Management Accounting and Different Types of Management Accounting Systems

UNIT-5 MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
SCENARIO 1...................................................................................................................................3
P:1 Management accounting and different types of management accounting systems and its
requirement.................................................................................................................................3
P:2 Different methods of management accounting reporting.....................................................5
P:4 Uses, advantages and disadvantages of various planning tools used in management
accounting...................................................................................................................................7
LO:4 Comparison of organisation in adapting management accounting system to respond to
financial problems.......................................................................................................................9
SCENARIO 2.................................................................................................................................11
P:3 Marginal and absorption costing........................................................................................11
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
The management accounting is defined as that branch of accounting which assist the
company in dealing with the analysis of the financial information to take effective decision for
management of company (Amara and Benelifa, 2017). It helps in identifying the weaker or loss
making areas of business beforehand. Management accounting is done for internal use by the
managers and is not required to be shared with external parties. The main purpose of
management accounting is the internal management of the company by using various financial
information.
This report is based on the management accounting system and its application in the
context of Capital Joinery Ltd, a medium sized financial consulting firm headquartered in
London, UK.
This report includes different types of management accounting system and its need and
application, methods of management accounting reporting, advantages and disadvantages of
various planning tools in budgetary control and how Capital Joinery Ltd has adapted
management accounting systems in order to respond to various financial problems.
SCENARIO 1
P:1 Management accounting and different types of management accounting systems and its
requirement
Management accounting as the term itself has management is used for managerial
purposes which involves collecting financial and non-financial information, analysing the
information, applying various tools and techniques of management accounting, interpreting the
results and communicating the same for decision making, problem solving and policy
formulation. Management accounting helps in the internal management of the organization and
its outcomes remains in the business itself and is not meant for sharing with anyone outside the
organization. Also, the reports of management accounting need not be audited by the auditors.
There are some of the most important benefits and objectives of management accounting
for the fulfilment of which the management resort to management accounting. It helps in
decision making, solving financial problems, strategy formulation, effective planning,
controlling and organizing business activities and adopting the efficient business practices
(Azudin and Mansor, 2018.).

Management accounting uses various systems in order to evaluate and analyse the
operations and activities of organization for the purpose of management is termed as
management accounting system. Such systems vary with the type of industry the management is
working and accordingly the type of system to be applied has been decided. Like here in this
report we are taking the financial consultancy firm Capital Joinery Ltd, which has its own way of
doing management accounting which would be best suited to them in working efficiently and it
must be adopting one of the management accounting system for its internal evaluation. There are
certain types of management accounting systems like cost accounting system, job costing
system, inventory management system and price optimization (Cescon, Costantini and Grassetti,
2019).
Cost accounting system is the technique used by management for cost controlling, estimating
cost of various business activities, profitability measurement, inventory pricing, etc. The cost
evaluation helps in profitable business operations and helps in maintaining efficiency in
operations. Cost accounting system is of two types job order costing and process costing where
the former is based on manufacturing costs of each job in the production of products and the
latter is based on manufacturing costs of each process involves in the product manufacturing.
Here Capital Joinery Ltd also has different job and processes required in financial consultancy
and incurs cost accordingly. So to minimize the cost and maximize profits they must have proper
cost accounting system in place (Fuzi and et.al., 2019).
Advantages Disadvantages
Cost reduction
Elimination of unnecessary waste and losses
Advising on making or buying decision
Based on past performance
Cost is ascertained on basis of full utilisation
Job costing system is the type of management accounting system which helps in
knowing the cost associated with each and every job performed as per the customer’s
specifications. The system is useful in estimating the cost in order to define the price of each job
offered, so that the reasonable amount of profit can be earned.
Advantages Disadvantages
Cost is ascertained at any stage of completion
of job
There is not any standardisation of job
This is expensive