Management Accounting: Types, Systems, and Reporting Methods

This document provides an overview of management accounting, including its definition, evolution, and origin. It explains the essential requirements of different types of management accounting systems and discusses various methods used for management accounting reporting. The document also covers cost analysis techniques, income statement preparation using marginal and absorption costs, and budgetary control tools. It concludes with a comparison of different ways organizations adopt management accounting systems. Suitable for students studying management accounting.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems................................................................................................1
P2: Explain different methods used for management accounting reporting...............................3
TASK 2............................................................................................................................................5
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................5
P4 Budgetary control tools along with their advantages and disadvantages............................10
TASK 4..........................................................................................................................................13
P5 Comparison within ways that adopts by organisation to adopt management accounting
system........................................................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting can be defined as the process that keep records to perform all
work as per internal information and monetary benefits. This refers that with strategic decisions
organisation is able to get better results by managing task with proper budget. Internal
stakeholders determines employees, managers, leaders etc. to analyse business entity for
performing all work with in market. This also leads external stakeholders to understand current
status of enterprise. Moreover, this report is written from perspective of Prime furniture which is
operating their business at small scale level. It also highlights on management accounting to
provide management accounting that is leading company to perform all work as per management
accounting system. Absorption and marginal costing that is used by management to analyse
actual cost of production. In the last, adoption of management accounting system to respond
financial problems will also included in this report.
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems.
Management accounting: This is an operation in which financial information are being
analysed by the help of financial statement so that decision can be obtained and pre decided
goals can be achieved within the given specified time (Ansoff and et. al., 2018).
Evolution and origin of management accounting: At the time of industrial evolution
the management accounting concept was introduced. When the need of decision making was
based totally on financial information these concepts came into existence. Transportation and
textiles are two major components of Prime furniture in management accounting.
Management accounting system: Various type of system which are required to be
followed by organisation so that to get competitive edge and for analysis of financial
performance. Management accounting includes system of cost accounting, price optimisation
scheme etc. Prime furniture is involved in manufacturing activities in order to recognise benefits
of the systems and establishing them considerably. These factors are explained below:
Difference between financial and management accounting:
Management accounting Financial accounting
 This helps the manager to take profit
generating decisions for the business
 This helps the management team in
recognising real financial position of
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entity.
 This assist in providing all kind of
monetary and non monetary
information.
the organisation with the help of annual
financial statements.
 It renders information only for
monetary terms.
Different management accounting systems are as under:
Cost accounting system: This is a system which assist in rendering information which
are related to cost of the company that are engaged in manufacturing numerous products and
services. In the context of Prime furniture, this system renders all the relevant information of
manufacturing activities so it is necessary for them to follow this system. Preparation of efficient
budget will be easier for department of finance so as to forecast future activities related to the
business (Bryce, 2017). Two types of coast are incurred during production process which is
direct and indirect costs. Direct cost are allocated directly to the manufacturing activities
although indirect cost s are allocated to provide assistance in direct manufacturing activities.
Inventory management system: It is a system which helps in proper maintenance of
existing stock level so that to fulfil requirements of customers. Prime furniture is supposed to
acquire this system so as to establish effective relation with clients and by keeping appropriate
level of stock in warehouse and supplying products on time to the customers they can increase
customer loyalty (Certo and et. al., 2016). Inventory management system is of three types which
are FIFO, LIFO, AVCO. LIFO can be defined as the last purchased inventory will be processed
first. FIFO means earliest purchase will be firstly processes and AVCO means the method in
which cost get distributed on the basis of produced units. Management of Prime furniture is
accountable for collecting information regarding these inventories through this system of
inventory management.
Price optimisation system: The system of price optimisation involves taking out
information regarding concept of client for newly established pricing policy that is necessary to
keep loyal customers in the business. For Prime furniture it is most suitable as this helps in
maintaining current clientele by fulfilling expectations in reference to any change in price.
Job order costing system: This is a system which support all the information regarding
actual cost allotment in process of manufacturing of every unit in the organisation. This helps the
organisation in maintaining proper records of overall costs that generates easiness for the
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manager to forecast the estimated profits. This removes difficulties for the manager of Prime
furniture to terminate the manufacture of those products which are giving less profits and include
larger amount of cost so that it enhances the overall profits of the organisation.
Benefits of management system:
Management accounting system Benefits
Cost accounting system This is used by prime furniture as to keep
records of numerous costs which are incurred
in a business.
Inventory management system This is applied in prime furniture as this helps
a manager to recognise need of stocks in an
organisation.
Price optimisation system Prime furniture uses this system to set proper
prices so as to meet customer's expectation in a
considerable manner.
Job costing system Prime furniture acquire this system for the
benefit so that to ascertain cost allotment at
different level that are carried out to fulfil
customer's expectation.
P2: Explain different methods used for management accounting reporting.
Management accounting reporting: This is a function under which business
transactions are recorded so that management can take decisions which are profit generating to
the organisation and helps the company in long run. This system of reporting involves cost
account6ing reports, report of inventory management etc (David and David, 2016). The manger
of prime furniture are required to make this type of functional report so that to recognise the
actual financial position.
Characteristics of good information system:
 Reliability: Reliability is generated through good information system so that this
provide assistance in recognising current position of the company.
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 Accuracy: If information system is reliable then the gathered information is accurate and
can be trusted by all the stakeholders.
Reasons behind understanding and overall easy to comprehensive of reports:
The management is required to understand and interpret all the reports so that it provides
assistance in taking appropriate decisions for future growth of the business. Stakeholders of
prime furniture are assisted by analysing all the information which are related to accounting
reports.
Types of managerial accounting reports
Performance report: This is a report which helps in keeping records of overall
performance of the company for each operation (Engert, Rauter and Baumgartner, 2016). This is
used by prime furniture for equilibrium asset management so that to record individual and
overall data. This is helpful in giving bonus and recognition as according to the performance so
that incentives can be given as per the objectives attained. This report is advantageous for the
company as this is helpful in preparing efficient strategies to increase performance.
Budget report: This is an intrinsic report which is used by businesses in designing
budget to numerous functional and operational departments (Ginter, Duncan and Swayne, 2018).
This is used by managers to make a comparative study on actual and standard cost of prime
furniture. This is essential for the businesses as this provide assistance in recognising cash
liquidity.
Account receivable report: This report represents the amount of receivable from
numerous customers. Majorly this is prepared by those companies which are giving products on
credit to their customers. Prime furniture uses this to maintain record of outstanding amount hold
by clients. This is benefited to the business as this aid in recognising the amount which is unpaid.
By the help of this report the business can make rigid policies of credit so that to avoid fund
shortage.
Various management accounting system are integrated in organisational process. Price
optimisation system is used by prime furniture in order to set proper prices for the furnitures
made by them. Accounting receivable report are helpful in making appropriate credit policies so
that to recognise money owed by the clients.
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TASK 2
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs.
Cost : This is termed as the total sum which is supposed to be paid by the purchaser to
the seller in the lieu of the product. As to attract huge amount of customer prime furniture set
suitable cost for their furniture.
Various types of cost are explained as under:
 Direct cost: The costs are which are directly allocated to the manufacturing of a product
is known as direct cost such as material cost etc (Hanson and et. al., 2016).
 Indirect cost: The cost which are not directly related to the manufacturing but still
essential in manufacturing process is known as indirect cost such as rent, salaries etc.
Cost analysis: This may be outlined as the procedure which is utilised in order to analyse
the numerous functions which are adopted by the business to generate maximum profit. Prime
furniture uses this aspect so that to formulate appropriate decisions to get long term profitability.
Cost volume profit: This method is adopted by management team of prime furniture in
order to recognise the key changes in profit due to change in cost and sales (Hill, 2017).
Flexible budgeting: This type of budget is used when any alterations and adjustments
are introduced in the level of activities in the organisation. This is adopted by prime furniture for
the aim to making any modification as according to fluctuating sales or cost.
Cost variance: This is defined as a functional tool which is used by prime furniture in
order to get analysis of actual and budgeted cost of manufacturing. This is majorly adopted in
business with the view to make decision strategically.
Marginal costing: This method of costing includes that per unit cost will always be
constant as it divided into fixed and variable costs. The under and over adsorption difficulties is
sorted with the help of using marginal costing. Management opt this method to plan their profits,
determination of break even point i.e. BEP and in fixation of prices.
Adsorption costing: This is a method which is used to prepare all the financial records in
order to get actual profit and transparent view of company's financial performance.
Fixed cost: The type of cost which remains constant irrespective of the level of
production such as factory rent, insurance etc.
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Variable cost: The type of cost which continue to change with increasing sales and
production such as cost of direct materials etc.
Cost allocation: This may be defined as the procedure of identification of the different
activities and assigning costs to them. As in prime furnitures this is used to assigning cost to all
the departments.
Standard costing: The method of standard costing is used to ascertain the variances
between actual and standards cost in prime furnitures.
Normal costing: This method is used to calculate variances of standard and actual
overhead occurred in prime furniture so that to measure performance.
Activity based costing: This is defined as bifurcation of cost on the basis of different
functional activities in prime furnitures. This is used by them so that to analyse actual
performance.
Role of costing in setting prices: Costing is essential in setting prices for furniture of
prime furnitures as it give clear picture of all the cost so that it become easy to determine actual
performance.
Cost variances: Various type of variances are assessed so that to determine the
variations between actual and standard activities (Hitt and Duane Ireland, 2017). In prime
furniture this method is used to ascertain variations between various actual and budgeted
activities.
Overhead costs: overall expenses incurred by prime furniture while manufacturing
furniture are termed as overhead cost such as taxation, depreciation etc.
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TASK 3
P4 Budgetary control tools along with their advantages and disadvantages
Budget- This is consider as the forecasting tool which is used to evaluate, monitor and
calculate future revenues, income and expenses of organisation for a longer period of time. From
the perspective of Prime furniture budgets are produced as demand of clients and requirements of
organisation which are mention as follow:
Preparation of budget- Budget preparation undertakes various steps that are considered
by organisation to identify number of existing resources and future requirements (Trigeorgis,
and Reuer, 2017).
Types of Budget
 Capital budgeting- This budgets are utilised by organisation to exercise and records all
activities which requires large number of investment or monetary resources to perform
operations of Prime furniture.
Advantages Disadvantages
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This record all information for finance which is
invested in projects to examine financial
performance of organisation.
Large number of records are managed by
organisation which is complex to control and
monitor.
 Operating budget- It is defined as the approximation related with future income as well
as expenses on basis of past sales. This is also used by organisation for supporting
associate and executives of business for identifying proper utilisation of resources
through allocating them in appropriate manner.
Advantages Disadvantages
This provides overall view related with
monetary utilisation of resources.
It is complex to changes figures due to
changes in overall period.
Alternative budgeting:
 Zero based budgeting- This start from the base of zero which is developed by Prime
furniture that respect customers with purpose of minimising operational cost after
justifying expenses.
Advantages Disadvantages
They are always accurate because it is
formulated on yearly basis.
This is not appropriate for short term plans of
organisation.
 Traditional budgeting- Traditional budget are based on outflow and inflow of cash that
is specified for specific time duration. It consider Prime regular expenses to track
financial resources of organisation.
Advantages Disadvantages
This represent profit and loss of organisation
within clear way.
It reduces ability of credit transactions which
also impact on sales.
Implication of behavioural budget- This helps organisation to perform their work in
coordinated manner that utilised organisation to focus on actual budget rather than it estimated
figures (Rothaermel, 2016).
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Price strategy- To decide right price of products and services that is used by organisation
to decide right pricing strategy. Some of them is considered as below: Penetration- In this an organisation focuses to minimize the prices at initial phase that
are marketed to customers.
 Premium- With premium prices organisation offers to prefer superior quality of goods to
its customers.
 Methods which determines price
To identify price and analyse them to understand market situation which is required by
consumers for understand competitive strategies. Like Laz furniture is major competitor of prime
furniture.
Supply demand consideration- It is based on market conditions which is required by Prime
furniture to gain competitive edge and success (Morden, 2016).
PEST analysis Political- With changes in governmental policies and fluctuations in political conditions
impact on Prime furniture to formulate effective strategies. Economic- Due to instability in monetary aspects and inflation within prices there are
various challenges faced by management but it impacts on prices of products and
services. Social- Due to changes and difference in individuals backgrounds it is complex to
understand potential trend in market.
 Technological- To gain competitive advantage an organisation focuses to perform all
work with latest technological aspects (Meyer, Neck and Meeks, 2017).
SWOT analysis: Strength- Brand image and goodwill of prime furniture is major strength for
organisation. Weakness- Organisation is less interested and focused to invest in research and
development activities due to availability of wrong information. Opportunity- To attain high success and growth company focuses to increase market area
within effective manner.
 Threat- Market competition is major threat for organisation due to which it is complex to
decide right market share.
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Balance score card- It is defined as performance management that is utilised by Prime
furniture management to understand employees behaviour and performance in order to reduce
unfavourable conditions and activities.
Types of costing system
Actual costing- This uses right and actual cost of materials and other essential aspects to
calculate overall production cost of organisation. Moreover, Prime furniture utilise this strategy
as it calculate cost of each item specifically.
Normal costing- The term normal costing includes indirect materials and labour cost to
estimate and analyse right production cost. In simple terms normal costing is simplest method for
analyse cost of production activities (Lasserre, 2017).
Standard costing- with this tool prime furniture prepare right plans for their budgets
that manage and control cost of management performance to estimate actual cost for
organisation.
Capital budgeting revolves close and capital expenditure that includes inflow and outflow of
monetary to complete work as per financial investment. This also refers to a process that is used
by organisation to decide whether commitment must be done in project and not. Along with this
advantages and dis-advantages related with capital budgeting to make correct interpretation for
results. In context of prime furniture capital budgeting is utilised by management to perform
work as per long term investment opportunities to make budgets within proper manner.
TASK 4
P5 Comparison within ways that adopts by organisation to adopt management accounting system
Their are various reasons are present in organisation that includes following:
Sudden expenses- Financial issue face by Prime furniture is because of inefficient
planning that incurs cost and less income.
Late payments by customers- Prime furniture face financial issue is due to delay in
payments among organisation.
To overcome from financial issue some important tool are mention as follow:
KPI– Key performance indicator processes and measure various tools which is track by
organisation to analyse its manufacturing process. It also helps Prime furniture to control
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workers behaviour with its actions that defines performance to measure actions as per determine
goals and objectives (Karadag, 2015).
BENCHMARKING– This is one of the quality improvement tool which identifies what
an organisation done to complete its task by understanding company measure to improve their
work effectively. Example- Benchmark used by company to ensure company process with its
competitors.
Financial Governance- This refers to the organisation that company collect, monitor,
control and measure financial perspective. It leads Prime furniture to entire life-cycle to complete
data in which it appear to understand ownership and accountability to complete work as per
financial issue.
Budgetary targets- It is considered with appropriate utilise of funds specifically for each
year due to which Prime furniture analyse actual and normal cost to deal with financial
challenges of organisation.
Price optimisation system- It work as system utilised by organisation for identifying
estimate price related with products and customers. This ensures long term benefits that ensures
sufficient profits for company. Management of organisation also recruit professional personnel
to gain accurate information for satisfying customers with price and quality.
With analysis of organisation it is understand that there are various task performed by
management which is used to deal with financial problems undertakes to gain sustainable
success for achieving top position in market (Jenkins and Williamson, 2015). It is also used to
complete all work and operations for performing work in efficient manner.
Comparison
Prime Furniture Laz furniture
Financial related with issue that company is
making payment to spend more income on
unnecessary expenses.
Delay in the payment that face weak financial
performance.
With cost-accounting system organisation
analysis actual cost which relates with
manufacturing cost and investment.
Inventory management relates with adoption of
financial issue that assist to maintain inventory
in warehouse.
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Sustainable success also leads organisation to perform work in proper manner through
performing budgets effectively. It is also used by management to manage and perform all task
and operations through allocating resources and raw-materials to manage all functions in
organised and sequential manner.
CONCLUSION
In the last by the above report it is concluded management accounting assist a company
to gain huge success in market. According to present market conditions financial perspective
leads organisation to complete all work within budgets that assist to gain top position in market.
Accounting manager also take right decisions and plans to adopt right accounting and reporting
system. With costing methods marginal as well as absorption helps organisation to perform all
task as per objectives and goals that leads to complete work as per objectives. Further, with
flexible, static and cash budget all expenses to reduce cost of operations.
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REFERENCES
Books and Journals
Ansoff, H.I. And et. al., 2018. Implanting strategic management. Springer.
Bryce, H.J., 2017. Financial and strategic management for nonprofit organizations. Walter de
Gruyter GmbH & Co KG.
Certo, S.T. And et. al., 2016. Sample selection bias and Heckman models in strategic
management research. Strategic Management Journal. 37(13). pp.2639-2657.
David, F. and David, F.R., 2016. Strategic management: A competitive advantage approach,
concepts and cases. Pearson–Prentice Hall.
Engert, S., Rauter, R. and Baumgartner, R.J., 2016. Exploring the integration of corporate
sustainability into strategic management: a literature review. Journal of cleaner
production. 112. pp.2833-2850.
Ginter, P.M., Duncan, W.J. and Swayne, L.E., 2018. The strategic management of health care
organizations. John Wiley & Sons.
Hanson, D. and et. al., 2016. Strategic management: Competitiveness and globalisation.
Cengage AU.
Hill, T., 2017. Manufacturing strategy: the strategic management of the manufacturing function.
Macmillan International Higher Education.
Hitt, M. and Duane Ireland, R., 2017. The intersection of entrepreneurship and strategic
management research. The Blackwell handbook of entrepreneurship. pp.45-63.
Jenkins, W. and Williamson, D., 2015. Strategic management and business analysis. Routledge.
Karadag, H., 2015. Financial management challenges in small and medium-sized enterprises: A
strategic management approach. EMAJ: Emerging Markets Journal. 5(1). pp.26-40.
Lasserre, P., 2017. Global strategic management. Macmillan International Higher Education.
Meyer, G.D., Neck, H.M. and Meeks, M.D., 2017. The entrepreneurship‐strategic management
interface. Strategic entrepreneurship: Creating a new mindset. pp.17-44.
Morden, T., 2016. Principles of strategic management. Routledge.
Rothaermel, F.T., 2016. Strategic management: concepts (Vol. 2). McGraw-Hill Education.
Trigeorgis, L. and Reuer, J.J., 2017. Real options theory in strategic management. Strategic
Management Journal. 38(1). pp.42-63.
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