P1 Management accounting system and their essential requirement

UNIT 5

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
P1 Management accounting system and their essential requirement..........................................1
P2 Type of management accounting reports and its importance to management.......................3
M1 Various type of system and their benefits ...........................................................................4
D1 Management accounting systems reports integrated in organisational processes.................5
TASK 2............................................................................................................................................5
P3 Cost analysis techniques to prepare income statement to calculate cost...............................5
M2 Range of management accounting techniques......................................................................9
D2 Financial reports that accurately apply and interpret data...................................................10
TASK 3..........................................................................................................................................10
P4 Advantage and disadvantage of various types of planning tool..........................................10
M3 Evaluation of planning tool for preparing budgets...............................................................1
TASK 4............................................................................................................................................1
P5 Adaption of management according to respond financial problem.......................................1
M4 management accounting system lead to long term sustainable success. .............................3
D3 Financial problem avoid with the help of planning tool.......................................................3
CONCLUSION ...............................................................................................................................3

INTRODUCTION
Management accounting is a formative procedure in which preparation of management
accounts and reports are done that in turn provide data and financial statistics in accurate and
timely manner. Management accounting is considered as an branch of accounting that effectively
offer accounting information in a systematic way with the help of which business organisations
can able to perform their functions of decision-making, planning and controlling (Anderson and
Sedatole, 2013). Thus, management accounting is determined towards undertaking of best
policy and formulation of plans in order to accomplish desired set of organisational objectives.
Thus, with the help of modern management techniques organisation can effectively able to
accomplish their operations in best effective way. Present report has been made on, The
Berkeley Partnership. Present organisation was established in 1990. Company effectively engage
in the functions of offering services in Independent management consultancy along with this
organisation is having numerous number of Client Company. In addition with this, present
project include Essentra Packaging, which is mainly a manufacturing company that produce
seals, tear tapes, labels etc. Along with this report include the formative discussions on concept
of management accounting along with cost suitable techniques that will effectively aid
organisation to perform their operations. Lastly, in this report advantages and disadvantages of
planning tool is covered.
TASK 1
P1 Management accounting system and their essential requirement
Management accounting is termed as an formative process within which various
activities are done which is mainly related to analysation, presentation and collection on
monetary as well as non monetary terms. This lastly offer different types of advantages to
organisation with the help of which they can effectively operate their functions related to
planning, organizing, controlling and decision-making. With the help of management
accounting system Essentra Packaging can effectively able to accomplish there desired
objectives. Thus, it is important for an organisation to effectively consider effectiveness of
management accounting characteristics as with the some of this they can effectively able to
conduct their operations. Mentioned below some of the certain characteristic are defined:
1

Reliability:
Within this it is important to have all related information in reliable form with the help of
which effective decision-making can be ascertained for future improvement.
Up to date:
Mangers are required to ensure that all the informations within accounting statements are
up to date and time accurate as to measure actual performance in well defined manner.
Accounting system aid organisation to maintain their financial records in well effective format as
to strengthen their market image.
Price optimisation system –
In order to gain competitive advancements it is essential for an organisation to set price
of their products and service in a structured manner. With the assistance of price optimisation
system company can increase their overall profit. In this regard company is required to evaluate
market as well as consumer behaviour regarding to products and service. Thus, with the help of
inventory management system Essentra Packaging can able to make an increase within there
sales margin and can further able to use their resources as to set best effective price range for
their products.
Inventory management system -
As to effectively manage organisational functions and activities related to manufacturing
and production it is important for an organisation to manage their inventory and stock and keep a
proper track on organisational resources. This will aid company to effectively utilize
organisational resources that simultaneously benefit them to check a regular track on their
inventory and production ratio. With the help of this organisation can effectively able to operate
their functions in best effective manner along with this company can lower down their overall
level of wastage and further produce products and services in cost effective manner. In addition
with this, Inventory management system allow Essentra Packaging to effectively check their
inventory segment and control use of raw material as to utilize them in best effective manner as
to increase overall productivity of organisation. It further aid company to record their level of
wastage as to further formulate strategies in order to control excess wastage. There are numerous
form of techniques defined below that will aid organisation to manage their ratio of inventory.
2

 LIFO – As per this method stock which come last will goes out first. Thus, LIFO is
simply last in first out.
 FIFO – There are stock coming first and sale out first. Thus, it depends that in FIFO
method first in first out take place.
 AVOC – It is calculating cost of inventory on average basis.
Cost accounting system –
Cost accounting system effectively provide number of benefits to organisation, as with
the help of this they can concentrate of organisation cost input of different activities that in turn
allow them to effectively make an increase organisation overall profitability ratio. This form of
accounting system include various set of activities such as evaluation, understanding, summarise
of cost of goods and service. In addition with this with the help of cost accounting system
Essentra Packaging can able to conduct their operations within estimated cost with the help of
which company can see significant increase in their level of productivity which in turn lead
organisation towards increase in profitability.
Job costing system –
Job costing system aid organisation to make an evaluation of their overall rate of
expenditure that occurred in the time of particular job. With the help of this company can
effectively able to perform their operations by evaluating every single detailed information
related to cost within an accounting period (Hilton and Platt, 2013). Along with this, job costing
system allow Essentra Packaging to extract information which is linked with assigned job.
Mentioned below there are some information and data that can be evaluated by organisation
with the assistance of job costing system that are defined below:
Direct material –
Direct material is one of the most important element in within variable cost as this assist
an organisation to have a track on their production unit level as to effectively manage cost that is
required to be allot in a particular job.
Direct labour –
In this factor labour cost can be effectively able to track specific related job. This will
further help to complete their time as per accordance with time sheet.
Overhead -
3

At the end of every accounting period the total amount of each cost to apply methodology
regarding to allocation.
Difference Between Management Accounting and Financial Accounting
Management Accounting Financial Accounting
 Within this form of accounting system,
it is mainly for internal use while
having no external regulations.
 In financial accounting, it is mainly for
external use and are basically regulated
by law.
 It offer detailed evaluation of financial,
non-financial and qualitative form of
information.
 It covers overview of organisational
performance that covers financial
information.
 There is no such legal requirements as
to prepare management accounts.
 In this there is limited liability on
companies by law as to prepare
financial accounts.
P2 Type of management accounting reports and its importance to management
There are different type of management accounting report with the help of which
organisation can effectively able to maintain proper record. This will in turn allow them increase
overall profitability of organisation. There are some certain system with the help of which
organisation can effectively able to conduct their operations:
Cost managerial accounting report:
Cost managerial accounting report aid an organisation to make an estimation of their
expense and cost which they spend on their manufacturing as well as on production process.
Along with this, with the help of this report organisation can operate their business operations in
well effective manner. With the help of this they can able to have formative control on their cost
that will lead towards increase in overall profitability. In addition with this, it also benefits them
to have assurance to operate their activities in proper framework of time.
Budget report:
4

This kind of report maintain all the valuable information regrading different spendings
done by organisation annually . The budget report should be genuine and it ends in accounting
year of the company. The company managers use this kind of budget report to do comparison
between budget and actual report in accounting. Further this report is accountable the upper level
management for assessing the authenticity of the report depending upon the condition ODF the
business and its growth. This is also useful to manage the expenses and other cost for the
company.
Performance report:
A performance report is a systematic layout which include cost incurred while
completing a project taking in considerations all resources effectively utilised by leader in
achieving short and long objectives on any organisation. The performance report gives an
accurate informations about actual position are equally balanced with set standards, while
comparing performance of project. This report helps leader to implement critical planning for
achieving outcomes in an effective manner. The performance report give an estimations that how
much profit could be attained after completing the project. The objective are based on small,
medium or large scale project. The managers critically allocate funds in operating business
activities so that short and long term objective could be effectively achieved for expanding
business at international market. The performance is regularly monitored by supervisors to know
weather the activities are on planned track or not. It helps manager to expand business and attain
competitive advantage in industries.
M1 Various type of system and their benefits
System Benefits
Cost Accounting system  With the assistance of this scheme organisation can
effectively able to evaluate their unexpected cost
that will further benefit them to improve their profit
level.
Inventory Management System  This system allow to have proper record of overall
5

inventory within organisational structure in order to
offer products and services to customer as per
accordance with their demand.
Job Costing system  With the help of this system organisation can
effectively able to evaluate their activities and
maintain adequate level of profitability.
Price Optimisation System  This system allow organisation to effectively
increase their client base with the assistance of fair
cost.
D1 Management accounting systems reports integrated in organisational processes
Management accounting system helps to manage the reports of finance in organisational
process. It has been identified that various kind of report can and accounting system are both
useful in terms of organisational procedures to achieve the productive output for company. All
system and support file are important to for making genuine report without any fault or
misinformation. In addition it create useful decision and and to solve different problems which
occur in business anytime. There are different kinds of report in management accounting such as
cost report, budget report, accounting report which are used by Essentra packaging to keep track
and maintain all the essential information regarding transaction done in current years.
TASK 2
P3 Cost analysis techniques to prepare income statement to calculate cost
Marginal Costing:
Marginal costs is a variable cost that mainly include, consisting of labour along with
material costs as well as estimated part of fixed costs that are selling expenses, overheads and
administration. In simple terms it is a process within which charging of variable expense is done
all-out unit of expense. With the help of this accounting techniques organisation can effectively
6

able to increase their net benefit and can further determine it in the period of bookkeeping year.
Mentioned below there is a basic formula of calculation of marginal costing:
Marginal Cost= Direct material+ Direct Labour+ Direct expenses+ Variable overheads.
Income statement under Marginal costing method for month of May & June
Particular May June
(in £) (in £)
Total Sales 50 15000 25000
Less: variable cost
Opening stock - 3200
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable Cost 3 1500 1140
Less: Closing stock -3200 -1280
Total Variable cost 4800 8000
Contribution 10200 17000
Fixed indirect production cost 4000 4000
Selling & Distribution costs 4000 4000
Administrative costs 2000 2000
Sales commission cost 750 1250
N.P. (Net profit) -550 5750
7

Absorption Cost per unit
Direct Labour cost per unit 5 5
Direct Material cost per unit 8 8
Variable cost per unit 3 3
Marginal Cost per unit 16 16
May June
Opening stock - 200
Produced units 500 380
Sold Units 300 500
Closing stock 200 80
Absorption costing:
Absorption costing is mainly linked with costing strategies which is also termed as an
cost bookkeeping and administrative. With the help of this organisation can effectively able to
incorporate their cost which is linked with creation of a particular decent. In addition with this, it
also cover fixed as well as variable cost such as, different overheads, compensation and cost of
crude material.
Income statement under absorption costing method for month of May & June
Particulars May June
(in £) (in £)
Total sales 50 15000 25000
8

Less: Cost of Goods sold
Opening stock
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable production cost 3 1500 1140
Fixed indirect production expenditure 4000 4000
Closing stock -4800 2122.4
Total cost of goods sell 7200 7957.6
G.P. (Gross profit) 7800 17042.4
Selling & Distribution expenses 4000 4000
Administrative cost 2000 2000
Sales commission expenditure 750 1250
N.P. (Net profit) 1050 9792.4
Absorption Cost per unit
Direct labour cost per unit 5 5
Direct material cost per unit 8 8
9

Variable cost per unit 3 3
Fixed indirect production expenses per unit 8 10.53
Total Absorption Cost per unit 24 26.53
May June
Opening stock - 200
Units produced 500 380
Sold units 300 500
Closing stock 200 80
Material cost variances:
Given information is as follows-
Standard price(SP)- £10 @ per kilograms
Actual price (AP)- £ 9.5 @ per kilograms (20900/2200)
Actual quantity (AQ)- 2200 Kilograms
Standard quantity(SQ)- 1000 Kilograms
Material price variance (MPV)= (SP-AP) * AQ
(10-9.5)* 2200= £1100 F
Material usage variance (MUV)= (SQ-AQ)*SP
(1000-2200)*10= £12000 A
Material cost variance (MCV)= Standard material cost- actual material cost
Valuation of closing stock using LIFO
Date Reference Purchase Issues Balance (Inventory)
10

Units £/Units £ Total Units £/Units £ Total Units £/Units £ Total
05/01 Previous balance
(inventory) 40 3.00 120.00
05/12 40 3.00 120.00
Bought 25 units
at £ 3.60 each 20 3.60 72. 20 3.60 72.00
05/15 20 3.60 72.
Issued 36 units 16 3.00 48. 24 3.00 72.00
05/20 24 3.00 72.00
Bought 20 units
at £ 3.75 each 20 3.75 75. 20 3.75 75.00
05/23 Issued 10 units 10 3.75 37.5 24 3.00 72.00
10 3.75 37.50
05/27 9 3.75 33.75
Issued 25 units 25 3.00 75.00
05/30 Issued 5 units 5 3.00 15.00 4 3.75 15.00
Valuation of closing stock by using weighted average method:
05/01 Previous balance
(inventory) 40 3.0000 120.0000
05/12 Bought 25 units at £
3.60 each 25 3.60 90. 65 3.2308 210.0000
05/15 Issued 36 units 36 3.2308 116.307
7 29 3.2308 93.6923
05/20 Bought 20 units at £ 20 3.75 75. 49 3.4427 168.6923
11

3.75 each
05/23 Issued 10 units 10 3.4427 34.4270 39 3.4427 134.2653
05/27 Issued 25 units 25 3.4427 86.0675 14 3.4427 48.1978
05/30 Issued 5 units 5 3.44 17.2135 9 3.4427 30.9843
M2 Range of management accounting techniques
In this modern business world organisation can take advantage of different types of
costing methods with the help of which they can effectively able to frame decision-making
process with the help of which best effective solutions can be attained. In addition with this
management accounting techniques help business organisations to prepare reports and statements
in accurate manner. Along with this with the use of marginal as well as historical costing
techniques managers can effectively able to measure net profit and can further calculate cost in
terms of production and operations in well effective manner. In this regard, managers can take
advantage of any suitable method as per accordance with their business nature. In this it has been
determined that there are variance in variable cost treatment in within both method that in turn
make differentiation in net earning figure for a year.
D2 Financial reports that accurately apply and interpret data
Financial statements are mainly in three forms that include, balance sheets, cash flow
statements and revenue statements. With the help of this business organisations can effectively
able to showcase their business status as well as financial power. As per the above mentioned
table it has been seen that result of net profit varies from other mentioned methods. While in
terms of marginal costing techniques it has been consider that fixed costs are periodical. If it is
seen in absorption costing, fixed cost is termed as in most essential element in order to produce
particular goods. In addition with this, it has been evaluated that in May month profit is 1050
Euros while in the month of June profit was 4750 Euros with the assistance of absorption
costing. Thus, it is important for managers to take advantage of all the required scheduling
instruments as with the help of this organisation can effectively able to evaluate overall cost
12

along with the revenue that are required to be acquired from different form of projects in within
a business unit.
TASK 3
P4 Advantage and disadvantage of various types of planning tool
Budget is termed as an one of the most important tool with the help of which organisation
can effectively able to make an estimated estimate of about expenses. With the help of this
company can effectively able to accomplish their work in estimated period of time. In the
organisational structure of Essentra, manager is taking advantage of different form of budget
with the help of which expenses can be controlled. In addition with this, it also allow
organisation to resolve different types of uncertain situations. Mentioned below there are some
advantages and disadvantages defined:
Flexible Budgets:
The flexible budget are described as budget that are fluctuating depending on market
conditions that are influenced by micro and macro environment of specific industries. The nature
of business totally depends on rise and low of market share. The flexible budgets of business are
estimated on seasonal change of universe. The operational activities are directly related to funds
allocated by manager in an organisation. These incurred expenses could increase and decrease
depending on need of business and should beneficial in generating sales profit.
Advantages:By using flexible budget will help in estimating budget that could be
effectively utilised in achieving competitive advantage in industries. It also provide manager
allocate accurate funds in each activity for producing desirable result.
Disadvantages: This type of budget have to be critically analysed by managers in
fulfilling the goal of organisation.
Flexible budget are most of the time confusing as it include various framework for
making changes in cost that will be utilising in operating business activities.
. Fixed Budgets:
It is described as most important technique used by manager for allocating fixed funds in
a systematic manner to carry out activities. These fixed budget does change in any conditions.
13

These budget help managers to estimate actual funds that are required for achieving goals and
increase sales margins. This budget help leaders to distribute funds in effective way to complete
each task in an organisation.
Advantages: These budget are used for achieving short term and long term goals that are
set by every organisation. The actual cost are easily estimated by line manager in order to fulfill
the activities.
Disadvantage: There are chances where actual cost incurred does not match with
outcome result. Some time lack of knowledge of market positions result in downfall of business.
M3 Evaluation of planning tool for preparing budgets.
A business is totally depends on the budget. It play an important role. Mostly projects is
totally depends on the budget but without using any proper plan, after a effective result of any
project, they plan for the future company organisation. Future planning is also related with two
type of budget and those are flexible and future budget. All plaining instrument is effected by the
Essentra packaging manager. Budget of its year is expected from last year expenditure. It is
analysed that planning of tools is necessary for the focusing on budget. It Is beneficial for the
growth of an organisation
TASK 4
P5 Adaption of management according to respond financial problem.
According to the current senior. Thee are many situation which turns into business
problems. Many systems of accounting is responsible for the financial problems of organisations.
Finial problem is know as when an organisation is not able to provide outstanding deb to
workforce, manager and other acidities related to there business. It is a critical situation for an
organisation. Many different6 organisation have different problems which also affect the
performance of employees. Some business problem related to the difference are as folliwi8ng.
Late Payment from client: it is the biggest problems. which is always faces in
organisation. It is accrue when a customer not -pay due amount for the organisation. This
problem also effect the performance of they organisation. For all this problem management
accounting is responsible.
14

More spending than earning: it is also a big issue for an organisation. It is accuracy e
when an organisation spend moonbeam on pronation and production. And earning of that
organisation is less than there profit. Thy is is also a financial problem for nm organisation. A
manager of an organisation conduct different promotion activities and spend more money on it.
And output of this strategy is low. It generate many problems.
These all problems impact on the overall performance of the organisation. And workforce
of threw organisation is also effected by this problem in a negative manner. They decrease there
confidante and also not getting effects to solve this issue. Managers of those organisation using
tools related to management. accounting which is help-full concreteness performance of
organisation and solve all these issue.
15

Benchmarking: it is necessary for an organisation to set its standard according top thy
we quality. Benchmarking helps the organisation in performance which is necessary for the
growth of an organisation. benchmarking is also helps in the problem, related to management
accounting.
Financial governance: it is an important tool for the organisation. It is measuring
important information related to the posting, assessing, collecting and evaluating. Financial
governance also helps manager to decrease all ghettoes problems. In representative organisation.
They have recode of every translation and it is also increase the profit.
KPI : Key performance indicator is helpful for the mangers to evaluate the arse where
cash management problems is increasing and amount spending on unnecessary activities related
to promotion and marketing, which is not necessary in that area. With the help of key
performance management mangers of organisation improve cash flow of organisation and
remove those problems.
Comparison:
Essentra Packaging TPG
Organisation have many problems related the
customer payment. Late payment is also a
issue for the manager of Essentra packaging
organisation. because of this problem overall
performance of the organisation is also
decrees. Productivity and probability related to
each other. They both are reduce throughout
this activity.
It is also a big problem for the organisation, if
the customer of the organisation is not satisfied
with the goods and services facilities. Main
resign of this problem is miss-management of
inventory. Many activities like supply chain
also affected by this. Highly satisfied
Manager of this organisation use technique of
price optimisation for reducing fix price of the
product. Through this customer buy good and
services of the organisation without asking
about credit period.
Inventory management system is used by the
manger for r3esducing the problem of missing
records of organisation. So it is necessary for
the manger to use this system for proper
recode of stock and production.
16

M4 management accounting system lead to long term sustainable success.
Management accounting system play an important role for reducing many problems related
top the financial issue. Without management accounting an organisation can survive in
systematic manner which is necessary. Unexpected expenditure also inures with management
system. It is the need of every business. Through this mangers of big organisation focused on the
inventory regulation system which is necessary for data record and save all the records related to
the translation of money in organisation. Record stock is also solve this problem related to the
economy. Price optimization is also a part of this. Through this an organisation increase the
quality of there product and services which is necessary for increase profitably of an
organisation.
D3 Financial problem avoid with the help of planning tool
Accounting top the present senior, it has been analysed that every business have a problem,
related to the economic issue which like decreasing probability and market position of the
organisation (Drury, 2015). Manger of Essentra packaging organisation solve many economic
issue with the help of planning tool. Those mangers are mostly prepare budget of current year on
the behalf of last year expenses. Managers of Essentra packaging organisation prepare many
different budget on the basis of significance senior. Many problems related to the business is
solved like late payment of customers, record miss management and many other things.
Organisation solve the problems with the help of fixed, flexible and incremental budget. It also
increase the performance of there employees. So management account in is beneficial for the
organisation. All these tools work in a effective manner for increase the performance of the
organisation.
CONCLUSION
As per the above mentioned report, it has been evaluated that management accounting
acts as an one of the most important element with the help of which organisation can effectively
able to frame their financial records and data. In addition with this, with the help of this they can
effectively able to determine the actual reason behind financial problems. In this report different
17

types of tools and techniques are given with the help of which organisation can able to solve
financial issues in well effective way. Present report include different types of management
accounting system with the help of which decision-making in organisation can be effectively
done. Along with this with the assistance of numerous form of planning tools managers can
effectively able to formulate business budget in order to conduct operations and activities in well
defined manner. Lastly, report include costing techniques with the help of which organisation
can effectively able to ascertain adequate amount of net profitability.
18

REFERENCES
Books and Journals:
Anderson, S. and Sedatole, K., 2013. Management accounting for the extended enterprise:
Performance management for strategic alliances and networked partners.
Drury, C., 2015. Management accounting for business. Cengage Learning EMEA.
Hilton, R. W. and Platt, D. E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Innes, J. and Mitchell, F., 2015. A survey of activity-based costing in the UK's largest
companies. Management accounting research. 6(2). pp.137-153.
Ittner, C. D. and Larcker, D. F., 2012. Quality strategy, strategic control systems, and
organizational performance. Accounting, Organizations and Society. 22(3-4). pp.293-
314.
Roslender, R., 2016. Relevance lost and found: critical perspectives on the promise of
management accounting. Critical Perspectives on Accounting. 7(5). pp.533-561.
Schaltegger, S. and Csutora, M., 2012. Carbon accounting for sustainability and management.
Status quo and challenges. Journal of Cleaner Production. 36. pp.1-16.
Ward, K., 2012. Strategic management accounting. Routledge.
Wickramasinghe, D. and Alawattage, C., 2012. Management accounting change: approaches and
perspectives. Routledge.
Windolph, M. and Moeller, K., 2012. Open-book accounting: Reason for failure of inter-firm
cooperation?. Management Accounting Research. 23(1). pp.47-60.
19