Comprehensive Analysis of Management Accounting Systems & Tools

This report provides a comprehensive overview of management accounting systems and techniques. It begins by defining management accounting and differentiating it from financial accounting, highlighting key functions and various types of management accounting systems, including financial, cost, tax, and inventory management. The report discusses methods of reporting management accounting information, such as income statements, balance sheets, and cash flow statements. It also explores cost computation techniques, including marginal and absorption costing, and illustrates these with a cost report and reconciliation statement. Furthermore, the document examines planning tools like budgets, discussing their advantages and disadvantages, and how organizations adapt management accounting systems to respond to financial problems. The report concludes by emphasizing how management accounting can lead an organization to sustainable success through informed decision-making and strategic planning. Desklib offers students access to this and other solved assignments for academic support.

Management Accounting
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Table of Contents
Introduction...................................................................................................................................4
LO1 Systems of Management Accounting (P1, P2, M1, D1).................................................5
P1 Management Accounting and Types................................................................................5
P2 Methods of the reporting of the management accounting...........................................7
M1 Benefits of the system of the management accounting................................................8
D1 Management Accounting system and reporting integration with the organization 9
LO2 Techniques range for management accounting (P3, M2, D2)....................................10
P3 Cost computation and income statement......................................................................10
LO3...............................................................................................................................................13
P4. Advantages and disadvantages of types of planning tools........................................13
M3 Use of planning tools and their application................................................................14
LO4...............................................................................................................................................18
P5 Organizations adapting management accounting systems to respond to financial
problems..................................................................................................................................18
M4 How management accounting can lead an organization to sustainable success...19
D3 How planning tools respond appropriately in solving problems.............................21
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Conclusion...................................................................................................................................22
Bibliography................................................................................................................................23
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Introduction
The main part of any organization is the accounting which helps in the understanding of the
performance of the company for the current scenario as well as the future. The management
accounting is the part of the accounting where the internal holders will be able to know the
performance. In the assignment below the theories of management accounting and different
calculations will be shown along with the responsibilities and methods of management
accounting are explained in the report below. The assignment will further explain the
reporting methods of the management accounting and the planning tools used for the
budgetary control. Further, the budget, variance calculation and the ways the company
respond to the financial problems will be discussed.
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LO1 Systems of Management Accounting (P1, P2, M1, D1)
P1 Management Accounting and Types
Management Accounting- Management accounting is a very important tool which helps the
company in taking the decision. The various tools which management accounting uses are
the budgets, variance, break-even Point and Cost-volume Profit analysis. The management
will be able to properly plan and control the company and the management accounting can
be used at every kind of organization. The organization will be able to use the resources
efficiently and effectively (Borad, 2017).
The management accounting and financial accounting are two different concepts for the
organization in terms of:
 Reporting- Management accounting reports in a detailed way than the financial
accounting whereas the financial accounting reports on the business as a whole.
 Use of Standards- Management accounting does not use any standards while the
financial accounting uses the accounting standards.
 The timing of Reporting- The management accounting reports whenever the
requirement arises while the financial accounting reports at the end of the year.
 Orientation- The management accounting has the future orientation whereas the
financial accounting has the historical orientation.
 Information- Management accounting does not provide accurate or precise
information while the financial accounting is required to provide accurate information
(Bragg, 2017).
The management accounting requires to follow the mandatory principles of the
communication where the departments are required to be communicated, the information
provided should be relevant with the help of which the decisions can be taken, the
management accounting should help the companies in creating their value and the
management accounting should be developed so that the trust is created by the employees
and the staff. The management accounting has many key functions which include the
providing of the data, changing the data, interpreting of the data, helps in communication,
provides qualitative and quantitative information, etc.
The different types of the system of the management accounting are as follows:
1. Financial Accounting- The financial accounting is a system which helps in the
analysis and the reporting of the information of the business and the financial
accounting is required to prepare the reports in financial terms through which the
decisions can be taken.
2. Cost Accounting- The cost of the product for the company is predicted and the profit
can be estimated on the basis of the cost. The system will help the company in
controlling the cost where the cost accounting system is divided into two parts which
are the job order costing and the process cost.
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3. Management Accounting- The management at all the levels uses the system of
management accounting and the financial and non-financial information is used by
the system of management accounting. The indicators can be identified with the help
of the management accounting systems.
4. Tax Accounting- The system whose main focus area is taxation and not the financial
statements. The tax accounting system follows the generally accepted principles and
helps in the preparation of the tax returns and the payment of tax amounts.
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P2 Methods of the reporting of the management accounting
The reports prepared are the trading and profit and loss which shows the profitability
position of the company and the decision on making the payment of the dividend can be
taken. Cost of goods sold is prepared so that the deduction can be claimed and the tax can be
reduced (Murray, 2017). The income statement is prepared so that the income and expenses
of the company can be analysed. The balance sheet is prepared to interpret the position of
the company and the cash flow statement helps in the analysing the cash flow of the
company (Kumar, 2011).
The different systems of management accounting are:
1. Cost Accounting System- The system which is used to control the cost and based
on which the profit is earned. The main types are the job order and process costing.
Example- when the material move from one location to another then the system
helps in tracking the progress.
2. Inventory Management System- The main component of the company is
managed with the help of this system which is inventory. Example- when the
inventory is sold by the business and it reaches danger level then the system will
automatically order the inventory.
3. Price Optimisation System- The analysis of the customer response is done
through the mathematical analysis and the price will be decided. Example- the
price for the newly innovated product can be decided (McCormick, 2017).
4. Job-Costing System- The Cost of each job or the product can be identified which
will include the material, overhead and the labour. Example- the cost of the product
is £ 2,00,000, then the system will allocate the cost to the job proportionately in job
cost sheet (Bragg, 2018).
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M1 Benefits of the system of the management accounting
The benefits of the system of the management accounting can be derived from the
comparison below:
Basis MIS DSS
Focus On structured and routine
decisions.
On unstructured decisions.
Users High, medium and low level
of management and
executives.
Professionals, managers,
analysts.
Database used Corporate database Special database is
incorporated.
Use Control the operations of the
company.
The planning, organizing,
staffing and controlling.
Model Base The models present are
standard but it is not
managed.
The model base is the core of
DSS.
Improvement The efficiency of the
company is improved.
The effectiveness of the
company is increased.
Examples Decision on stock levels,
pricing, etc.
Investment decisions (Aron,
2011).
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D1 Management Accounting system and reporting integration with the organization
The management accounting system and the management accounting reporting is integrated
with the organization which can be analysed form the comparison provided below:
Basis DSS (Decision Support
System)
ESS (Executive Support
System)
Users Professionals, Managers,
analysts.
Executives whether top level
or not, senior managers.
Use Difficult to use Simple to use
Decisions Decisions on the basis of the
highly automated software
where the communication
technology, knowledge, etc.
is used.
Best possible solution to the
problem is provided with the
help of education,
experience, etc.
Models Highly analytical models are
used.
Less use of the analytical
models (Olivia, 2011).
Example Charts, instant messaging,
etc.
Oracle Financial, etc.
The financial information which is provided is required to be relevant since it helps in
providing the undisputable information, creating strategies, maintaining the relationship
with customers, quantifying the purpose of business, optimizing and communicating
effectively and efficiently.
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LO2 Techniques range for management accounting (P3, M2, D2)
P3 Cost computation and income statement
The amount incurred in the product or the service by the company is termed as the cost and
this will be increased to a certain extent and will be charged from the customer. The cost is
divided into different types which are variable, fixed, semi-variable, indirect, period cost,
product cost, direct cost, etc. For the analysis of the cost the different cost can be classified
in various forms like social cost, opportunity, relevant, sunk, implicit, explicit cost, past,
future cost, etc. To determine the change in cost and its effect on the volume of the company
will be possible with the help of the cost-volume-profit analysis. The change in the
environment requires the change in the level of activity and it can be done with the help of
the flexible budget. The difference in the actual and the budgeted cost is the variance of the
cost.
The absorption costing is the method which determines the cost and the profit by
considering the total cost of the product or the service. In absorption costing the cost of the
product or the service is taken on the basis of the average and then that cost is added to the
selling price of the service or the product. The cost will include the fixed and variable and
the profit will be calculated by calculating the gross profit (S, 2015).
The marginal costing is the method where the cost and the profit are calculated by
considering the variable cost only. In the marginal costing technique, the marginal cost is
calculated by adding the one unit extra cost to the one unit extra produced. The cost includes
only variable cost and hence the contribution is firstly calculated then the net profit is
calculated (S, 2015).
The cost which remains fixed irrespective of the change in the level of the activity is the
fixed cost while the cost which changes as per the change in the level of activity is termed
as a variable cost. Normal cost includes the cost of manufacturing i.e. the material, labour
cost and overhead and the expected cost when substituted for the actual cost is termed as the
standard cost.
a) Cost Report Using Marginal Costing
ABC Car Repairs Pvt. Ltd.
For the month of January 2018
Marginal Costing
Particulars Amount
(£)
Amount
(£)
Sales Revenue 560898
Less: Marginal Cost of Sales
Opening Stock 40400
Add: Production Cost 18000
Total Production Cost 58400
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Less: Closing Stock 25141
Marginal Cost of Production 33259
Add: Selling, Admin and Distribution
cost
19888 53147
Contribution 507751
Less: Fixed Cost 60000
Marginal Costing Profit 447751
b) Cost Report Using Absorption Costing
ABC Car Repairs Pvt. Ltd.
For the month of January 2018
Absorption Costing
Particulars Amount
(£)
Amount
(£)
Sales Revenue 560898
Less: Absorption Cost of Sales
Opening Stock 20200
Add: Production Cost 11000
Total Production Cost 31200
Less: Closing Stock 13202
Absorption Cost of Production 17998
Add: Selling, Admin and
Distribution cost
19888 37886
Un-adjusted Profit 523012
Fixed Production Overhead
absorbed
21000
Less: Fixed Production Overhead
incurred
11231
(Under)/Over Absorption 9769
Adjusted Profit 513243
c) Reconciliation Statement of Absorption and Marginal Costing Profits
Reconciliation Statement For Marginal and
Absorption Costing Profit
Particulars Amount
(£)
Marginal Costing Profit 447751
Add: (Closing Stock- Opening
Stock)*OAR
65492
Absorption Costing Profit 513243
d) Compute OAR
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Computation of OAR (Overhead Absorption
Rate)
Particulars Amount
(£)
Budgeted Fixed Production
Overhead
21000
Budgeted Level of Activity (Units) 121
OAR 173.55371
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