Management Accounting and Different Types of Management Accounting Systems

This article provides an overview of management accounting and different types of management accounting systems. It explains the advantages and disadvantages of these systems, including inventory management system, cost accounting system, price optimization system, and job costing system.

Management
Accounting
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INTRODUCTION
Management accounting is an activity and procedure of financial information and consists
different process that are connected with research and management of financial data in such
manner that help inner organization to plan for upcoming time, devise policies and make control
over company’s activities or functions. The utility of such accounting is to help administrators
while devising assessments for the development of organisation. It is not essential for any
company to accept organization accounting as its needs are based on aims of the firm (Weetman,
2019). To appreciate management accounting, the chosen firm is A’nead Hand Knitwear which
is a manufacturing company and operates its business with the help of approx 33 employees and
has revenue of $2.6m. The assignment will define about administration book-keeping systems
with their important needs, methods of reporting, process of effective method of cost analysis for
preparation of income statement by utilising amalgamation costs as well as subsidiary costs.
Moreover, it engages planning tools with benefits and drawbacks, use of administration
accounting systems in order to answering to financial problems to direct sustainable
achievement.
TASK 1
P1. Explain management accounting and different types of management accounting systems
Management accounting
It is a technical action which consists accepting, finding out, recoding, investigative,
measuring and corresponding monetary and non-monetary data to key administrators to take
necessary decision search regarding aims and objectives of the firm. It is also disturbed with
inside factor and helps financial personals at the time of designing and presenting essential
financial statements (Ameen, Ahmed and Abd Hafez, 2018). Along with this, it can be used by
administrators of A’nead Hand Knitwear while developing short and long term determination to
carry familiar processes of firm with any issues.
Management accounting systems-
The conception of administration accounting system is a future oriented system that
includes different activities and has wide scope that reaches towards different division of
business. The description of some administration accounting systems in context of A’nead Hand
Knitwear is under:
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Inventory management system- Inventory indicates to accumulation rank of goods that are
utilised at different phases to produce an ultimate product and prepare it for sale. This
organization is related to administration and management of stocks of venture. A correct record
is maintained by utilising this method that consists date and time of the amount of catalogue that
penetrated into the firm and its warehouse (Ameen, Ahmed and Abd Hafez, 2018). In addition
the exit of bulk quantity for selling motives which becomes ease to estimate and monitor actual
accessible distance that needed for further operations. In references to A’nead Hand Knitwear,
administration can use this method of management in term of tracking the inventory in order to
get precise data associated with current catalogue extent that assist in making determination for
further needed stock. Appropriate need of inventory administration system is to maintain
completed record of inventory rank to remove issues which connected with overstock or under
stock at several direct of manufacturing.
LIFO(Last in Last out) – This system mention that inventories which come in last used in
production process of the goods and services.
FIFO(First in finst out)- In this inventory management system, he goods and commodities
that are received early that will firstly utilise by the firms for organise production process.
AVCO(Average cost)- This system of inventory management stock is used for bringing out
fundamental cost on the basis of average cost.
According to above all system of inventory management, the management of A’nead Hand
Knitwear can adopt FIFO tool as it beneficial for manufacturing pharmaceutical items for the
consumers and provide satisfaction their need by offering better quality commodities to them.
Price Optimization system- It is a numerical examination in which difference of command are
intended at diverse pricing extent that is period as price optimisation system. This tool is utilised
by functioning administrators to make manage over prices of input origins (Hiebl, 2018). In
A’nead Hand Knitwear, the administrators can analyse consumer’s response regarding different
process of products that are manufacture of this firm. It assists in setting prices of the
commodities that are manufactured by the firm in such manner that outcomes in increasing
profits of organisation. IT is crucially needed to assign price of goods in appropriate way that
outcomes are able to accomplish business objectives.
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Cost accounting system- This method assists in charge estimation of different products of a firm
and determining factors connected with productivity, inventory assessment and cost control. It is
most important for manufacture administrators to assess correct costs that are related with
commodities as efficient opinion direct regarding commercial processes. In A’nead Hand
Knitwear, the administrators can implement this method to asses final material inventory value,
complete goods inventory along with work in procedure account (Bedford and Speklé, 2018).
The administrators with the assistance of this tool keep good books of accounts by maintaining
cost of equipment that were used at the time of producing final commodities such as clothing.
Cost accounting system is highly needed in working environment to assess cost of diverse
inventories of organisational goods for designing final statements.
Job costing system- The addition of substance, overhead and labour costs for specific good
or job is formed as job costing system. This method is accepted at place of work when number of
commodities is manufactured that is differing from each other and consists important costs in
each item. It further intricate production price into sub parts like through material, labour and
overhead. In context of A’nead Hand Knitwear, a separate department is developed to take
accountability of administrating costs in addition to expenditures of related goods. Basic need of
this method is to monitor goods and job financial values by covering actual costs to offer
effective outcomes.
Therefore, by using these above defined method in appropriate manner assists
administration of A’nead Hand Knitwear to maintain effective records of performance or
operations in effective way that took place in working environment. All these assists in
developing functioning effectiveness to maximise profitability of the firm.
P2. Different methods used for management accounting reporting
Management accounting reporting
In an enterprise, different types of book-keeping reports are designed ad all have
important significance while allocate information to top administration establishment.
Accounting reports are designed with purpose to add in preparation, evaluating execution and
devising efficacious determinations (Rikhardsson and Yigitbasioglu, 2018). These reports are
designed by all administrators in working environment as they offer accurate and relevant
financial data. In A’nead Hand Knitwear, the management of the firm can frames following
accounting reports:
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Performance reports- with the motive of reviewing and measure workforce and
organisation’s execution as an entire performance reports are designed. This kind of report offers
comparison of execution with tangible presentation and base creased execution in any
development. The differentiation that is considered by evaluating actual outcomes and criterion
performance are appropriately determined and presented in such reports. Utilising these reports,
administrators of respective firm can monitor effectiveness and shortage in execution of
workforce and other performance and evaluate definite shows to take assessments for the
developments.
Budget reports- It is an important report that assists in evaluating financial execution of the
firm within accounting time frame (Qian, Hörisch and Schaltegger, 2018). The administrators
develop them at departmental and organisational extents that assist in framing all over budget for
the business. The administrators of A’nead Hand Knitwear can determined all the previous
performance of financial origins and can frame future budget to achieve accurate outputs.
Inventory and manufacturing reports- The ventures that are estimated in the activities of
producing arranges this kind of accounting report to maintain and evidence all acts that
supported on record utilisation and production of goods so that their reliable activities becomes
appropriate and adequate. It consists comprehensive in sequence like transparency cost per unit,
record waste and employment costs. The administrators of A’nead Hand Knitwear compare its
existing records with past time by utilising the statement in order to analyse the requirement of
development. By monitoring such tool administrators can frame plans to devise executions of
inventory and assets appropriately. It also offers brief data to administration, so that they can
formulate plan of action to minimise wastage and proper utilisation of resources.
Account receivable reports- These kind of reports are basically designed by business that relies
on enlarging credit and assist in analysing repayment for uncertain financial records, It classifies
accounts receivables of the individual as per the time exceptional length affiliated to an statement
(Horton and de Araujo Wanderley, 2018). Moreover, the administration of respective firm can
this kind of report to find out financial position of consumers and develops reports by using
differentiation columns for the amount received and monetary value that is not received for
consumers which assist in measuring the name of defaulters by quick glance.
Thus, from the all over mentioned content about accounting reports, that can be utilised by
A’nead Hand Knitwear, to make control over different costs and making developments in the
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fields in which they are defective after that will outcome in executing commerce function in
more effective and competent manner or way.
M1. Advantages of management accounting systems
Accounting system Advantages
Inventory management system This organization is effective to maintain records of account
and administrate it effectively. A’nead Hand Knitwear can
minimise waste and increase production with the assistance
of this tool (Johnstone, 2018). Furthermore, by utilising this
system, organisation can place next order to raw substance
that helps in maintain a production till ling term.
Cost accounting system This is helpful for overseeing cost of administration and
control surplus manufacture within Cobell Ltd.
administrator can approximation cost of all charge and
chooses cost of all goods by counting expenses.
Price optimisation system It is crucial for determining the price of products and
services. A’nead Hand Knitwear earn benefits by
implementing this system by setting the price of producing
goods that assist to maximise efficiency and profitability.
So firm should utilise this system for setting affordable
costs of commodities and earn profitability.
Job order costing system This tool provides a benefit to respective firm in form of
allotting work between workforces and administrates it as
per the goals that are accomplished by them. The
administrator assigns roles and responsibilities of company
and maximise productivity.
D1. Evaluation of accounting systems and management accounting reporting
Management report and accounting system are interrelated with organisational activities like
accounting system assist in determination, categorization and devise business assessment in
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order to operate a production (Samuel, 2018). Accounting reports are designed by administration
for the function of evaluate standard data with tangible data that assist to take counteractive
achievement. In A’nead Hand Knitwear, administrator usages several accounting tool like price
optimisation, cost accounting, job order costing and many more that assist of design budget
report, performance, inventory and many other accounting reports to execute industry
performance that assists in organisational procedure. If administration of respective firm utilised
these system effectively and design reports, then can accomplish goals and objectives of business
sector. As outcome elevated efficiency and abundance that are believes as organisational
activities.
TASK 2
P3. Calculate costs using appropriate techniques of cost analysis
Marginal costing- It is an efficient assessment process which is highly and widely used by
business organisations (Li, 2018). It is changeable cost which include of substance costs, fixed
costs and labour costs. This is utilised by business administrators to analyse whole costs on
manufacturing of further unit of commodities.
Income statement by marginal method:
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Absorption costing- it is another method of costing that assess all expenditures that are instantly
connected with manufacturing of specific goods of a business venture (Doktoralina and Apollo,
2019). It offers accurate net results as all costs are consisted within it.
Income statement by absorption method:
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M2. Application o wide range of management accounting techniques and production of effective
financial reporting documents
Management accounting tools are highly utilised and implemented by accountants of the firm for
the effective formulation of fiscal documents and maintain the record of financial information of
the firm in systematic way (Ismail, Isa and Mia, 2018). Finance administrator of A’nead Hand
Knitwear can utilise accounting tools of marginal costing and absorption costing at the time of
designing treatment documents. Such documents are also utilised by outside parties like
stakeholder and capitalists to make effective and efficient determinations. Departmental heads
are accountable to documentation all actions in appropriate manner in individual reports and
submit them to business function for further actions and operations. Finance administrator
carefully determines all data on such information and arranges fiscal statements and reports like
balance sheet, income statement. Cash flow statements and many others in context of
determining fiscal arrangement of the corporation in competitive commerce atmosphere.
D2. Financial reports that assist in interpreting operational activities
Fiscal reports are measured as essential documents that are used by investors and
shareholders to determine the presentation of the trade in fiscal form within an accounting year.
They determines to fiscal documents to devise future venture judgments. As per preceding
defined statistical information in form of income statements, it is summarised that A’nead Hand
Knitwear is gaining profitability in the month of November and December. By absorption
costing tool, the determined net revenue for the month of November is £7900 and for month of
December is £8300. At the same time, by subsidiary costing method, net profit of November is
£6100 and December is £10100 (Qian, Burritt and Monroe, 2018). The income statements
consists all transactions that assist in interpretation of all business functioning performance and
acts in efficient and efficient form.
TASK 3
P4. Explain the advantages and disadvantages of different types of planning tools
Budget
This is the record and summery of all prearranged assets. Revenues cost and charges for a
fiscal period for profits and also estimated for period which reflect potential fiscal condition,
situation along with objective. It’s mainly for 1 year which comprises cash flow, income
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statement volume revenue accountabilites assets and any more. The top administration rank is
accountable for preparing budget and converse them to all organization member to follow them
and operation consequently.
Budgetary control
It is includes the procedure to compare between approximated budget and actual
performance of company which help in filling the deviation gap and making deal with such gaps
(Lebedev, 2018). This help manager to prepare future budget and help in designing the various
budgets. Its help in coordination between different departments like production, purchasing,
human resources, sales and finance. Some of budgetary control implemented by the companies is
the following.
Cash budget- This budget define the information about cash inflow and outflow in the
organization for a period. The purpose behind this budget is to find liquidity in the company and
also find the cash availability in the company to maintain their working expenses. This budget
helps manager to make plan about future. It helps in find cash position in the competitive market.
Advantages- In advance it provides the assessing cash and fulfil requirement in future. It
also helps in avoiding extra expenses or unnecessary expenditure.
Disadvantage- Some time it’s creating over uses of financial resources and this is the big
disadvantage of this budget.
Operating budget-This budget is related with the income and expense of particular operation.
Such as sales forecast and many more. its mainly create for short terms period for daily basis or
for monthly basic. Mainly this budget is used in manufacturing department in order to
calculating daily income and expenses incurred related to production activity (Lowe, 2019).
It help in portray expected cost incurred on the production of any product and also help in find
income or expenses for a period.
Advantage- Advantage o f this budget help in making other budgets and help in making
policies and planning. All budgets are centralised on this budget sales, cost, cash flow. All
faction of such accounting helps in the administration while making decision for the betterment
of organisation.
Disadvantage- It’s not based on fulfil company objective this is fully based on the organisation
objective.
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Master budget-This budget is the combination of all budgets. All budget are analysis through
this budget it help in find variation in other budget. Its include detailed information about the
summery of budget, accounts, plans and statement that are required to company operation
(Gomez-Conde, Lunkes and Rosa, 2019). It defines the future goals of any organisation in single
budget. It represents the future plans and tools which are used to accomplish them by different
function and components. It help in projecting cash flow as well as planning to attain potential
planning. This is the centric budget to organisation.
Advantage- Benefit of these budgets in analysis whole organisation performance and it help
in tracking the entire business and define financial responsibilities. It help to manager that there
are no deviation in organisation work and operation perform continue.
Disadvantage- Drawback of this budgets are its based on company daily activity than now
easy to compare on daily basis. And for this budget monitoring required highly skill person who
can easily analysis or read it properly and who can match with daily activity. And add this
budget cost is too high in compare to other budget no chance to changes in this budget once it
start not possibility to change in mind of operation.
M3. Utilisation of planning tools
Planning tools that are utilised with the purpose to assist in planning, designing and forecasting
budgets. These planning tools play an important role and function in monitoring and controlling
all operations and activities of business. Some planning tools like cash budget, operating budget
and master budget etc that can be utilised by the administration of A’nead Hand Knitwear in its
business (Chibili, 2019). All these budgets are beneficial for the company can be appropriately
used to estimate future expenditure and income. By making proper application of them, business
administrators of the firm can forecast budgets to achieve business aims and objectives. It will
also help in maintaining record and offering accurate data about the business activities and
operations.
TASK 4
P5.Compare how organisations are adapting management accounting systems to respond
financial problems
Financial problem: It is one of the most common issues which are faced by every size company
small, medium and large while performing their day to day activities as well as these are related
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with the monetary and funds resource issues. These issues are generally arise due to several
factors such as financial pressure, external force, change of customer preference, business cycle,
internal factor and many more (Busco and Quattrone, 2018). In order to resolve these issues or
problems finance manager plays an essential role. Below some major financial problems are
given which are faced by A’nead Hand Knitwear:-
 Poor cash management – For conducting business operations and functions in effective
manner it is necessary to manage cash of company properly. In respect of A’nead Hand
Knitwear their financial manager not able to manage their cash in effective manner
because there is no proper information of inventory, change in external factor and
increase in competition. Due to this manager of respective company face issue which
leads to poor cash management.
 Late payment by clients – Every company has some customers or client which purchases
services or products on the credit basis and in major time they not conduct payment
which directly affect company budget. In respect of A’nead Hand Knitwear, they also has
various client who purchase their products on credit basis and not make payment in
future.
Management Accounting Approaches
There are several approaches of management accounting, form which some main which
can able adopted by A’nead Hand Knitwear are given below:-
Benchmarking: It is an accounting approach that assists companies to evaluate business
execution by making comparison with other business businesses that are known as best in class
in entire business sector. It assists the administrators to find out different growth options for
further developments (Booth, 2018). By utilising this approach, authorities of respective firm
compare their plans and strategies with other firm executing similar operation in order to get
over from fiscal issues of late payment by clients.
Key performance indicators- The approach that assists in setting parameters in respect
to evaluate factors. It is considered as favourable evaluation that assists in aiding monetary value
areas in term of solving financial problems. By using this approach, company can measure
growth by accomplishing objectives by evaluating performances regarding key standards. High
KPI concentrates on overall execution were as low KPI emphasises towards departmental
execution.
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Financial governance- It is an accounting approach that determines on understanding,
gathering, determining along with controlling key financial information of the organization. It
plays an essential role in handling financial process, data in addition to documents of the
business (Hoque, 2018). It assists administrators to apply accounting principles in appropriate
way. By implementing this tool, company can solve business complexities and recording
transactions in accounting books.
Comparison among A’nead Hand Knitwear and Rowlinson Knitwear
A’nead Hand Knitwear Rowlinson Knitwear
Problem: Financial administrator of respective
firm is facing issue of late payments by clients
that impacts business execution and generates
problems while performing day to day business
activities. Such issue can be solved and remove
by adopting benchmarking approach of
management accounting. With the help of it,
the administrator can compare the actions to
recollect money from clients by using ways
that are utilised by other firms.
Problem: The issue that is measured by the
firm is that the accountants of the firm are
suffering poor cash management problem
which influence the position of the business in
competitive marketplace. It also impacts
different operations by misbalancing budgets.
This kind of financial issues will be removed
and solved by using KPI tool by which
administrators will be able to measure the
execution of inventory transactions.
System: In order to resolve the respective
financial problem, administrators of the firm
can implement price optimisation system of
management accounting with the purpose of
setting price framework along with
emphasising on keeping credit information and
forcing defaulters to pay their amounts on
recommended time frame.
System: To solve this problem, financial
administrators can use inventory management
system in respect to track the inventory and
record all data on computer systems (Hiebl,
2018).
M4. Management accounting in response to solve financial issues that can lead to the sustainable
success
Management accounting offers required information to top level administrators in order to
minimise and resolve issues that are generate complexities in attaining success and growth. It
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consist efficacious accounting methods and methods that are accepted by all firms to assess the
issues. One of the crucial systems is fiscal domination that assists in identifying loop holes and
developing activities to get over such issues (Duska, Duska and Kury, 2018). At the same time,
both firm can utilises systems of benchmarking and key presentation indicator to set standards
and resolve issues with the purpose and motive of contributing regarding sustainability of the
firm.
D3. Planning tools to resolve the financial problems
Planning tools are measured as financial approach to appreciate the issues or problems and
executing appropriate plans to get over fiscal complexities. By cautiously sympathetic existing
situations, such tools are crucial for the firm to deal with upcoming time situations and
conditions. These tools and approaches are effective as they assist both the firms to determine
circumstances and apply plan of actions (Booth, 2018). The administration of A’nead Hand
Knitwear utilised planning techniques like operating, master and cash budget that are crucial to
acknowledges the character to financial business and determining fiscal complexities by
maximising profit margins as to direct regarding sustainable achievement and growth.
CONCLUSION
This has been summarised from the preceding defined information and content that
management accounting is an effective activity of managing internal business action as well as
operations, function, data and information. Management accounting includes methods along with
reports in which brief data are consisted that are effective for the organisation. Some of the
accounting systems are cost accounting system, job costing, price optimisation and many more.
Accounting reports consists execution reports and documents, inventory and developed reports
and account receivable report, budget report and others. By utilising effecting assessment
techniques like marginal and absorption costing, the firm can prepared inform statements in
effective manner. Along with it, planning tools like cash, master and operating budget are most
effective approaches because they help in controlling budgetary activities. Effective handling of
management accounting methods like financial governance, benchmarking and key performance
indicators help in resolving fiscal issues of the firm in appropriate way and assist in directing
sustainable development and growth of the business.
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Online
A'nead Hand Knitwear's. 2020. [Online]. Available Through: <
https://www.owler.com/company/anead-knitwear>.
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