Management Accounting and its Types

This article provides an introduction to management accounting and its importance for companies. It discusses different types of management accounting systems, such as cost accounting system, price optimization system, inventory management system, and job order costing system. It also explores various methods used for management accounting reporting, including inventory reports, account receivable aging report, performance report, and budget report. The article concludes with the integration of management accounting systems and reports into the organizational process.

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting is a form of accounting which is linked to systematic procedure
of acquiring monetary and anti-monetary information from different sources. This gathered
information is being used by accountants in order to produce internal managerial reports. These
reports are applied by management department for taking crucial decisions of different aspects.
This accounting has different characteristics and role for businesses such as it is not necessary to
implement by companies (Otley, 2016). As well as it does not follow any accounting rules and
regulation in process of preparing internal reports. The objective of report is to demonstrate
understanding regards to management accounting, and its importance for companies. In report
Alpha limited company is chosen that is associated in manufacturing of pizzas. The report covers
detailed information regards to various MA reports, planning tools and its importance for
business entities.
MAIN BODY
TASK 1
P1. Management accounting and its types.
MA- It is linked to process of preparing internal report for managers so that they can take
suitable decisions as accordance of need of business.
 Cost accounting system- It is linked with a systematic procedure of predicting possible
expenses. It helps to finance department of businesses so that they can become able to
keep an effective control over expenses and costs. This accounting system contributes in
tracking those activities which are leading to higher cost for companies. In addition, it is
essential for business entities in order to minimise overall expenses in an effective
manner. Alpha limited company, implemented it by their finance department so that the
cost of their operations can keep below standard costing (Hopper and Bui, 2016).
 Price optimisation system- This starts with process of gathering information from
customers regards to products demand, perception and many more. This collective
information is being used by sales department of companies in price setting which may
lead to higher sales. It is beneficial to companies which are unable to generate higher
amount of revenues due to lack of sales. Hence, it is useful in order to revise or set the

pricing of products and services at an effective level. In Alpha limited company, this is
being used by their sales department in order to set the prices of their pizzas.
 Inventory management system- This accounting systems' meaning can be understood by
its name as it is linked with process of tracking the quantity of all forms of material in
businesses. Generally, in a manufacturing entity a vital range of stock is acquired for
production selling and for many other purposes. In this aspect, this is compulsory for
analysing quantity of materials regularly (Burritt, 2017). It is so because if they will do so
then it can be beneficial for them to utilise available raw materials in an effective manner.
Thus, it is essential for companies to tracking of all forms of materials on a daily basis
and guiding purchase team to buy more goods. In addition, under this various kinds of
techniques are used for assessing quantity of goods such as LIFO, FIFO and many more.
In Alpha limited company, their managers implement it for assessing the quantity of raw
material stored in their warehouses timely.
 Job order costing system- This is linked to process of assessing cost of each individual
activity by assigning cost of job separately. Under this accounting system the manager of
companies evaluate cost of each job assigned to a particular activity or function for a
particular time period (Hall, 2016). Hence, this is compulsory for businesses to track cost
of each job that is being allocated to any specific activity. In the above company, they use
this accounting system in order to set the cost of job individually so that their finance
manager can track the cost of each job.
P2. Various methods used for management accounting reporting.
MA reports- MA reporting plays a vital role in protecting companies and evaluating their
efficiency (Singhvi and BODHANWALA, 2018). These documents are compiled in the
accounting time according to the specifications. Such documents provide valuable information
on various transactions or operations as well as income.
Types of reports:
 Inventory reports- Organizations generate physical products, and inventory management
documents play a key role in centralizing data related to stock costs or other overhead
costs involved in both raw material procurement and production processes. Such a report
is a design document that includes source, location and product information. This report

covers all the information, like how much raw material is produced in the company and
when and how much it takes for the production process. In the above company, this
report is used for managing total raw materials.
 Account receivable ageing report- The document used in the accounting period to
monitor credit purchases as well as assess due transactions. It is usually chosen by
organizations performing credit-related operations and routinely recording all credit
transactions along with date, lender name and sum (Makrygiannakis and Jack, 2016). It is
used by the top corporate management to assess the collection performance and credit
functionality. Such as in the above company, it is being used by companies in order to
manage their credit records.
 Performance report- It is designed for the purpose of keeping records of operational
results in separate time frames. Use performance reports, each entity's managers offer
rewards along with incentives to work according to their efforts to achieve business
goals. The Alpha limited company benefits from evaluating employee performance and
assessing increasing worker performs well in contrast to which does not perform. Higher
performers are rewarded more where more training courses are offered as under
performers.
 Budget report- One of the main documents is the budget study, which helps to understand
and monitor cost in order to assess the quality of companies. Using the budget report, to
assess the costs, actual figures are matched with the pre-established estimate.
Management use the expenditure statement to assess the successful use of monetary
resources. Alpha Ltd Company's activities including production, sales and marketing are
reported in this document.
M1. Benefits of MAS.
MAS Benefits
Cost accounting system This is aligned to procedure of reducing cost of various operation
and functions below standard costs (Samuel, 2018). In above
company, they apply this for tracking cost each activity as well as to
keep an effective control over costs.

Price optimisation system It is related to procedure of setting the price of product and service
as accordance of need of various shareholders. In above company,
their sales department implement to set price of their manufactured
Pizzas.
Inventory management
system
It helps to track quantity of stored materials in warehouses in an
effective manner. Under Alpha limited company, they use it for
making better utilisation of their stored raw material.
Job costing system It helps in tracking cost of each job separately. Alpha limited
company use it for calculating cost of job that is allocated to
different activities and operations.
D1. Integration of MAS and reports to organisational process.
In the business entities, there are wide range of functions which are performed by
different departments. In this aspect MAS links with various activities and functions of
companies (Rikhardsson and Yigitbasioglu, 2018). Like in Alpha limited company, their
different departments are linked to MAS. Like finance department is integrated to cost
accounting system, sales department with price optimisation system etc. Similar as MA reports
are also linked to business operations and process. It can be understanding by example of above
company, as the account receivable ageing report is linked finance department. This overall
indicates that MAS and MA reports are aligned to process of companies.
TASK 2
P3. Preparation of income statement by help of absorption and marginal costing.
Problem 1.

Income statement under marginal costing technique:
Cost card (Marginal costing)
£/unit
Unit Variable Price 3
Marginal Cost 3
Selling price 8
Less- Marginal cost 3

Contribution 5
Working Note:
WN1
Calculation of Variable Cost
Variable cost Apr ’19 May ’19 Jun ’19 Jul ’19 Aug ’19 Sep’19
Opening stock 0 45000 0 0 45000
Production cost 225000 225000 225000 225000 255000 210000
Less closing stock 0 -45000 0 0 -45000 -15000
225000 180000 270000 225000 210000 240000

2 c
Scenario 1. Machine is not installed:
Scenario 2. If machine is installed:

2d. Should company install machine?
As per the above calculation, this can be recommending that company should install the
machine because in the case of without installation of machine they may face loss of -
£18,000.00. On the other hand, if they install machine then there will be profit of £1,04,000.00.
Hence, the installation of machine can be beneficial for above company.
M2. Role of accounting techniques to produce income statements.
There are different methods to produce income statements and many other financial
statements. Such as in the context of above calculations two costing technique are used to
prepare income statement of given data. These techniques are absorption and marginal costing.
In marginal costing, fixed and non-fixed costs are considered in a different manner (Herschung,
Mahlendorf and Weber, 2018). In this technique fixed cost is taken as cost of period and non-

fixed cost is assigned as cost of unit. While, in absorption costing technique, all types of
occurred cost considered in a similar manner as cost of unit.
D2. Interpretation of produced financial statements.
In above part of report various types of calculation is being done on the basis of given
data. Mainly, there are two income statements are produced under absorption and marginal
costing. Like in the context of absorption costing technique, there is net profit of 175000,
130000, 220000, 175000, 140000 and 200000 for month of April, May, June, July, August and
September. While under marginal costing, the net profit is different which is of 175000, 100000,
250000, 175000, 150000 and 200000 for similar time period. In the context of preparation of
income statement, the data is same in both of techniques but amount of net profit is variable. It is
so because of consideration of cost in a different manner under absorption and marginal costing
technique.
TASK 3
P4. Advantages and disadvantages of different planning tools of budgetary control.
Planning methods are tools which are used as an effort, system or intervention by the
particular type of company to take appropriate measures. Such resources offer comprehensive
information about the services of the organization and how to be effective with proper use of
certain tools. The Alpha limited company apply different types of planning tools such as:
Zero based Budget- It is a form of budgeting in which all the expenditures reported from the
beginning period are presented. Upon evaluating all departments properly, preceding budget is
not used as a basis and all functions are performed in Alpha Ltd.
Advantages:
 Through this budget, gather information from various divisions and have detailed
knowledge of their strengths and weaknesses (Järvenpää and Länsiluoto, 2016). Based on this plan, Alpha Ltd will take strategic decisions that facilitate the achievement
of quick-term goals in a specific time frame.
Disadvantage:
 It is intended for small period as it does not work for a long period of time.

 ZBB is beneficial in a critical way, not in a reasonable way.
Cash Budget- This is an estimate of the organization's cash in and outflow in a certain amount
of time. The cash plan is primarily used by the company to estimate the leverage status and have
sufficient quantities of money sustaining routine activities. In above company, their accountant
prepares this budget to make an effective use of their cash.
Advantages:
 Optimal utilisation of cash- Alpha Ltd knows about the cash position through the cash
plan and understands where to spend cash to be successful. If there is any question so that
all remedies are implemented accordingly. All divisions operate together by this budget and assess the corporate environment.
Disadvantage:
 Lack of flexibility: Build numbers to plan the budget and distribute numbers to the
managers in this budget process. There is no improvement after getting the management
feedback because there is no versatility.
 The effectiveness of the Alpha Ltd cash budget relied largely on the commitment and
collaboration of the workers.
Master Budget: It is regarded as the reduced-level budget that has been built into various
operational areas by companies and consists of different kinds of financial statements,
forecasting cash situation and a spending plan (Bouma, 2017). The above company, prepares this
budget in order to manage their various kinds of activities and operations.
Advantages:
 This report gives an overview of the business environment as it is known as a description
of all budgets. Therefore, through this review of the operation of the budget throughout
the entire corporate situation. Alpha Ltd is funded by the master budget to consider challenges and plan for future
growth.
Disadvantage:
 Lack of specify: This is a key drawback that detailed information about the various items
included in master budget is not given.

 Difficult to read and update: It's another downside that's hard to patch. The products are
included in various categories so that it is not easy to describe the budget in Alpha Ltd.
M3. Use of planning tools in order to prepare and forecasting of budgets.
Different types of forecasting tools that help achieve results over a larger time frame are
used to produce and predict the budget needed. The Zero-based plan aims to meet all the data
from the organization in depth and all the quick-term goals. The master plan is used by the
company to summarily gather information about the entire budget. In addition to applying the
money plan to learn the cash's role on various business operations.
TASK 4
P5. Role of management accounting in solving financial issues.
Financial issues- It is important for companies to operate their business activities without facing
any issue. These monetary issues occur in business entities because of lack of finance in order to
complete different types of activities and operations on time (Horton and de Araujo Wanderley,
2018). In this aspect, the role of management department becomes crucial because it is their
responsibility to find out alternatives to sort the issues. For this purpose, there are vital range of
accounting systems and techniques. Herein, below some key financial issues are mentioned that
are as followings:
Lack of sales revenues- This issue occurs in business entities because of lower sales. In other
words, under this issue companies fail to sell out more number of quantity of goods. As a result,
total sales revenue starts to minimise and this issue occurs in companies. In the context of
Sainsburry they are facing this issue and unable to generate higher amount of revenues.
Increased expenditures- This is an issue that incurs in companies because of lack of control over
total expenses. In broad manner, the main reason of this issue is the poor management and
allocation of financial resources into different activities. In the aspect of Tesco plc, they are
facing this issue because their expenditures are increasing in a significant manner while revenues
are decreasing.
Identification of financial issues:

Ratio analysis – This is related with process of identifying monetary issues by help of calculating
various ratios (Alyousef and Mickan, 2016). In the context of Tesco plc, they use this technique
in order to find issue of higher expenditures. They compute sales turnover ratio with an objective
of efficiency of sales activities. In addition, they assess the strengths and weakness of various
departments by help of this technique.
 Activity based costing – It is related with procedure of allocating cost separately to
various number of activities. The key aim of this technique is to minimise total number
of cost as much as possible. In the Sainsburry company, they implement this technique
to find out the actual issue of higher cost.
Financial governance- This works as evaluating plan for companies assessing actual level of
deficiency (Nuhu and Appuhamilage, 2017). It is a form of approach that is regarding to
collecting company’s financial information in an effective way so that actual level of deficiency
can be find out.
Comparison:
Basis Sainsbury Tesco
Financial issue This company is facing the problem
of lack of sales outcome. They do not
have enough amount of funds to make
payment of different activities and
operations. As a result, they are not
able to beat their competitors.
The company is facing the problem of
higher amount of expenditures. As a
result, they are not able to manage
their overall available resources and
getting lower return on invested funds.
Accounting
system
The company is applying price
optimisation system to solve issue. It
becomes possible because by help of
this accounting system they revised
their pricing strategies and set at a
level that can generate higher
revenue. After implementation of this
This company is using cost accounting
system to sort the issue of higher
expenses. It is helping them in order to
tracking overall expenditures and
guiding to minimise the costs. By
applying this accounting system, their
expenditures reduced and issue has

accounting system their sales
revenues increased and issue has been
sorted out.
been resolved in an effective manner.
M4. Management accounting to solve the monetary issues.
There are various types of accounting systems such as stock management system etc. All
these systems help to sort the issue in less time and expenditures. Such as in the above Sainsbury
and Tesco company, their monetary problems have been sorted out by help of cost accounting
and price optimisation system.
D3. Planning tools to solve financial problems.
Apart from MAS, planning tools also play a key role in sorting monetary issues. It
becomes possible because by help of these planning tools, executives of businesses get enable to
forecast possible number of income and expenditures (Alsharari and Youssef, 2017). Like in
above company, they are using various planning tools like cash budget, master budget etc.
CONCLUSION
As per of above report it has been articulated that role of MA is too wide and it relays on
businesses that how well they use all accounting systems. The report concludes about various
accounting systems as cost accounting system, stock management system as well as MA reports
like performance report, budget report etc. In further part of report, computation is done
according to given data such as income statement, BEP calculation and many more. In addition,
planning tools like cash budget, master budget is also mentioned under report. In the end role of
this accounting system to sort issues of Sainsbury and Tesco plc.

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