UNIT 5 Management Accounting Assignment Solution - Doc

UNIT 5 Management
Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
LO1..................................................................................................................................................3
P1. Explaining the concept of management accounting and essential requirements of its
various system........................................................................................................................3
P2. Explaining various methods of management accounting that are used for reporting......5
M1. Evaluating the advantages and the application of the management accounting system
within the organization...........................................................................................................6
D1. Evaluating the integration between the system and the reporting of the management
accounting...............................................................................................................................7
LO 2.................................................................................................................................................7
P. 3 Calculating the cost using various appropriate techniques............................................7
.......................................................................................................................................................10
LO 3...............................................................................................................................................10
P. 4 Assessment of advantages and disadvantages of different planning tools....................10
M. 3 Analysing use of different planning tools...................................................................13
LO 4...............................................................................................................................................13
P. 4 Comparing organizations which are adapting to various management accounting system.
..............................................................................................................................................13
M. 4 Analysing how resolving to financial problems in management accounting helps in
further growth and success...................................................................................................16
D. 2 Critical evaluation of the planning tools for accounting.............................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting is an effective process of preparing accounts and reports in an
accurate and efficient manner. Management accounting helps in planning, organizing, staffing,
directing, controlling and monitoring the activities of the organization which helps in effective
decision making. Management accounting effectively helps in forecasting, margin analysis,
constraint analysis, forecasting, valuation, variance analysis, profitability, break even analysis,
new product analysis, etc. It helps in managing and analysing the cost of the business by
effectively preparing internal financial reports. This helps managers in decision making for long
term growth of the business.
This study will highlight, different types of management accounting systems. This study
will also calculate the cost using various appropriate techniques which helps in preparing income
statement by using absorption and marginal cost. Furthermore, this study will include various
planning tools which are used for budgetary control. This study will also compare organizations
which are adapting to various management accounting system, which eventually helps in
resolving various financial problems.
LO1.
P1. Explaining the concept of management accounting and essential requirements of its various
system
Management accounting refers to the representation of the accounting information in
respect of formulating the policies that are been adopted by management and enables Arcadia
group in managing their routine activities (Thomas, 2016). MA helps the company in performing
the managerial functions that involve planning, directing, organising, controlling and staffing.
Unlike financial accounting, management accounting facilitates useful information to the internal
staff within Arcadia group and not for the outsiders. MA aims for providing both qualitative and
the quantitative information which helps the managers of Arcadia group in making suitable
decisions and seeks for the opportunities that generates larger profits.
Management accounting is very useful for internal stakeholders of the company and does
not have top comply with any rules and regulations. It is not compulsory to carry out
management accounting reports. On the contrary, financial accounting is performed based on
certain set of rules and regulations. Financial statements are compulsory to prepare every

financial year ending. Theses financial reports are distributed to both internal and external
stakeholders which helps in strategic decision making.
There are various systems of management accounting which plays a significant role in efficient
functioning of Arcadia group business that are as follows-
Cost accounting system- It is the system that presents the information for analysing and
classifying the expenditure that is involved in producing the product. It provides systematic
record of the cost ascertained in purchasing the raw material and the labour used in respect of the
production process. The major objective of this system is to evaluate the cost, ensuring proper
controlling and the planning of the cost and assessing the cost for making managerial decisions.
This system is adopted by Arcadia group in order to estimate product cost for making
profitability analysis, cost control and the valuation of the inventory.
Inventory management system- It refers to the system that tracks the goods through
entire management of the supply chain and the portion in which the business operates (Ismail,
Isa, and Mia, 2018). It covers all the things that begins from the production to the retail,
warehousing to the shipping and other aspects like movement of the stock and in between the
parts. This system helps in proper management of the supply chain and assist the managers in
developing focus to other critical parts of the business. Inventory management system plays an
essential role in managing the stock items of Arcadia group and consistently tracing its delivery
to its ultimate customers. It also helps in analysing the requirement of the inventory and creating
automated ordering. It enables the organization in understanding its assets and in making
optimum use of the asset so that business operation could be improved and larger profitability
can be gained.
Job costing system- It is the method of recoding cost that is been incurred in the job of
manufacturing the product of Arcadia group. Through this system, manager of the company
could be able to track the cost for each job and in maintaining the data that is relevant for the
business operations (Nguyen, 2018). It is very important for the company as appropriate
evaluation of the costing results in better estimation of the project, management decisions and
the financial reporting. It helps the business owners in determining the true cost that is attached
to every job or the service within its organization.
Price optimization system- It is the mathematical tool that is been applied by Arcadia
group in order to assess the response of tits customers towards different price level of its

products and the services. This system is essential because it helps in determining demand and
fixing the best price so that sales of the company could be increased with larger customer base.
Fixing the most suitable prices enables the organization in meeting its various objectives like
profit maximization and reaching the sales target (Latan and et.al., 2018). This process helps in
setting up the adequate retail value of the product that is affordable and reasonable for the
customers.
P2. Explaining various methods of management accounting that are used for reporting
Budget report- This report refers the estimations of various aspects of the business such
as sales budget, purchase budget etc. Budget report helps in analysing the performance of the
business and assist the mangers of Arcadia group in keeping proper control over the cost or
spending so that profit margin increases. The anticipations made in this report are based on the
actual expenses from previous years. Budget reports are useful for Arcadia group in providing
the incentives to its employees.
Accounts receivable report- This report relates with keeping the track on the receivables
that are to be collected from the debtors of Arcadia group. Preparing this report is critical for the
enterprise in order to maintain its cash flow that is timely collection of dues helps in meeting the
cash expenses in the future. It prevents the collection department from overlooking of the old
debts and in managing the present dues (Quinn and et.al., 2018). Manager of Arcadia group uses
this report in finding out the problems if present in the collection process of the company.
Account receivable report provides for tightening the credit policies so that average collection
period does not result in longer period. This in turn helps in maintaining the cash liquidity of the
firm.
Performance report- It is created by Arcadia group for reviewing its overall performance
and also the performance of its employees at the end of the period. Departmental performance
reports are also been formulated which helps in making the analysis of each department which in
turn helps in performance management appraisal of the employees. Managers uses this report for
making strategic decisions relating to the future prospects of its business. On the basis of this
report individuals are been rewarded against their commitment and the under performers are
been given proper training. Performance report helps in identifying the flaws if any present in the
operation of Arcadia group and it plays a crucial role in keeping the accurate measure of the
strategy developed by an entity in achieving their mission.

Cost report- It refers to that management accounting report which records the cost
associated with the specific project so that proper planning can be achieved with low cost and
maximum profits. This report helps in identifying the areas that are incurring higher cost so that
corrective measures can be taken by the managers of Arcadia group (Cooper, Ezzamel and
Robson, 2019). It ensures controlling on the expenses with optimum utilization of the company's
resources which in turn leads to efficient working and effective achievement of the
organizational goals.
Other managerial report- This includes information reports, competitors analysis,
project reports etc. that are very vital for organization for achieving the growing success in the
long run. For attaining the most from the decisions, it helps the managers in reaching towards the
credible and the authentic conduct of the business activities.
M1. Evaluating the advantages and the application of the management accounting system within
the organization
Cost Accounting System- This management system is applied in all organisations with
the purpose of determining cost incurred during manufacturing process of products & services.
Thus, this system play a significant role in profitability analysis of Arcadia group Ltd (Otley,
2016).
Advantage
 Provide effective utilisation of resources in order to set high profit margin on products &
services offered by Arcadia group Ltd.
 This helps Arcadia group Ltd. In identifying different types of financials issues and
provide solution for resolving those problems.
Disadvantages
 There is a lack of uniform procedure which may lead to different results and outcomes.
Inventory Management System- Internal managers of Arcadia group Ltd implement
this system in organisation to determine availability of inventory and to calculate value of
available inventory so that company can easily carry out its manufacturing process. This system
is also beneficial in managing output level and sales volume.
Advantage

 This system provides monetary benefits to a company as with these Managers of Arcadia
group Ltd take decision of adapting a inventory management method.
 This enhances customers loyalty and Inventory turnover of Arcadia group Ltd (Ofosu,
2018).
Disadvantages
 It is an expensive and complex approach. It is very difficult to traxck the level of
inventory needed at the particular time.
Job costing System- This is applicable in a company which is offering unique and
different types of products such as Interior Designing Company and Event Management
Companies. This system is useful as it provides detailed information of cost associated in each
job.
Advantage
 This system facilitate waste management in Arcadia group Ltd which in turn enhances
profitability of company.
Disadvantages
 The overhead of the company cannot be controlled while using this method and it may
lead to rise in the conflict of the organization. It is an expensive and complex system.
Price optimization system: This system is essential because it helps in determining
demand and fixing the best price so that sales of the company could be increased with larger
customer base.
Advantage
 This system helps in setting a price which a consumer is willing to pay. It helps in
increasing the demand of the products which eventually leads to higher profitability and
performance for the company.
Disadvantages
 Dynamic price affect the demand of the company which leads to lower profitability and
performance for the company.

D1. Evaluating the integration between the system and the reporting of the management
accounting
Both management accounting systems and reporting are an integral part of a business
organisation. With management accounting reports Arcadia group Ltd is able to evaluate
performance of company, variance in actual & estimated cost with cost accounting report and
organise production process by analysing different reports. Whereas management accounting
system helps company in managing inefficiency evaluated from reports. Moreover, both reports
are inter-dependent on each other (Renz, 2016).
LO 2
P. 3 Calculating the cost using various appropriate techniques
In management accounting, cost and profitability aspects can be assessed by using mainly
two methods namely marginal & absorption.
Marginal costing: A decision making technique which is used for determining total cost of
production known as marginal method. According to this method, variable cost is associated
with product, whereas fixed cost recognized as periodical one.
Absorption costing: This costing method lays emphasis on assigning all manufacturing
costs to the units produced during the specific time period. In this, cost of finished products
include all the expenses related to material, labour as well as both fixed and variable
manufacturing overhead.
Absorption costing:
May June
Particulars units Figure Net figure units Figure Net figure
Sales 300 50 15000 500 50 25000
Less: cost of goods sold
Opening stock 0 0 0 200 26 5200
Add: purchases 500 26 13000 380 26 9880
Less: closing stock 200 26 5200 80 26 2080
COGS 7800 13000

Gross profit 7200 12000
Less:
Fixed selling 4000 4000
Fixed Administration 2000 2000
Commission 750 1250
Total indirect expenses 6750 7250
NP 450 4750
Interpretation: Absorption costing is an effective method which takes into consideration
all the direct and indirect expenses. The net profit of the company for the month of May is 450
and for the month of June it is 4750.
Marginal costing
May June
Particulars units
Per
uni
t
cos
t
Figur
e Net figure units
Per
uni
t
cos
t
Figur
e
Net
figur
e
Sales 300 50 15000 500 50
2500
0
Opening stock 200 16 3200
Add: purchases 500 16 8000 380 16 6080
Less: closing stock 200 16 3200 80 16 1280
Less: variable
commission 750 1250
4050 6750
GP 10950
1825
0
Fixed production
overheads 4000 4000
Fixed selling 4000 4000
Fixed Administration 2000 10000 2000
1000
0
net profit 950 8250

Interpretation: Marginal costing is an effective management accounting method which
helps in evaluating the cost of producing of one additional unit in the level of production. The net
profit of the company for the month of May is 950 and for the month of June it is 8250.
Hence, Absorption costing is an effective method as it takes into account all the cost at
the time of manufacturing particular product. Absorption costing gives accurate results which
helps in higher operational efficiency.
Calculation of material price variance.
Particulars Results
Material price variance
Budgeted price – actual prices ) * Actual hours
(10-9.5)*2200
= 1100 favourable
Material usage variance
Budgeted hours– actual hours) *budgeted price
(2000-2200)*10
= -2000 Unfavourable
Calculation of closing stock with LIFO method.
LIFO Method
Date stock issued Cl stock
unit price value unit price value unit price value
01/05/19 40 3 120 40 3 120
12/05/19 20 3.6 72 20 3.6 72
15/05/19 20 3.6 72
16 3 48 24 3 72
20/05/19 20 3.75 75 24 3 72
20 3.75 75

23/05/19 10 3.75 37.5 24 3 72
10 3.75 37.5
27/05/19 10 3.75 37.5 9 3 27
15 3 45
30/05/19 5 3 15 4 3 12
(Last in first out) LIFO method: the stock which comes last in the inventory is sold first. This
method is used because it result in less taxable income.
LO 3
P. 4 Assessment of advantages and disadvantages of different planning tools.
Budgetary control is an effective process which helps managers in in setting performance
and financial goals with the budget (Kaplan and Atkinson, 2015). Budgetary control helps in
comparing the actual result within the set budget by effectively utilizing the resources.
Budgetary control helps in controlling the deviations which leads top higher operational
efficiency, performance and productivity.
Activity based budget
Activity based budget is a budgetary control tool which helps in recording, analysing and
evaluating the activities which leads to cost for the company. Activity based budget goes through
three stages which mainly comprises of identification of the activities and cost drivers, second is
forecasting the units of cost drivers and calculation of the cost driver rate. In this activity cost is
associated with each activities which helps in enhancing the cost structure which leads to long
term, growth and development of the business (Berry, Broadbent and Otley, 2019). It helps
managers to prepare budgets by critically evaluating the past production activities.
Advantages of Activity based budget
This offers management more control to effectively carry out the budgeting process, by
aligning the budget plan with the goals and objectives of the company (The Disadvantages &
Advantages of Activity-Based Costing, 2019). Implication of activity based budget planning tool
helps in generating revenue which in turn leads to higher profit. Activity based budgeting helps
in drawing attention to various overheads of the company, to evaluate the accurate cost of the
activity.

Disadvantages of Activity based budget
The major limitation associated with activity based budgeting is that it might leads to
duplication of the activity. Collection of the data and accumulating cost to each activity is a
tedious and and time consuming task. Evaluation of the right cost of the activity is quite difficult.
The major disadvantage of activity based budgeting is that it mainly focuses on short term and
immediate activities. It does not focus on long term activities.
Zero based budget
Zero based budgeting is an effective process which focuses on preparing the budget from,
the scratch for each period. The process of this planing tool initiates from “Zero base” which
helps in effectively analysing the need and cost of the each function of the Arcadia group. Zero
based budgeting helps in effectively reducing the unnecessary cost, which helps in increasing the
profit.
Advantages of Zero based budget
Zero based budgeting helps in efficient allocation of the resources for each department
which leads to higher operational efficiency and productivity. This method helps in reducing cost
by giving true picture of the cost in relation to the desired performance. It helps in eliminating
unproductive activities, which helps mangers to focus on important functions to reach desired
gaols and objectives. Zero based budgeting enhances better communication and coordination
within each department of the Arcadia group.
Disadvantages of Zero based budget
The major disadvantage of zero based budgeting is that it is time consuming process, as
everything is to be evaluated from the scratch for every new period (Kyei, Kwaning and Francis,
2015). High manpower turnover and lack of expertise is also a major limitation for the company.
Another major limitation associated with Zero based budgeting is that, this planning tool is
biased for short term planning and does not give accurate results.
Cash budget
Cash budget is an effective planning tool which helps in estimating the cash inflows and
outflows for a particular financial year of the business (Mohamed, Kerosi and Tirimba, 2016).
This helps management of the Arcadia group to identify whether the company has sufficient

amount of cash to carry out the business. Production and sales forecast are used to create a cash
budget. It also helps in forecasting future needs and maintaining ample cash balance in case of
emergency.
Advantages of Cash budget
Cash budget helps in providing the clear image of the cash flows of the company for a
particular period of time. It helps in evaluating the cash liquidity of the company to carry out day
to day transactions of the organization (The Advantages and Disadvantages of Using Cash
Budgeting, 2019). Cash budget helps in optimum utilisation of the funds, by quickly identifying
potential deficits. Cash budget helps in effectively communicating the financial position of the
Arcadia group. It helps in planning, controlling the cash expenditures and evaluating the
performance.
Disadvantages of Cash budget
The major limitation of the cash budget is that it limits the spending power of the
company, which in turns limits the overall productivity and profit of the organization (Kassahun,
2019.). Another disadvantage of the Cash budget is that it does not take into consideration credit
transaction, which in turn does not reflect accurate financial position of the company.
Flexible budget
Flexible budget is a budgetary control planning tool which can be adjusted with the
change in the volume of the activity. Flexible budget will estimate the expenses and revenue in
the current level of production. This planning tool helps in evaluating the change in the actual
revenue levels.
Advantages of Flexible budget
The major advantage of the flexible budget is that, it includes variable cost while
preparing budget. Flexible budget helps in better cost control, performance measurement and
flexibility (Kyei, Kwaning and Francis, 2015). The flexible budget is a basis for easy comparison
and in case of any deviation necessary action can be taken.
Disadvantages of Flexible budget

Flexible budget is complex and difficult to formulate. It is a time consuming process
because flexible budget requires continuous monitoring. Revenues of the company gets
overshadowed by comparing budgeted to actual.
M. 3 Analysing use of different planning tools.
Activity based budgeting is useful as it helps in providing greater transparency in the
budget process. Activity based budgeting helps in assigning the cost to each unit of the activity.
Zero based budgeting is useful in identifying the cost for each period from the scratch which
helps in more disciplined execution of the plan. It helps in lowering the cost of the operations.
The budgets are prepared without considering any past budgets and everything is prepared from
the zero base (Berry, Broadbent and Otley, 2019). Cash budget is useful in effectively evaluating
the cash flows of the company. It is useful in evaluating and forecasting the cash position of the
company, by predicting the financial liquidity, income and expenditure of a particular period.
Flexible budget is useful as it helps in adapting to changes which leads to long term sustainable
growth and development (Toyosaki and et.al., 2018).
LO 4
P. 4 Comparing organizations which are adapting to various management accounting system.
There are various financial problems which affect the functioning of the Arcadia group.
The management of the organization focuses on taking necessary decision in order to solve the
necessary problem (Mohamed, Kerosi and Tirimba, 2016). This leads Arcadia group to long term
sustainable growth and development of the business.
Financial
Problem
Method 1 Method 2 Conclusion
The sale of the
Arcadia group is
declining and the
company is in a
position to decide
whether to
manufacture
Benchmarking is a
process of measuring
the performance ODF
the company by setting
benchmark and helps
in finding various
opportunities for
Financial governance
is an effective way as
it helps organization
in effectively
managing, controlling
and monitoring the
activities of financial
Benchmarking
is an effective
method which
helps in
determining the
cost of the
product better,

certain products or
to purchase them
from different
contractors outside
the company. This
leads to lower sales
and it largely affect
the operational
efficiency and
productivity of the
organization.
improvement. This
helps company in
determining the cost of
production by taking
effective decision
accordingly (Maskell,
Baggaley and Grasso,
2016).
information. Financial
governance helps in
controlling the
activities, disclosure
and managing
performance of the
Arcadia group.
because it helps
in setting
prescribed
benchmark to
attain desired
goals and
objectives. It
also helps in
determining the
cost, time and
quality in order
to attain higher
operational
efficiency and
productivity of
the
organization.
The major problem
faced by the
Freemans company
is that, it does not
have much control
over the expense of
the company.
The Freemans
company can use
variance analysis
where the management
of the company will
help in determining the
deviation in the
problem. This focuses
on controlling the cost
and measuring the
actual result with the
budgeted plan.
Key performance
indicators helps in
measuring the
performance of the
company and
effectively attaining
the goals and
objectives of the
company. It helps in
coordinating the
functions and
eliminating
unnecessary activities
for smooth
The Freemans
company must
opt for variance
analysis method
as it helps in
justifying all the
expenses for a
particular
period and also
determine the
cause of
deviation. This
method will
help in

functioning (Maas,
Schaltegger and
Crutzen, 2016).
controlling the
cost effectively.
M. 4 Analysing how resolving to financial problems in management accounting helps in further
growth and success.
Resolving financial problem by taking necessary decision helps in higher operational
efficiency, performance and productivity of the business (Ray and Gramlich, 2015). The
management of the organization mainly focuses on taking effective decision by critically
examining the cause of the problem and take necessary effective decision beforehand. With the
use of various management accounting system like variance analysis, marginal costing,
absorption costing, key performance indicators, benchmarking, job costing, etc. helps in
increasing the productivity of the company. It helps in resolving the issue without hampering the
performance. Effectively resolving the financial problem of the company helps in determining
the goals and objectives in an effective and efficient manner (Chenhall and Moers, 2015).
Benchmarking helps in gaining independent perspective and also helps in drilling down
the areas for improvement. On the contrary, Benchmarking does not take into consideration the
overall efficiency of the metric. It is a costly affair and leads to incorrect comparison.
Key performance indicators is beneficial as it helps in monitoring the performance by
effectively evaluating how company's helps in attainment of desired goals and objectives. On the
contrary, Key performance indicators may lead to decrease in level of innovation and creativity
among employees. There is no common standard and is short term oriented.
Variance analysis helps in analysing the cause of deviation and is also beneficial in better
budgeting activity. On the contrary, Variance analysis takes into consideration past data and is a
complex method. Financial governance helps company in collecting, monitoring and presenting
the data within the prescribed set of regulatory rules.
D. 2 Critical evaluation of the planning tools for accounting.
The planning tools used in the budgetary control like flexible budget, zero based budget,
activity based budget, cash budget, fixed budget, master budget, operating budget, production
budget, sales budget, etc. (Christian, 2018) helps in forecasting the future spending of the

company in an effective and efficient manner. Theses budgetary control planning tools helps in
comparing the actual plan with the budgeted plan of the company (Uyar and Kuzey, 2016). This
helps in determining the variance and take necessary action to reduce the deviation for long term
sustainability growth. Implications of budgetary control tools helps in limiting the spending
which leads to higher profit. It helps in controlling the cost for long term growth and success.
CONCLUSION
From the above conducted study it has been summarized that, management accounting is
a effective process which helps management of the organization to take necessary decision in
order to forecast the future growth of the business. This study will also evaluate different types
of management accounting systems like cost accounting system, inventory management, job
costing, price optimization. This study also helps in analysing various management accounting
reporting like budget report, performance report, Accounts receivable report, Cost report and
other managerial report. This study will further evaluate the appropriate techniques for preparing
income statement by using absorption and marginal cost.
It helps in effectively evaluating advantages and disadvantages of different planning tools
like activity based budget, zero based budget, cash budget and flexible budget of the budgetary
control. This study will also evaluate and analyse different planning tools to effectively prepare
and forecast the budget. This study will further compare two organizations which helps in
comparing the financial problems of the two different organizations and also use various
management accounting system to resolve this problem for long term sustainable growth and
development of the business. This study will further evaluate different planning tools to resolve
the financial problem of the company for future operational efficiency.

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