................3
TASK 2............................................................................................................................................7
TASK 3............................................................................................................................................9
TASK 4..........................................................................................................................................11
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15
APPENDIX....................................................................................................................................16

INTRODUCTION
The term MA is an accounting system that is aligned with a process of collection of
information regards to transactions of a business entity that happens during a particular time
period (De Loo, Cooper and Manochin, 2015). Under this accounting, data that is gathered has
the nature of both quantitative and qualitative aspects. The reason for which these data are
collected by accountants under this accounting is to produce internal reports that can help in
better decision making to managers. The aim of project report is to communicate and develop
better understanding about MA in broad manner by covering its various aspects. The company
that has been chosen in project report is Associated British Foods Plc, headquartered in London
United Kingdom. This company is world's second largest manufacturer of sugar and baker's
yeast.
The project report covers about various MAS, MA reports. As well as under the report,
vital range of budgets are discussed in and role of MAS in order to sort out monetary issues is
also demonstrated.
MAIN BODY
TASK 1
Role of MA and different kinds of MAS.
Management accounting – This is an accounting system aligned with procedure of preparation of
internal reports in order to better management of different aspects. Under these internal reports,
information about monetary and non monetary transactions is included. In addition, this
accounting is suitable for business entities in order to take suitable internal decisions of various
aspects in an effective manner. Below some role of this accounting are demonstrated:
 Helps in planning- This accounting is useful for companies in order to make planning of
future circumstances (Bolt-Lee and Monte Swain, 2016). It is so because by gathering
key information about financial and non financial aspects managers can become able to
make plan of further activities. Such as in above company, they make plan of activities
regards to production by help of this accounting.
 Helps in controlling- Due to this accounting, the managers of different departments
control various activities in an effective manner. Like in above Associated British Foods

Plc, their management department controls vital range of activities in an effective manner
by help of information provided by this accounting.
 Helps in decision-making- Another role of MA is that, by help of this accounting
business entities take corrective decisions. Like in Associated British Foods Plc, their
managers take right decisions about utilisation of both monetary and non monetary
resources.
Types of MAS:
 Inventory management system – This can be described as a form of accounting system
associated to the organized process of concentrating on those operations related to the in
and out of inventories in a business enterprise (Sands, Fonseka, 2016). Such accounting
system is primarily focused on inventory valuation using various tactics like LIFO (last in
first out), FIFO (first in first out) etc. It's vital for industrial companies to control costs
linked with different sorts of tasks e.g. purchasing and handling costs, carrying costs, etc.
According to the LIFO process, the finished products are first utilized for processing.
While using the FIFO process, good that had been purchased first is firstly used for
processing. Company's manufacturing division handles qualitative product aspects in the
above Imperial brands business. These both methods are based on different approaches
and also provides different values of inventories. It assist in effective tracking of different
stocks and minimises normal wastage.
 Price optimisation system- It is a sort of accounting system wherein different kinds of
structured operations are undertaken to determine product rates or prices. It mainly
emphasise on setting of appropriate price at which corporations sales is highest. Under it
managing personnels acquires information regarding customers' reactions at distinct
level of product price and also effects of any particular price level on company's future
sales. The sales division of corporations set a price of manufactured products based on
such acquired information. Businesses require these to successfully update as well as
adjust prices of multiple kinds of products. Different types of pricing tactics like price
skim, exploitation policy and many others are employed in such system. This system is
used by corporation's sales department from the aforementioned Imperial brands sector to
review pricing of company's tobacco products.

 Cost accounting system- This can be characterized as a form of accounting-system
wherein all costs and expenses related to different tasks and processes are effectively
monitored and controlled by business enterprise (Jacková, 2016). Under it different costs
are categorised as per their nature and form like fixed and variable. It is crucially needed
by corporations to manage and control distinct expenses related to different operational
and organisational activities. This system's aim is to concentrate on such factors that lead
to increased operating costs. This systems formulates two key methods to implement
entire cost accounting system, as discussed below:
* Job costing- It is job based costing method which primarily focuses upon assignment of
numerous costs and expenses to different jobs or key tasks. Under it managing officials
first classifies different jobs and tasks which contributes in core operation of business
then different incurred costs are assigned accordingly to each of such tasks and jobs. In
this form of costing sales and supplies are considered as job cost orders and treat them
accordingly. It helps to identify any excess spending on particular task or job.
*Process costing- It is process oriented costing approach under which key process are
identified by managers and then costs are allocated to each these processes. It assist in
finding of any costly processes or uneconomical processes.
MA reports- These are kind of written document which consists information about financial and
non financial aspects of companies during a particular time period. Below some types of reports
are described in such manner:
 Account receivable ageing report- It is a type of report which is prepared for finance
department of a company (Gurarda, 2015). This report consists information regards to
those debtors whose payment is due even after last date of payment. Along with the
amount of collection, report contains date of transaction and last date of payment. Due to
this, it becomes easier for companies to compute total interest amount. In the Associated
British Foods Plc, their finance department utilise key information by help of this
accounting report.
 Stock report- This is a kind of report under that information about valued stock, is
included. The purpose of preparation of this report is to helping production department so

that they can take corrective action regards to manufacture. The report contains
information about total purchased quantity of material, quantity of material used for
production and material remained unused after production. Like in the above Associated
British Foods Plc, they are preparing this report in order to help their production
department to produce commodities as accordance of stored quantity of material.
 Performance report- This report includes information regards to each activity and
individuals performance. It becomes possible because in this report, data about estimated
outcome and actual outcome is included. On the basis of this information, managers of
business entities analyse the variations which may be adverse and favourable. In the
context of above Associated British Foods Plc, their managers utilise key information
through this report and take corrective actions regards to growth & promotion of each
employee.
 Cost accounting report- Under this report, detailed information regards to overall
expenditures is included (Chak and Fung, 2015). This report is beneficial for finance
department of companies because by assessing key information through it, they inform to
management about need of futuristic funds. As well as highlights those activities and
operations that are resulting as higher cost compare to standard cost. In the above
Associated British Foods Plc, their accountants are preparing this report in order to help
their finance and management department to take corrective actions accordingly.
Benefit of MAS :
Name of MAS Benefits
Inventory management
system
This system is useful for companies in order to manage different
form of stock. In the Associated British Foods Plc, their production
department utilise important information through this system and
take corrective actions.
Price optimisation system It is beneficial for business entities for setting prices of products
and services at a level that is affordable for customers. In the above
company, their sales department revise and set the price of products
as accordance of customers' feedback about their offered products.

In addition this accounting system is helping them in increasing
total sales outputs and revenues. It is so because if prices will be
satisfying for customers then automatically more revenue will be
generated.
Cost accounting system This accounting system is useful for companies in order to keep
total cost of various operations and activities below of standard
cost. In relation to above business entity, their finance department
utilise key information and minimise total cost of production. Due
to this they become able to gain competitive advantage over rivalry
firms because if cost of operations will decrease their revenues will
increase.
Evaluation of integration of MAS and MA reports with organisational process.
Different types of MAS links with companies process (Vann, 2016). Such as in the above
Associated British Foods Plc, their accounting systems like cost accounting system, inventory
management system etc. are linked with different department. Such as cost accounting system
with finance department, inventory management system with production department are
interrelated. Same as the MA reports are also aligned with various department of above selected
organisation.
TASK 2
Preparation of income statement as per the absorption and marginal costing method.
Business entities, produce income statements on the basis of different kind of techniques
and some of them are mentioned below :
 Marginal costing – It is a type of costing technique in that flexible cost is charged to cost
of unit and fixed cost is charged completely against contribution (Harrison and Lock,
2017). This costing system has some benefits and drawbacks such as:
Benefits- This costing system is beneficial for short term decision-making for companies.
Limitations- In this costing, it is difficult to split variable and fixed costs.

 Absorption costing- This is a kind of costing method, in which cost of product is
calculating by considering all costs as unit cost.
Benefits- It is beneficial for companies in order to track the profitability in an effective manner.
Drawback- It is not suitable for making comparison of product lines.
Income statements as per marginal costing :
Cost card (Marginal costing)
£/unit
Direct material 15
Direct labour 25
Variable Production Overhead 10
Marginal Cost 50
Selling price 70
Less- Marginal cost 50
Contribution 20
Profit and loss account:
Particulars Amount (£)
Sales revenue (18000*70) 1260000
Less: Variable cost
Direct material (19000*15) 285000
Direct labour (19000*25) 475000
Variable cost (19000*10) 190000
Less : Closing stock (1000*50) -50000 -900000
Contribution 360000

Fixed production overhead -130000
Profit 230000
Cost card (Absorption costing)
£/unit
Direct material 21.5
Direct labour 31.5
Variable Production Overhead 16.5
COGS Per Unit 69.5
Absorption cost of product 130000/ 20000= 6.5
Selling price 70
Less- Total cost 56.5
Gross Profit 13.5
Profit and loss account :
Particulars DR CR
Sales revenue (18000*70) 1260000
Less: Cost of sales (19000*69.5) 1320500
Less- Closing stock (1000*69.5) -69500 -1251000
Gross Profit 9000

+/- Over/Under Absorption 6500
Net Profit 15500
Working Note*
Calculation of Over absorption
Fixed Production Overhead with budgeted production 130000
Fixed Production Overhead with actual production 123500
Over absorption 6500
MA techniques for preparing reports regards to selected company.
In order to prepare financial statements, there are different types of techniques that are
being applied by accountants. Under the project report, income statements are prepared as
accordance of absorption and marginal costing techniques. Apart from these techniques, there are
some other techniques too which play a significant role in process of preparing income
statements. For example standard costing, activity based costing etc. that are being used by
companies for producing financial statements.
TASK 3
Benefits and drawback of planning tools of budgetary control.
Budgetary control- This can be defined as a kind of technique that is linked with process
of management of financial aspects of companies by help of different kind of budgets (Maskell,
Baggaley, 2017). The Associated British Foods Plc, is producing different kind of planning tools
that are as followings:
 Capital budgeting- This is a type of budgeting in that various kinds of investment
appraisals are assessed in order to evaluate their efficiency. Under it, various types of
techniques are used such as Net present value, accounting rate of return and many more.
Associated British Foods Plc, is preparing this budget for assessing their investments. It
has below mentioned advantages and disadvantages such as:

Advantage- It helps to companies in order to choose investment alternatives inn an effective
manner which leads to higher amount of return.
Disadvantage- It consumes too much time and cost in order to making evaluation of various
alternatives.
 Operational budgeting- It is a type of budgeting technique in that estimation of various
kinds of aspects is done in order to complete different operations in an effective manner.
This is suitable for those companies wherein large number of operations are operated. In
this budgeting approach, a proper variance analysis is done by making comparison of
actual outcome and estimated outcome. Associated British Foods Plc, is preparing this
budget for managing their over all operations. It has below mentioned advantages and
disadvantages such as:
Benefits- This budget helps in the aspect of allocating overall funds for long term planning as
well as it is flexible to use.
Drawback- This budgeting approach consumes too much time and cost which is not affordable
for small business entities.
 Flexible budgeting- It can be defined as a type of budgeting technique in that amounts
entered in budget can be change as accordance of variation in total production units and
volumes. In the aspect of Associated British Foods Plc, this budget is used for those
activities which have nature of fluctuation during accounting period.
Benefits- The key benefit of this budgeting is that it is easy to use.
Drawback- This budget leads to fraud and manipulation of data because it allows employees to
make changes.
Use of planning tools for preparation of budgets.
This is compulsory for companies to make proper estimation of their income and
expenditures so that better utilisation of financial resources can become possible (Gibassier and
Alcouffe, 2016). There are different types of budgets which are prepared by companies in order
to control their monetary resources. In the aspect of above respective Associated British Foods
Plc, their accountants are preparing different budgets such as operating budget, capital budgeting
etc. These all budgets help in projection of upcoming time periods' budgets.

TASK 4
Demonstration of ways through which monetary issues are sorted out by help of different kind of
MAS.
In order to assess about role of MAS in the aspect of solving financial issues, this is
important to know about concept of monetary issues and way through which these problems are
deducted.
Monetary problem- In business entities a vital range of issues are faced that can be regards to
financial aspects and non financial aspects (Simionescu and Bica, 2016). The term monetary
problem can be defined as a kind of issue in that companies do not have sufficient value of
financial resources in order to meet criteria of standard set before. Due to this kind of issue,
business entities fail to complete their operations and activities on time, as a result competitors
take advantage of this deficiency in order to beat suffered company. There is no any particular
financial issue that is faced by companies, because it may raise because of lot of reasons. Herein,
below some types of monetary issues are demonstrated below that is as followings :
 Decreasing in ratio of sales revenues- This issue is faced by those companies who fail to
attract their customers in order to buy offered products and services. As a result sales
units start to decrease and it leads to lack of funds for payment of rest of activities. It is
essential for business entities to overcome from this issue in less time period so that they
can sustain in competitive environment. In the aspect of above chosen Associated British
Foods Plc, they are facing this issue and they are unable to generate enough value of
fund.
 Increasing in total operating expenses- It can be defined as a type of issue that is
associated with a situation in which companies total operating expenses start to increase
and this effects to total profitability at end of year (Cooper, 2017). Under the operating
expenditures, different kind of expenses are included such as rent, telephone charges,
electricity bills and many more. In this financial issue, companies do not have enough
amount of funds in order to formulate day to day and long term activities.
Methods to deduct exact monetary issue- This is essential for companies to make focus on key
financial issue that is hampering total revenues. It is so because in the absence of knowing exact

monetary issue, this can be difficult for companies to create effective policies and plans in order
to sort out the issue. Herein, below some methods are demonstrated in such manner :
 Benchmarking- This can be defined as a kind of approach for deducting exact financial
issue in which a company's financial and non financial aspects are compared with another
company in order to find out area of deficit. Due to this companies become aware about
finding actual monetary issue faced by them in different kind of activities and operations.
 Key performance indicator- It is a type of method in that managers of companies become
able to make their focus on those activities which are leading as excellent performance.
This method is suitable for short time period and under it both aspects are measured
including monetary and non monetary elements. In order to measure actual financial
issue, this framework plays a critical role by providing information about each performed
activity and operation.
 Balance scorecard – It can be defined as a type of approach which is related with finding
and enhancement of different kinds of internal business functions. Under this approach,
both monetary and non monetary aspects are covered in order to manage and control
performance (Debnath, 2017). This framework acts as an important part for proper
management of monetary issues faced by companies by evaluation of each segment of
performed activity.
 Activity based costing – It can be defined as a kind of costing approach in which each
activities' cost is identified and allocated to different activities separately. Due to this,
companies can become able in order to make compare of actual occurred cost and
estimated cost of each activity.
 Financial governance- This is a type of method in which business entities monetary
transactions are recorded in an efficient manner so that these data can be utilised in order
to sort out exact issue.
Among these approaches, the Associated British Foods Plc is applying financial governance
method in order to find out exact monetary issue. On the basis of it, they prepare plans in order
to sort out issue in less time period.
Comparison of organisation in order to solve financial issues :

In order to make difference about ways through which monetary issues are sorted out, the
chosen company is compared by its competitor company named as General mills.
Basis Associated British Foods Plc General mills
Monetary
problem
Under this company, the financial
issue that is faced is regards to
decreasing in sales revenues. Due to
this, they do not earning sufficient
value of funds in order to cover cost
of different operations and activities.
The monetary issue of this company is
of increasing in total amount of
operating expenditures. As a result,
their net profit and operating profits are
also reducing which is causing their
other operations.
MAS The managers of company, are using
“Price optimisation system”. The
reason of applying this accounting is
that under it, companies can revise
their price of products at the level that
is demanded by most of the
customers. By implementation of this
accounting system, the sell of their
produced products started to increase
because of affordable prices. Thus,
their financial issue has been sorted
out by this accounting system.
This company's financial managers ate
applying “cost accounting system” that
is linked with process of minimising
actual cost of different operations. By
applying this accounting system, they
are able to focus on those production
activities that are consuming higher
amount of cost compare to estimated
cost. Along with they prevented to
invest in unwanted activities and as a
result their operating expenditures have
been reduced.
MA methods to solve monetary issues.
There are different kind of alternatives in order to overcome financial issues faced by
companies (Samuelsson, Ljungkvist and Jansson, 2016). Among all alternatives, implementation
of MA system is one of the key method of solving issues. As above stated, the chosen company
has been sort out their monetary issue of lower sales by implementation of price optimisation
system. Along with their competitive company also resolved monetary issue by applying cost
accounting system in order to solve problem of higher expenditures.

Role of budgets in order to solve financial issues.
There are vital range of budgets which are produced by accountants of companies with an
objective of controlling financial aspects (Sundin and Brown, 2017). Such as the chosen business
entity Associated British Foods Plc, is preparing and applying different budgets for managing
their monetary resources. Due to this better management, they are able to get possible
alternatives for sorting financial issues. The budgets that are prepared by accountants are cash
budget, production budget, sales budget and many more. Each element of these budgets play a
crucial role in process of sorting the monetary issues.
CONCLUSION
On the basis of above stated project report, it has been articulated that in the absence of
MA business entities can not manage their different operations. The report concludes about
different MAS like stock management system, price optimisation system and many more. Along
with concept and role of MA reports are also discussed under report. The further part of project
report concludes about different costing techniques such as absorption, marginal and income
statements are prepared on the basis of assumed financial data. As well as importance of
planning tools and MAS in order to sort out monetary issues are included under the report.

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APPENDIX
Financial data for Associated British Food Plc (On assumption basis)