Management Accounting: Systems, Techniques, and Integration

This report provides an overview of management accounting systems, techniques, and their integration within an organization. It discusses the importance of inventory management, cost accounting, job costing, and price optimization systems. The report also highlights the benefits of these systems and how they aid in decision-making.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION................................................................................................................................1
REFERENCES................................................................................................................................2

INTRODUCTION
Management accounting is the process that evaluates financial data to get information
that will help the top management to take short term as well as long term decision-making and
goal setting of organization. The MA systems allows to monitor and control the different
business processes. Present report will provide about different systems of management
accounting, reporting methods and cost accounting techniques used for computing cost.
REPORT
Management Accounting
Management accounting provides useful and only relevant information to the
management, so they can make fast and more efficient decision. It also considers the time value
of money so the future of any project can be estimated. It will help to make optimum utilization
of resources analysing cost per unit and reducing the wastage by proper forecasting.
Management can make better control in the organization because all the activities are pre
defined.
Management Accounting Principles
Accounting for inflation and forward-looking approach - In management accounting, when a
new project is prepared it always considers time value of money with inflation rate. It means the
projects are made with due consideration to inflation rate so chance for failure became less.
Management accounting uses the financial to find out information that helps the future goals and
preparation.
Absorption overhead cost- Overhead cost are absorbed on any predetermined basis. So the rate
for the absorption is fixed and the overhead cost can be allocated accordingly. Overhead cost are
indirect raw material, indirect labour, indirect expenses (Kudryashova and et.al., 2020). This rate
is calculated to find out the over and under absorbed condition of the production.
Utilization of resources- Some resources are limited and some are expensive in nature,
management accounting helps in the better allocation of resources with the help of cost
accounting techniques so the better use can be assured.
Controllable and uncontrollable cost- There are two types of cost one is controllable and
uncontrollable, the classification are to be made by this the controllable cost can be find out and
reduce them because these are the controllable cost that should be controlled.
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Role of management accounting and management accounting systems
Inventory Management System
IMS is important MA system that enables the company to keep record for every
movement of inventory within and outside the organisation that has not been sold. It allows the
management to keep complete control over stocks from raw material, company assets and
finished products. IMS stores information for future period to make forecasts for the production
activities to place the purchase order.
Requirements
 IMS is required for tracking all the stock movement to and from production house to
warehouse and sales.
 The reports generated by IMS allows management to make budgets for stock purchase
orders.
 It reduces the excessive storage costs for inventory and also keeps safety stock.
Cost Accounting System
It refers to the tool that helps to determine actual cost associated with manufacturing of
products or providing services. The actual costs are computed after covering all the variable and
fixed expenses within supply chain (Abdusalomova, 2020). The CAS is used for internal
management of the company to calculate the prices of products or services. It enables the
company to measure the profit margins that company will enable the company to grow.
Requirements
 It is required by the company to calculate actual cost of the products and services.
 It enables the company to compute both variable and fixed expenses for allocation of
resources.
 Cost accounting helps the company to determine adequate profit margin on products.
Job Costing System
JCS is referred as process that accumulates information about costs and expenses that are
associated wit particular products or services. The information is required by company to derive
information of all costs involved in producing a particular job under contracts in which costs or
products are reimbursed back. JCS has been used by organisation where production of a item
involves more than one step.
Required
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 It is required to compute all the costs such as raw materials, labour and production related
with particular job.
 It is used when company has to make products under special order or contract.
 The company calculates the profit margin to be kept after analysing the cost.
Price Optimisation System
The process is used to find sweet spot pricing or the maximum prices against customers
that they are willing to pay. The companies up & down, supply chain, B2C and B2B rightly
dedicate massive time towards the price optimisation for ensuring that products would be sold
quickly at right (Price Optimisation System, 2020). If items are priced high it may difficult for
the company to clear the stocks and it may not make decent profit.
Requirement
 It is required by company to determine demand of products at different level of prices.
 It enables to identify the optimum prices of the product at which they will generate
desired sales.
 It allows company to make proper balance between the profit and value of product.
Management accounting reporting techniques
Company generates different management accounting reports to make important
decisions for the business. These reports contain the information regarding previous and current
figures to identify whether they are moving over right direction or not. It is essential for the firm
to earn adequate profits over all the products and services. The different types of reports that are
used by the management are
Cost Accounting Reports
It contains the information related to all the costs incurred by firm over the period. Report
provides detailed lists of variable and fixed expenses that are incurred related to products. The
report contains both estimated figures and actual figures to identify the variances between them.
The variances are calculated to identify reason behind them and root cause (Novas, Alves and
Sousa, 2017). It allows company to take actions to reduce the variances and to control costs.
Inventory Report
Report comprises of all the details and information regarding the stock. It helps the
management to identify the purchases, consumption and the closing stock. On the basis of this
report management identifies whether company is generating required output or not. Report
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enable the company to make forecasts for future requirement of inventory to carry out the
operation.
Debtors Ageing Report
The report states about the debtors of company over the period. The report states the
debtors based on their time period. Company analyses debtors that are due from long period and
no recovery action has been made since they are due. It is essential for the business to identify
the debtors that are due from long so that strict actions could be taken for their recovery and
those which are irrecoverable should be written off from the lists.
Performance Report
The report states about the performance of employees in organisation. The report is
prepared based on the benchmarks and targets that are kept by company to be achieved within
given time frame. On the basis of this report management could identify whether employees are
working with full efficiency or not (Laguecir, Kern and Kharoubi, 2020). Firm motivates and
encourages employees by providing rewards and incentives for achieving the given target.
Budgeting Report
The budget report is an important report for management as it allows to make allocation
of resources among different departments and processes. Budget report is prepared based on
previous reports along with analysing current trends, inflation, demand, market and such other
factors. The budget report also involves comparison of actual and budgeted outcomes. This
allows the management to take steps for improving the existing processes or to change the
policies.
Different cost accounting techniques
Marginal Costing
Marginal costing is a part of costing techniques where the marginal cost(variable cost) is
charged to the coat per unit and the fixed cost of the period is written off against the contribution.
Advantages
 Marginal costing helps in the preparation of the budgetary policy of the company.
 It will help in the determination of the price of the product and determination of profit
margin. Can be use for cost control, marginal costing serves the information about per unit cost
and level of the material and labour, so it can be use for cost control.
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Disadvantages
 Excluding fixed cost is not relevant for the inventory that is in work in progress.
 In the high level of production the marginal cost becomes impractical.
 Complete cost of the production can't be ascertained because of exclusion of fixed cost.
Income statement as per Marginal Costing
Particulars May June
Sales Revenue 25000 18750
Marginal Cost of Sales
Direct Materials 6000 4800
Direct Labour 4000 3200
Variable sales commission 500 375
Variable Production Overheads 2000 1600
12500 9975
Add:
Opening Stock 0 0
Less:
Closing Stock 0 600
12500 9375
Contribution 12500 9375
Fixed production overheads 2000 2000
Fixed selling cost 1000 1000
Fixed administration cost 3000 3000
Net Income 6500 3375
Absorption costing
Absorption costing is the process in which all the cost that are included in the production
are merged together to find out the overall cost of production and the level of the inventory. In
this process all the cost(fixed and variable) are included (Hamamura, 2019).
Advantages
 It is the suitable method for preparation of accounts because acceptable by general
acceptable accounting principles.
 It shows the relationship between increase of revenue and decrease in cost of sales. Best for smaller company.
Disadvantages
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 Absorption costing can not be used to for the purpose of decision-making because it
includes both fixed and variable cost.
 It will make cost volume profit (CVP) analysis difficult to use because it inculcated the
fixed cost.
Income statement as per Absorption Costing
Particulars May June
Sales Revenue 25000 18750
Cost of Sales
Direct Materials 6000 4800
Direct Labour 4000 3200
Variable Production Overheads 2000 1600
Fixed production overheads 2000 1600
14000 11200
Add:
Opening Stock 0 0
Less:
Closing Stock 0 700
(Under)/over absorbed Fixed prod o/h 0 -400
14000 10900
Gross profit 11000 7850
Fixed selling 1000 1000
Fixed administration cost 3000 3000
Variable sales commission 500 375
Net Income 6500 3475
Reconciliation of profit figures
May June
Profit under absorption 6500 3475
Difference in units of inventory * fixed production overhead p/u 0 100
Profit under marginal costing 6500 3375
Integration of management accounting within organisation
The MA play an important role in the operation of organisation. It involves number of
processes and systems that allow the company to efficiently manage the activities. The
integration of MA with other organisational operations is essential to increase the efficiency of
each process. For example the Inventory management system generates report about the
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inventory periodically as per requirement that is used by the management to make business
decisions. On the basis of this report different purchase orders are made (Amara and Benelifa,
2017). Likewise cost accounting system allows the cost accountant to prepare cost report that is
used to analyse the different costs associated with manufacturing of products. It allows
management to take decisions for cost control.
Benefits of functions to organisation
Inventory management System
 The system provides a simplified version of the inventory management through software.
 Use of IMS enables the company to reduce the risk of overselling.
 The increase in cost due to shortfall and excess of stocks is controlled through this
system.
 It enables the company to identify the product or item from previous record in case of
issue.
Cost Accounting System
 The system enables company to identify the profitable as well as unprofitable company.
 Management uses the cost reports to prepare budgets for future and reference.
 Control over costs and increasing expenses could be made using cost accounting (Abba,
Yahaya and Suleiman, 2018).
 It enables company to make comparison between actual and budgeted costs.
Job Costing System
 It provides the company with accurate profitability report on product and job.
 Management forms performance benchmark using cost reports for particular jobs and
products.
 It allows the company to make indirect cost measurement to determine the profits.
Price Optimisation System
 It helps the company to determine adequate prices for products and services.
 Company could identify the demand of products in market at different price levels.
 The method helps the company to determine adequate profit level through pricing.
CONCLUSION
It could be concluded from the above report MA has vital importance in the success of
organisation. It allows the firm to manage all its operation and process in defined and structured
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manner. The reports generated by MA allows the management in making informed decisions
essential for the growth and success or organisation. The different costing techniques allow to
record and compute the profits for business. Based on profits company identifies whether profits
are adequate or not so that further actions could be taken.
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REFERENCES
Books and Journals
Abdusalomova, N., 2020. Principles of ties of internal control and management accounting
systems at the enterprises of black metallurgy. Архив научных исследований. (2).
Novas, J.C., Alves, M.D.C.G. and Sousa, A., 2017. The role of management accounting systems
in the development of intellectual capital. Journal of Intellectual Capital.
Laguecir, A., Kern, A. and Kharoubi, C., 2020. Management accounting systems in institutional
complexity: Hysteresis and boundaries of practices in social housing. Management
Accounting Research. 49. p.100715.
Amara, T. and Benelifa, S., 2017. The impact of external and internal factors on the management
accounting practices. International Journal of Finance and Accounting. 6(2). pp.46-58.
Abba, M., Yahaya, L. and Suleiman, N., 2018. Explored and critique of contingency theory for
management accounting research. Journal of Accounting and Financial Management
ISSN. 4(5). p.2018.
Kudryashova, Y. N., and et.al., 2020. The organization of management accounting as a
mechanism to improve the efficiency of agricultural enterprises. In BIO Web of
Conferences (Vol. 17). EDP Sciences.
Hamamura, J., 2019. Unobservable transfer price exceeds marginal cost when the manager is
evaluated using a balanced scorecard. Advances in accounting. 44. pp.22-28.
Online
Price Optimisation System. 2020. [Online] Available trough: <https://blog.blackcurve.com/what-
is-price-optimisation>
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