Types of Management Accounting Systems

This assignment covers the various types of management accounting systems, including inventory management, price optimization, job costing, and cost accounting. It also explores different methods of management accounting reports such as accounts receivable aging report, job costs reports, income statement report, cash flow report, and budget report. Additionally, it discusses budgetary control tools like incremental cost approach, zero-based budgeting, and activity-based approach.

UNIT 5
MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Report to General Manager regarding concept of management accounting and
requirements of their types to company......................................................................................1
P2 Report to General manager regarding explanation of methods of management accounting
reports..........................................................................................................................................4
TASK 2............................................................................................................................................7
P3 Difference between Marginal costing and Absorption costing and calculation of Income
statement through these methods:...............................................................................................7
TASK 3..........................................................................................................................................11
P4 Report to General manager regarding advantages and disadvantage of different types of
planning tools for budgetary control.........................................................................................11
P5 Adopting management accounting systems for responding financial troubles..................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting is the process in which managers utilises the guidelines and
regulations of data's of accounting to assess in decision-making system of an enterprises.
Management accounting consists of provisions which guides top management for dealing with
financial and non-financial informations for decision-making process (Armstrong and Taylor,
2014). Hence Management accounting is a procedure which involves make or buy decisions,
planning for allocation and performance management of a company. It also assists with the
proficiency while creating financial reports for management support.
Bizdaq was started in 2015 and its main business is sales, as it deals with only sale
projects. It's annual turnover is around £100,000 and less than 50 employees work in this
company. This assignment is based on the discussion of different types of management
accounting systems with various methods. This assignment is divided on the basis two different
scenario's, in first scenario, a report is written which concentrates on execution of accounting
techniques for business success. In second scenario, financial problem faced by Bizdaq is
discussed and a perfect resolution to deal with such a issue is given and explained to General
manager in a report.
The main focus of this report is to apply management accounting techniques like profit
analysis, marginal costs and absorption costs.

TASK 1
P1 Report to General Manager regarding concept of management accounting and requirements
of their types to company
From: Management accounting officer
To: General manager of Bizdaq
Sub: Management accounting system
This report is focused on Management accounting concepts and it will explain how accounting
systems works. Various management accounting systems and their types like Inventory
management system, Price optimisation, Job costing system and Cost accounting system has
been described in this report.
Management Accounting System:
This system is treated as a specialisation which motivates employees to participate in
decision-making process of management. It supports leaders in specifying planning and
performance management systems (Assaf, Josiassen and Cvelbar, 2012). Management
accounting systems executes expertise in making financial reports. It also helps in controlling
while formulation of strategies.
The diagram below is explaining different types of Management Accounting System:
Types of
Management Accounting Systems
Inventory management
system
Price
optimisation
Job costing
system
Cost accounting
system

 Inventory Management System: This type of Management Accounting System deals
with raw materials, methodology and finished goods and used by every organisation for
their production process. The inventory management software tools are required by most
of the companies to measure inventory levels, number of orders, sales and deliveries of a
product. It specially required by manufacturing industries, to control their process for
getting maximum output from their limited input materials.
Application
This type of Management Accounting System could be applied by Bizdaq to
control inventory level and eliminates wastages of useful resources. Firm could
increase its net worth through utilising its limited resources at optimum level to
get maximum profitability. Bizdaq might know those factors which affects value
of company's inventories through this technique. Price Optimisation: These technique helps company in calculating product price
through implementing mathematical programs such as linear equations, sensitivity
analysis and graphical methods (Bebbington, Unerman and O'Dwyer, 2014). This type
of management accounting system is required by a company to combine different data's
of available informations which is belong to price and demand. It could suggest best
optimum cost level at which firm would earn their desirable profits. Most of the
enterprises is struggling to find appropriate price which is to be charge from vendor and
customers. Hence, price optimisation suggests those techniques, which identifies a value
or point on a graph, where demand curve meets maximum profits.
Application
Bizdaq could implement this method to determine proper optimal solution for
best price through valuing a point at which firm is making maximum profit and
its demand is also not affected. Job Costing System: This technique is critically required by a company, because it
helps a company in recording manufacturing costs related to particular job and it ignores

process costs. Any company who has adopted Job Costing System could measure the
cost of particular job and they could also maintains feasibility of data of a business. This
technique is mostly relevant to construction industries like infrastructure sectors, as it
diversifies costs related to particular construction projects of a company.
Application
Bizdaq could apply this method for tracking different types of jobs such as direct
labour, material and it could allocate overhead costs among these jobs .
Company could also apply this techniques to measure all activities related to
profitability and a perfect job report would help Bizdaq in measuring its profit
and loss during a year. Cost Accounting System: This type of Management Accounting System also refer as
Product cost system. It is required by a company because it describes financial structure
through calculating its costs. It also supports company in estimating cost budget for next
financial year. It guides company to choose best cost accounting methods to calculate its
product costs and analyses profits.
Application
Cost Accounting System could be applied by Bizdaq in long run of business.
Company could refer marginal costing and absorption costing methods to
evaluate its net earnings during a year. As for example, in the given scenario, he
budgeted cost of production overhead, administration and selling cost were
identified only through this approach.
P2 Report to General manager regarding explanation of methods of management accounting
reports
From: Management accounting officer
To: General manager of Bizdaq
Sub: Management accounting report
In this report, different types of management accounting report methods has been explained.
This report is made to support company in decision-making process and how useful its
application is for Bizdaq.

Management Accounting Report
A management accounting report helps businesses through identify the functionality of the
business. Management accounting report is different from financial accounting, as it prepares
reports for the company's internal as well as external stakeholders (Bellandi, 2012). It has to be
produced periodically for knowing current status of the company and to control financial
performance of a company. Management accounting involves giving timely financial and
statistical information to business managers so that they can make day-to-day and short-term
managerial decisions.
Management accounting involves giving financial and statistical information from time to
time to business managers so that they can make day-to-day and short-term managerial
decisions. Management accounting reports are generally confidential and are only for internal
use, which are in opposition to financial accounting statements, which are reported publicly.
Below is the diagram which will explain different types of methods used in
Management Accounting Reports:
 Budget Report: This report is useful for every industries as it helps company in identify
the current performance of a company (Bessis, 2011). It is combination of internal
Methods of Management Accounting Report
Accounts receivable
Aging Report
Job costs Reports
Income statement
report
Cash flow report
Budget Report
Inventory reports

reports which is used by management to compare the actual performance with estimated
figures. If the value of actual figure is more than estimated, then this condition is known
as under budgeting. On the other hand, if the estimation is more than actual
achievement, than this terms is known as overestimation or over budgeting. Hence,
budget report is build to analyse how close is the budgeted performance of a company as
compare to actual performance.
Application
This type of Management Accounting Report could be applied in Bizdaq's financial
operations to determine the variations in estimated and actual figures of a company.
As more gap indicates poor budgeting techniques adopted by the company. While
less gap indicates that, firm is utilising sound techniques to get proper estimations.
For example, the budgeted sales figures of Bizdaq was 450 units but its actual
production was 600 units, this indicates that company is unable to use proper
techniques of budgeting and hence its estimation results in under budget situation. Accounts Receivable Aging Report: Periodic report of the receivable age account is a
periodic report that receives a company's account on time-limit, which is an invoice
outstanding, the use of a gauge to determine the financial position of the customers of
the company (Bezhani, 2010). Is done in If the receipt of the receipt of the account
indicates that the acquisition of the company is being collected more slowly than usual,
then it is a warning sign that the business may be slow or that the company may take
more risks in its sales practices is more.
Application
Bizdaq can do application of Accounts receivable aging reports in determining
minimum balance of amount permitted for provide allowance on Doubtful Debts.
Bizdaq could made these budget tools through sorting sales invoices which are not
paid yet. It will be based on customers and date data's in ledger. This budget reports
are made regularly to update the sorting data's in sales invoice. Job costs Reports: The job cost reports is the process of clarifying those costs which
are related to particular work of company's business. It is mainly used by construction
industries, to allocate costs of individual projects of construction of a firm.

Application
Bizdaq could implement this technique through creating different categories of
activities of fund utilisation and it could also sort those activities which consumes
more funds than other. The best suitable example of Job costing reports are;
production, selling and distribution costs reports of Bizdaq. Inventory and manufacturing reports: This management accounting reporting types
consists of joining values of various inventories at three stages of productions which are
manufacturing, whole-selling and retailing. It is required by company, because it
consists of sum of business sales at each three stages of production. This report is
mainly useful for supervisors to do inventory management, track inventory movement in
warehouse and a list of various categories like items at hold and visibility.
Application
Bizdaq could apply this method of reporting to identify available sources for
integration of various production activities. This report could help company in
counting cycle period and their variances in informations which is available daily,
weekly and monthly. Income statement report: Such management accounting system is used by the
financial authorities to determine and measure the total profit earned during the financial
year, which is usually December end (Crippa, 2010). It helps company in identifying its
current performance through comparing current and previous years income statements.
Application
Bizdaq could apply this method to identify firm's financial performance status and
profits during a year. Firm could also know how much outstanding expenses,
arrears and payments are due and what are the sources from where it will receive
incomes in future.
Conclusion
After analysing all the management accounting reports types, it can be said that unicorn grocery
should analyse all the features of different reports and these different reasons should be adopted
for presenting a useful report for specific reasons and purposes. Like cash activities, cash flow

reports are required, inventory management tasks are required and reporting methods are to be
manufactured. The Cash Flow Statement report is useful for analysing the accuracy of the
business, the Income Statement Report determines how much the earnings were made with the
company's expansion activities and the company's recycled maintenance in order to support the
business. Budget reports are estimated based on estimates. These reports are required for the
allocation and distribution of Unicorn funds between different functional departments.
TASK 2
P3 Difference between Marginal costing and Absorption costing and calculation of Income
statement through these methods:
Management accounting usually aims different areas for making accurate reports, but
cost is the main part of this system. Through using appropriate cost approach, company could get
improved results.
Marginal Costing: It focuses on the extra expenditure, which one company has to make
during extra generation. The Slim Form of Cost focuses on fundamentally variable costs, if
Unicorn grocery can reduce its variable expenditure, then they can reduce the price of those
items which are being given in their stores (Kerzner, 2013). This can be used by managers to
make important decisions if the cost of a product is high, then the marginal cost of that item can
be increased or continued for its production, but if the cost of commodity is low Then the
company should stop selling that item in his shop. At the time of final calculation, the fixed cost
is considered in this situation, that is, in the final stage.
Absorption Costing: This costing method is traditional method of calculating costs of a
product. It also refers as full costing method. The main advantage of using this approach is that it
shows the right advantage because it involves all the expenses incurred by the company
(Laegreid and Christensen, 2013). Directly material, labour and upper, all are included in this
approach, there is no fluctuation in fixed costs in this method, its price is definitely assigned to
each unit, if it is added to the final and total amount in its manufacturing Does not go as it goes
into its marginal cost.

To calculate absorption costs, fixed overhead costs has to be converted into per unit costs
of production. Cost of standard production is calculated through adding all per unit costs of
production.
Below is the difference between Marginal costs and Absorption costs:
Basis for comparison Marginal Costing Absorption Costing
Meaning In this accounting system
variable overheads are
deducted per unit cost of one
product and fixed costs to get
total net income from the
business (Lam, 2014).
In Absorption Costing,
calculation of the cost of
production with indirect
expenditure or overheads as
well as direct costs are done.
Cost Identification In this method, under variable
cost, production costs comes
and fixed cost is considered as
a permanent cost cost.
Here fixed and variable both
costs considered as cost of the
product.
Costing & Inventory valuation Here only variable cost is
considered.
Here both variable and fixed
cost are considered.
Treatment of fixed overhead In this technique, fixed cost is
considered as period cost and
profitability of different
products is judged by
profit/volume ratio.
Here, fixed cost is charged
against cost of production.
Each product has to share fixed
cost through apportionment of
fixed overheads among
different departments.
Unit cost of production It is not affected by difference
in opening stock and closing
stock.
It is affected by unit cost of
production due to impact of
related fixed overheads over it.
Lucrativeness In marginal costing,
profitability is calculated
through cost-volume analysis.
In absorption costing, due to
deduction of fixed costs
profitability get affected.

High spot Contribution per unit is the
high spot of this techniques.
High spot of this techniques is
calculation of both gross profit
and net profit from the cost of
various department centres.
Categorization of Expenses Costs are classified into
variable and fixed in marginal
costing. To find contribution
and net profit separately.
In absorption costing, there's
different classification for
Production to find gross profit
and selling & administration
costs to find net profit.
Cost Collection Cost is collected by outlining
the total contribution of each
product.
Cost is collected through
customary way to show the
cost of data.
Below is the calculation of Income statement through Marginal costing and Absorption
costing techniques:
Net profit calculation on the basis of marginal costing
Per unit price(£) No. of units Amount(£) Amount(£)
Sales revenue 35 600 21000
Less: Marginal cost
Opening Inventory Nil
Total Variable production cost 14 700 9800
Less: Closing Inventory 14 -100 -1400
8400
Contribution 12600
Less: Fixed overhead
Production overhead -2000
Administration cost -700
Selling cost -600
-3300

Net Profit 9300
Direct materials 6
Direct labour 5
Variable production Overhead 2
Variable sales overhead 1
Total Variable production cost 14
Net profit on the basis of Absorption costing
Per unit price(£) No. of units Amount(£) Amount(£)
Sales revenue 35 600 21000
Less: Cost of Production
Opening Stock Nil
Cost of goods Produced(700*16) -16 700 -11200
Less: Closing Stock(100*16) -16 100 -1600
-9600
Gross Profit 11400
Less: Selling and Administration cost
Selling and Administration cost per
unit(1300/600) -2 600 -1200
Sales Overhead -1 600 -600
-1800
Net Profit 9600
Closing stock = (Production cost –
Actual sales) * 16 (700-600)*16 1600
Cost of goods produced:
direct M + direct L + VP overhead +
(overhead/700)

£6 + £5 + £2 + £3
£16
Interpretation: On the basis of above calculation of net income statement through
Marginal and Absorption costing method, it could be interpreted that Bizdaq should adopt
absorption costing method for calculation of net profit, as profit from this method is based on
total cost per unit of total production. This method reflects proper calculations and Bizdaq which
is a small enterprises would definitely get a benefit to show more profit in its account. the net
profit through absorption costing method is £9600, it is £300 more than that of marginal cost
method. This variation in net profit is due to, different techniques used for treatment of variable
and fixed overhead costs.
TASK 3
P4 Report to General manager regarding advantages and disadvantage of different types of
planning tools for budgetary control
From: Management accounting officer
To: General manager of Bizdaq
Sub: Types of accounting tools for budgetary control
This report consists advantages and disadvantages of different budgetary-control tools, these
methods would be useful for company to resolve its financial tools.
Budgetary-control
It is a system of management control in which real income and expenditure is compared with
the planned income and expenditure, to see if the schemes are going on and if those plans are to
be changed in profit (Laudon, 2016). Therefore, budget control shows how efficiently the
manager spends in the economy for the use of budget during any financial period and controls
costs and operations. In other words, budgetary control management, financial and performance
with budget The process of determining goals and comparing actual results and adjusting the
performance is when it is required.
There are different types of tools which is used under budgetary-control process like
Incremental cost approach, Zero-based budgeting and Activity based approach. It is defined in
below diagram:

 Incremental cost Approach: This budget method uses a company's current budget and
adds a few percent to the value of mark-up, which is also called increment, to get a new
estimate budget (Malz and Lührmann, 2012). It is used by firms who want to eliminate
overall wastage in the production process. Sunk cost is usually ignored in this type of
approach and its main focus is on changes in cost through possible options available
with the company. For every new budget, this increment amount is added to next year's
budget.
Advantages Disadvantages
It can be easily prepared and generalised by
the company.
It doesn't show accurate value of estimated
budget of the company.
The cost incurred on preparation of this
particular budget approach is lower.
It is rigid in nature, as any further changes is
not possible after preparing such budgets.
It is easily understandable by every person. Employees get demotivated, because this
budget doesn't allot any share for them in
incentives for cost reduction, profit
Budgetary Control Tools
Incremental cost
approach
Zero-based
budgeting
Activity based
approach

maximisation and productivity improvement
efforts by workers.
It supports management in eliminating
conflicts between different department's staff
members of a firm, through allocating equal
amount to each of them.
 Zero-based Budgeting: A zero-based budget or zero-sum is a method that gives people
a budget for their personal and home expenses, but it can also be used for business
budgets (Melloni, 2015).
Advantages Disadvantages
Efficiently allocation of funds and resources
are done here.
It is complex process and many managers
struggles to do accounting accurately in this
approach.
It helps management to easily adopt cost
reduction methods.
Employees and managers requires proper
training for application of such budget.
It determines all wastages in activities and
take certain steps to eliminates these wastes.
This budget is not suitable for large
organisations, due to complexity in analysing
plenty of informations available within a firm
and critical details requires for utilise these
informations.
This budget is capable of raising conflict
situations between labours and top
management, as under budget situation might
raise the requirements for job reducing or
salary cutting.
 Activity-based approach: This method will achieve maximum transparency, while the
budget will be ready (Palermo, 2011). Profit will be prepared with the help of research
practice. Some of the various advantages and disadvantage of Activity-based approach

is discussed below:
Advantages Disadvantages
It is easily understandable by managers. It could be misrepresented by managers easily.
The use of Cost per unit method instead of
total cost, makes this approach more efficient.
Implementation of this approach is not an easy
task and requires lots of sensitivity analysis.
P5 Adopting management accounting systems for responding financial troubles
From: Management accounting officer
To: General manager of Bizdaq
Sub: Uses of Management Accounting System in solving financial issues
This report would explain various financial issues face by company and also feasible solutions
techniques is described to choose best one.
Management Accounting Tools:
The tools of management accounting systems support the management in identifying
information related to solutions to financial problems of a company (Pérez and del Bosque,
2014). These issues affect a company's performance in the long duration.
Below are the various financial issues faced by Bizdaq: Profitability: The company is facing a major financial problem, which is the reason for
the increase in costs due to profits and increased costs of variable units. Apart from this,
it is not using its various sources to reduce the cost of production.
Solution
Bizdaq would solve this financial issue through adopting zero-based costing
approach. This method could support company through diversifying expenses on
the basis of particular time period. This method would help business in assessing
the risks related to costs and overall production functions. Price-Maximisation: The company is facing problem with its low price because
Unicorn grocery is unable to increase its profit (Said Mokhtar and Mellett, 2013). There
are vast variations between fixed cost and variable overheads as the main reason.
Solution

This issue can be solved through price optimization method, because by this
method the company will help to measure the actual costs of specific events and
the manager can decide profit margin to determine the value for the product. Performance and Controls: This problem can stop the business of Bizdaq. Because the
company is not performing well and it is controlling its expenses properly and it can be
a huge loss in the future. The demand for its product may also be lower in the market.
Solution
The issue of poor performance of a company and the loss of control over
important activities can be solved through the application of inventory
management system. This approach will provide Unicorn's guidelines and
methods, these techniques will help the company improve its financial problems
and under this there will be control over the problems and controls of stock. Cost Efficiency: Bizdaq is struggling on the issue of increasing differences between
technical opportunities and financial resources. This problem is also known as cost
efficiency. The company is not capable of managing its costs efficiently, thereby
increasing the frequency of wastage of resources during production.
Solution
This issue can be solved through an activity-based approach, through this
approach, the company can efficiently manage its money with the appropriate
research methods available on available opportunities for the business, thereby
making the difference between technical opportunities and financial resources
may be low.
Following are some other techniques of management accounting:
Key performance Indicators: It is also known as KPI, these methods sets the target and later
measure whether, company is moving towards target or not (Taschner, 2012). Bizdaq requires
to make sure that goals set by them are real and achievable by the firm, otherwise it will loose
its feasibility.
Benchmarking: Every industry has some standards relating to product quality and price. If
cited firm will follow these standards then it will reduce the problems relating to cash flow and
cost of capital.

Financial Governance: If a company will follow the rules relating to accounting and ethical
standards then it will improve their goodwill and it help them in fighting different type of
financial problems.
CONCLUSION
It is understood from the above mentioned task that an organization has to reduce its
wastage and it is necessary to use the resources available in an effective manner. It is necessary
for the organization to fulfil its work adequately because it will help to improve their profits.
Apart from this, the manager has to prepare the plan effectively because it will provide direction
to the staff members (Van Greuning, Scott and Terblanche, 2011). In order to monitor all
activities, budgetary control support also helps in deciding many tools and techniques and
decisions for many activities.