Report on Management Accounting Systems, Costing, and Reporting

This management accounting report, prepared for Zylla Company, delves into various aspects of management accounting. It begins by outlining essential management accounting systems, including inventory management, job costing, price optimization, and cost accounting. The report then explores different reporting methods such as accounts payable and receivable reporting, job cost reporting, inventory control reporting, and budgetary reporting. A key section compares and contrasts marginal and absorption costing, illustrating the differences in income statement preparation. The report also examines the advantages and disadvantages of planning tools used for budgetary control and concludes by discussing ways to respond to financial problems. The content is organized into logical sections and includes examples and calculations to support the analysis of management accounting concepts and techniques, making it a useful resource for understanding financial management in a business context.

MANAGEMENT ACCOUNTING

Report
From: Management Accounting Officer
To: General Manager
Subject: To write a report to GM involving management accounting and its various system
together with different costing techniques and reporting to enable the organization implement
them.

Table of Contents
INTRODUCTION...........................................................................................................................1
LO1..................................................................................................................................................1
P1. Management accounting systems and their essential requirements......................................1
P2. Various methods used for management accounting reporting..............................................2
LO2..................................................................................................................................................4
P3 Difference between income statement made through marginal and absorption costing........4
LO3..................................................................................................................................................6
P4 Advantages and disadvantages of planning tools..................................................................6
LO4 .............................................................................................................................................8
P5 Ways for responding financial problems ..............................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10
2

INTRODUCTION
Increasing number of challenges in the business world is forcing many organisations to
adopt new and modern approaches of accounts. Management accounting is a process of
preparing various financial and non-financial documents which can assist managers in making
correct decision (Bedford, 2015). Zylla Company is a multinational organisation as they are
present in various countries. This assignment will discuss essential requirements of various kinds
of management accounting. It will also explain different methods of reporting. Merits and
demerits of planning tools that are used for budgetary control will also become an important part
of this file. An income statement will be made by using marginal and absorption costing
approach. Financial problems generate trouble for a company. This project will also include
various tools of management accounting which can assist an organisation in overcoming
different hurdles.
LO1
P1. Management accounting systems and their essential requirements
Most of the multi-national enterprises know that they cannot rely on old techniques of
working like financial accounting. The outer world is changing and the need of concepts like
managerial accounts is rising. Management accounting focuses on forming the future plans and
policies of company. Its different systems are used for interpretation of the financial data. When
an enterprise starts their business in market, they have to deal with troubles relating to earning
market share and profit (Cokins, 2013). The tools of this latest and modern accounting aim at
making strategies which can solve the troubles of a firm.
There was a time when finance division only concentrated on areas like taxation, costing,
etc. But, now they have to consider other significant factors like plans of rivals and trends in
industry, etc. Profit of a company can be raised by lowering down the cost of business. This is
more of an internal process and it is a significant part of management accounting. Enhancing
sales is another way of increasing profit. If an enterprise go with this approach then they have to
make decision relating to huge investment (Financial Reporting Center. 2017). Making call
regarding ''where to invest'' is bit difficult and managerial accounting is adopted for making these
kinds of important decisions.
Management accounting systems are mentioned as below:
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Inventory management system – For a company like Zylla, managing their stock is a
difficult task because this organisation is present in more than one nation and the level of
complexity in their business is high (Maiyaki, 2011). This part of management accounting deals
with the issues of keeping more or less than the required inventory which should be present in
the warehouse of an enterprise. Earlier, this work was done by keeping manual records but now,
companies use the latest technology like EOQ, determining carrying and ordering cost. If a firm
will store more goods in their factory then it will increase the cost of business and result in
wastage of resources. On the other hand, if they will not keep required raw material in their
factory or finished product in their stores then this will make a negative impact on the supply
chain management and services of company.
Job costing – For accomplishing a task, various kinds of jobs are needed to be done. This
system identifies that the work is more important because its contribution is more in profit and it
also assist in finding the job which is creating burden of additional or unnecessary cost on the
enterprise. Managers can use this type of management accounting for achieving the goals of
company.
Price optimisation – A product should be sold in market at a price which is favourable
for both seller and buyer (Moser, 2012). This system of management accounting helps the
managers in identifying and setting a rate for an item that can be afforded by customers and at
the same time, it assures high profit to the firm. Consumers sometimes do not purchase a product
because of its high value. This results in decreasing the demand of commodity. In other case,
buyers feel that sellers are selling their products at a low price and they could have paid more
money for same item. The loss of revenue is the only thing which a corporation get in this
situation.
Cost accounting system – As mentioned earlier, costing is one of the most significant
parts of management accounting because reducing cost indirectly means increasing profit. Cost
accounting minimises the wastage of resources. This task can be successfully completed by
decreasing the unnecessary expenses. Its scope is wide and it affects all the departments of a
company.
P2. Various methods used for management accounting reporting
Making reports is essential for managers because these documents reveal the work which
they have done in past and they can use it for making future plans. If an enterprise uses these
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reports in a right manner, then they can find the areas where they are making mistakes on
continuous basis. Working on these mistakes is significant for their growth in the future. Below
are some forms of reporting:
Account payable reporting – This report is made for finding the amount which firm has
paid to their creditors along with the due amount. Suppliers are one of the key stakeholders of
every organisation. If they will receive their money according to the promises made by multi-
national company like Zylla then their goodwill and credibility in the market will increase. Some
companies make this report by considering the amount while others prefer duration of credit
(Otley, 2016). There are no specific regulations and organisation should adopt one which suits
their business model. Account payable reporting can be used for making and keeping sound
relations with the suppliers. It can be utilised at the time of making future policies and plans
relating to creditors.
Account receivable reporting – Debtors are the people or business entities who owe
money to the company. A/R reporting is provide key information about the debtors who have
purchased goods from the company on credit. This report contain the time period which is
allowed to them for paying the specific sum. Their are two ways of making this report, one is by
considering time and other is by considering amount. They prime use of this form of reporting is
in done in reducing the chances of bad debts. If manager of an organisation like Zylla make this
report on continuous basis then they can easily find the debtors who are not paying due amount
is given time. This will save lot of money of the enterprise and they will regularly get the details
of the debtors who should not get the good on credit from the organisation.
Job cost reporting – Formation of this report can help managers in determining the
profitability of a job. If they find that a job does not have contribution in the revenue then that
particular job can be removed from the process of manufacturing (Parker, 2012). By using this
report, a company can minimise unnecessary expenditure of the resources, this will reduce the
cost of business of an enterprise.
Inventory control reporting – Managing stock is a big challenges for multi-national
firm because of their high operation level. This report is created for various purposes like finding
right quantity of the good which should be ordered in one time. Facing issues like overstocking
or under-stocking is normal in multi-national corporations. This problems can be solved by
forming and analysing inventory control reporting. EOQ (economic order quantity) is one of a
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technique which is used for reducing two main costs that are involving in managing inventory
i.e. carrying cost and ordering cost. This report shows the time period for which company did not
have essential goods like raw material needed for production process. Sometime organisation
keep more goods in their warehouse compared to their actual need. This result in unnecessary
increment in the cost of the inventory (Renz, 2016). These kind of problems can easily get
resolve this report is made in continuous basis and the identify problems are solved in short
period of time.
Budgetary reporting – Making budget is significant for every manager and its company
because it assist in many ways like reduces confusion in the employees and their departments
etc. This cannot be made by small and some medium enterprises because of its high forming
cost. This report consist of all the expenditure and income which company is going to spend or
earn in upcoming time.
LO2
P3 Difference between income statement made through marginal and absorption costing
The importance of costing has increased in last few decades because many big enterprises
registered huge profit by reducing cost of the company's business. Marginal latest concept and it
is very different from absorption costing. The prior one is the expenses which is incurred by the
company when they produces extra unit. The later is known for its unique but reliable approach
i.e. putting burden of various cost on every unit that is manufactured in the firm (Schaltegger and
Zvezdov, 2015). The difference between both of them are mentioned below:
Basis Absorption Marginal
Fixed cost Fixed cost is taken at the time
of determining cost of final
product.
Fixed cost is treated as period
cost.
Closing stock It is affected by opening and
closing stock.
Opening and closing stock
does not affect manufacturing
cost.
Inventory valuation Value at complete production
cost.
Value stock at total variable
cost.
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Use Accepted in IAS 2. Assist in decision making.
Calculation by using marginal costing
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2 - 7800
Closing stock: 100*13 - 1300 -6500
Contribution 11000
Less:
Variable sales overhead 500*1 500
Fixed overhead -1800
Selling and administrative cost expenses (800+400) -1200 -3500
Total Profit / Loss 7500
Computation through Absorption costing
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2+3 = 16*500
8000 8000
Gross profit 9500
Less:
Variable sales overhead 500*1 500
Selling and administrative cost expenses (800+400) 1200 -1700
Total Profit / Loss 7800
The profit earned through absorption costing is 300 pounds more than the net profit
registered through marginal costing. The key reason behind these difference is fixed cost. Whole
cost is taken in the final product in marginal costing but in absorption it is allocated on every
produced units. Closing stock is the another reason behind variation, if some expenses like fixed
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cost is not taken in account in this year then they are transferred to next year in absorption
costing. Under marginal costing, whether are expenditure, like fixed cost, is done on current year
but some closing stock remain at the end of year then the burden of fixed cost will be taken in
this year. This mean an additional and unnecessary cost.
LO3
P4 Advantages and disadvantages of planning tools
Budgetary control assures that company moves correct direction and attain their set
objectives in the decided period of time. Some may think that this task is related to monitoring
but it mainly it is connected with sound planning. Most of the company are using different tools
of planning because they know that if they will keep provisions for upcoming time then this will
make a positive impact on the confidence level of the employees. It will also provide some
stability to the company in unfavourable time. Below are some of the key planning tools along
with their merits and demerits:
Cash budget – Managing cash is a difficult job because its has high liquidity. This tool is
used for finding the requirement of cash on a particular time period (Wagenhofer, 2016). Cash
budget is important for an enterprise because it can reduce the various problems like bad debts,
hurdles in supply chain management, etc. Cash budget has data about money which company
may have to pay to different business entity in forthcoming time and it also includes information
about money which an enterprise will earn through various source like selling goods or earning
interest through the loan which they may have provided to some debtors.
 Merit – If a company have right amount of cash in their hand then they can pay they
creditor in promised time period. This will increase their credibility in the market and
some of the suppliers may get ready to give them some special discount because of their
timely payment of due sum. In case of emergency, they can buy required resources in
non time because market also prefer cash compare to buy goods on credit.
 Demerit – The main cause behind not making cash budget is that managers think that
ascertaining the actual need of liquid assets is not possible. Business environment is
continuously going through major changes and deciding a fix amount for a particular
time is very difficult. Another disadvantages of this budget is that it is highly dependent
on the last year budget. Closing balance of cash budget is taken for making next years
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budget, this is very risky because in a multi-national corporation cash budget of two
different year may highly vary.
Master budget – Companies like Zylla can adopt this planning tools for achieving their
goals. This budget contain many small budget like sales, marketing budget etc. All the divisions
of a company normally do their own planning so they can attain their objective, master budget
allot funds all the department (Kokubu and Kitada, 2015). It ascertain the income which they
may generate and the expenses which they will be doing for proceeding in right direction.
 Merit – The number of disputes go down when a company make master budget. This
budget contain all the details the funds which is given to every wing of the company.
When manager of two division get separate funds then they never fight about using each
other allotted sum. Sometime two department of the an enterprise do not move forward in
same direction, master budget make sure that all the efforts of a company are channelised
in same direction. This provide confidence to the employees of company. Demerit – Small companies do not make master budget because of only factor i.e. high
cost of formation (Hopper and Bui, 2016). Master budget also have planning about sales
and some other key factors, storing and analysing huge amount of data is not an easy
process and it involves high manpower and other essential resources. The process of
creating master budget is very lengthy and some manager do not like to make this budget
because they believes if they will use various resources which are needed for the making
master budget in implementing simple and short budgets then this may provide better
outcomes to the company.
Operating budget – Operational planning consist of the income and expenditure which is only
related to core revenue generating activities of the company. This planning tools majority focus
on two areas, one is manufacturing and administration. These are prime areas where expenditure
is done so operating budget make plans for these activities.
 Merit – If a company will show better operating cost of an investment to the investors
then they will take interest in investing huge some in an upcoming project. This will
increase the income of the company (Hansen, 2011). Making changes in a budget is a
very difficult work, but this condition does apply operating budget. If manger think some
of their operation plans needed to be altered in then they can easily make essential
amendments.
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 Demerit – Operating budget do not cover all the revenue producing areas of a company.
Relying on this budget is bit risky. ''Ease to amend'' is one of the most crucial features of
this planning tool. Manager may feel that it is a benefit for them but in reality when they
change plan on regular basis then this shows that they are not confident about their plans
and it also generate confusion among the employees.
LO4
P5 Ways for responding financial problems
Every company has adopt own method of accounting. They faces different financials
troubles because of various external and internal reasons but management accounting system and
it various tools can minimise their troubles (Delafrooz and Paim, 2011). Vectiar holding is using
traditional accounting techniques. Their difference with Zylla is as follows:
Zylla Vectair holding
Use lean accounting, i.e. focus on reducing
wastages which happen in production
procedures.
Use traditional accounting systems, main focus
is on recording financial data.
Morden system of accounting play crucial
role in making right and fast calls relating to
various areas like investment.
Slow travelling of information often result in
delay of various significant decisions.
Latest technologies are integral part of lean
accounting.
The use of technology is very less and recording
of data is done manually.
Financial issues can be tackled in an effective way by using below mentioned tools of
management accounting:
KPI – Key performance indicators shows whether the company is attaining success or
one of their planned activity is moving in the right direction. SMART objectives should be set by
every firm so they can reach their aim in an effective way. Company need to set some specific
goals like capture 15% market. If they have specific goals then they will use their financial
resources according. If goals are not measures in number then manager would find whether they
have done good or bad. The objectivities must be achievable and it realistic. This will increase
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the confidence in the workers (Cullen and et.al., 2013). Bounding of time is important because it
their will be no time boundation then attaining an easy goal may taken lot of time and raise
unnecessary financial issues.
Financial governance – If a company will think about increasing their profit and
expanding their business without considering the views of various stakeholders then this will
result in upsetting significant stakeholder. If a company will involve the benefit of their
stakeholder at the time of making financial decisions then they can save themselves from various
financial troubles.
Performance measurement control system – This tools runs on a specific principles i.e. if
performance cannot be measured than it cannot be removed. It can increase profitability of an
enterprise and resolve financial troubles.
CONCLUSION
From the above report, it can be concluded that every management accounting system
help manager in increasing profitability of the company. Marginal and absorption costing is very
different from each other, financials problems can be resolved by adopting tools like KPI.
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REFERENCES
Books and Journals
Bedford, D.S., 2015. Management control systems across different modes of innovation:
Implications for firm performance. Management Accounting Research. 28. pp.12-30.
Cokins, G., 2013. Top 7 trends in management accounting. Strategic Finance. 95(6). pp.21-30.
Cullen, J. and et.al. 2013. Reverse logistics in the UK retail sector: A case study of the role of
management accounting in driving organisational change. Management Accounting
Research. 24(3). pp.212-227.
Delafrooz, N. and Paim, L.H., 2011. Determinants of financial wellness among Malaysia
workers. African Journal of Business Management. 5(24). p.10092.
Hansen, A., 2011. Relating performative and ostensive management accounting research:
reflections on case study methodology. Qualitative Research in Accounting &
Management. 8(2). pp.108-138.
Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management
Accounting Research. 31. pp.10-30.
Kokubu, K. and Kitada, H., 2015. Material flow cost accounting and existing management
perspectives. Journal of Cleaner Production. 108. pp.1279-1288.
Maiyaki, A.A., 2011. The Practicability of Activity Based Costing (ABC) in the Nigerian Retail
Bank. Business Intelligence Journal. 4(2). pp.351-354.
Moser, C., 2012. Gender planning and development: Theory, practice and training. Routledge.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
Parker, L.D., 2012. Qualitative management accounting research: Assessing deliverables and
relevance. Critical perspectives on accounting. 23(1). pp.54-70.
Renz, D.O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Schaltegger, S. and Zvezdov, D., 2015. Expanding material flow cost accounting. Framework,
review and potentials. Journal of Cleaner Production. 108. pp.1333-1341.
Wagenhofer, A., 2016. Exploiting regulatory changes for research in management
accounting. Management Accounting Research. 31. pp.112-117.
Online
Financial Reporting Center. 2017. [Online]. Available Through:
<http://www.aicpa.org/interestareas/frc/Pages/default.aspx>.
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