Management Accounting Systems: Responding to Financial Problems

This report explores management accounting (MA) and its role in organizational management, focusing on Capital Joinery Ltd. It details the development of effective understanding of MA systems, examining various methods related to MA reporting, and critically analyzing their integration within organizational processes. The study determines costs using techniques like marginal and absorption costing, providing income statements and reconciliation. It also evaluates the advantages and disadvantages of planning tools for budgetary control. Furthermore, the report demonstrates how organizations adapt MA systems to respond to financial problems, concluding with key findings and recommendations. Desklib provides access to similar solved assignments and past papers for students.

5 Management accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
P 1. Developing effective set of understanding associated with the management accounting
system..........................................................................................................................................1
P 2. Examining the different methods related with the management accounting reporting.......2
M 1. Examining the benefits of MA systems and its application in the company......................3
Critically examining how MA systems as well as MA reporting is integrated in an
organisational process.................................................................................................................4
LO2..................................................................................................................................................4
P3 Determining costs using the cost analysis techniques...........................................................4
LO3..................................................................................................................................................8
P4 Advantages and disadvantages of planning tools used for budgetary...................................8
LO4................................................................................................................................................10
P5 Organisations adapting management accounting systems to respond to financial problems
...................................................................................................................................................10
M4.............................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
APPENDIX....................................................................................................................................14

INTRODUCTION
Management accounting (MA) is linked with the internal set of system which the company
uses in order to evaluate and also measure the process for the management within the
organization. It is significant in providing critical set of information and leads to better
operational decision making (Kesumawati and et.al., 2019). The present study will focus on
developing effective set of understanding associated with the management accounting system.
This study also examines the different methods related with the management accounting system.
The study also focuses on calculating costs to use appropriate business techniques related with
cost analysis in order to create an income statement by utilizing the marginal as well as
absorption costing approach. Furthermore, the study also determine the advantages as well as
drawbacks of various planning tools for the purpose of budgetary control. Lastly it will
demonstrate and compare ways where organization can adapt to the MA systems in order to
answer to the financial problems. The present study focuses on the Capital Joinery Ltd. This is a
medium sized organization where they focus on making variety set of joinery, made to measure
doors and windows, etc.
LO 1
P 1. Developing effective set of understanding associated with the management accounting
system.
Management accounting is considered to be as the internal process to prepare reports of the
business operations in order to help managers take long-term as well as short-term decisions.
Management accounting is significant because it is useful in pursuing business goals and identify
measures and interpret the results thereof. It is useful for the integration of management
accounting within the organization because it aids the management and performance to control
various set of functions (Efendi and Kusuma, 2021). Management accounting system is an
internal process which is useful in providing critical set of information for the business decision
making.
Origin of the management accounting is that it has geniuses from financial accounting but
it is still distinct from the functions and roles associated with financial accounting. The key role
of the management accounting is to organise, analyse and observe the functions and operations
of the business and take necessary decision on a timely manner. The basic principle of the
management accounting is that information must be relevant and valuable. Another major
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principle of the management accounting is that, there must be maintenance of credibility of the
data and value must be estimated.
Key primary difference associated with the MA and financial accounting is that the MA
is presented to the internal committee of the company. In contrast to it, financial accounting has
been prepared for the external set of audience or stakeholders (Shevelev, Sheveleva and
Gvozdev, 2017). Management accounting is useful in providing information and complete
analysis to the managers to give insight of the company which helps in better decision making.
Financial accounting focuses on gaining financial information and complete analyses is given to
the people outside of the company. Cost-volume- profit analysis: This accounting system mainly looks at the major impact
that the varied number of cost as well as the volume has upon the operating profit. Job costing system: It is the key prominent process through which it is useful in
accumulating information about the cost linked with the specific job. It helps in allocating
cost and take necessary decision. Cost accounting system: This is also referred to as a product costing system where the
specific set of framework has been used by the organization in estimating the cost of the
products and carry out profitability analysis. It is useful in controlling cost and attain
economies of scale. Inventory management system: This is the relevant process to track the products across
the entire set of supply chain, purchase to production towards the end of sales. This helps
in managing multiple locations, preventing stock outs and also ensure proper record
keeping.
 Price optimization system: It is relevant in calculating how the specific demand tends to
vary at varied degree of price levels. It is useful in managing price and is crucial for the
profitability of company by understanding the price sensitivity concept.
P 2. Examining the different methods related with the management accounting reporting.
Management accounting reporting is useful in producing relevant set of reports which are
relevant for the internal stakeholders of the company. It is useful in monitoring the progress of
the company and also monitor the business performance with greater relevance and accuracy.
This leads to better set of decision making.
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 Budgeting reports: It is one of the key prominent way which is useful in determining the
expenditure levels and level up with the budgeted amount. The management accountant
focuses on taking necessary actions in case of deviation from actual report and the
budgeted report. It is useful in effectively controlling over the key financial results of the
company. Job cost reports: It is relevant in tracking the cost linked with the specific job. This
report is useful in reporting both numerical as well as the financial production outcomes
(Berliantiningrum, Sunaryanto and Pratikto, 2017). It is significant in effectively
identifying the key set of problems for the future job. Accounts receivable aging report: It is considered to be as a periodic report which
categorizes the account receivables of the company. It is prominent in gauging and
determining the key financial health of the company. It is relevant in setting clear set of
signs associated with the underlying problem. This management accounting report is
useful in estimating the amount of the bad debt in order to report on the financial
statements of the company. It is also significant in effectively estimating the total amount
which has to be written off. Inventory and manufacturing report: It is report which helps in showing the complete
summary of the amount linked with the amount of inventory which the business tends to
have in hand at a given specified period of time. It helps in determining the inventory
which has to be ordered or needs to carry out the business and attain optimum level of
profitability. This management accounting report is crucial because it is useful in
estimating the direct impact of the inventory on the profit (Kostyukova and et.al., 2018).
It helps the manufacturer to effectively and accurately record the cost of goods sold in a
prominent manner.
M 1. Examining the benefits of MA systems and its application in the company
MA system is useful in effectively planning and executing the same to the key members and
managers of the organization in order to take decision in an effective and efficient manner. The
MA system refers to system which is being used by the organization for the purpose of meeting
with various requirements of the business in a better way along with meeting with the efficiency.
. It helps in coordinating various set of business activities and leads to long term sustainable
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growth and improved business efficiency in the Capital Joinery Ltd. Company. It helps in
evaluating the financial position and internal business operations of the organization with high
degree of accuracy and relevance. It is useful in predicting inconsistencies and evaluate the
process.
Critically examining how MA systems as well as MA reporting is integrated in an organisational
process
The MA system is well integrated within the Capital Joinery Ltd. Company because it helps
in gaining relevant set of information and take necessary decision on a timely and reliable
manner. Management accounting reporting is well integrated within the Capital Joinery Ltd.
Company as it helps in maintaining cost and ensuring all the operations within the company has
been performed well. It is useful in providing critical set of information and leads to better
operational decision making. It helps in taking necessary actions in case of deviation.
LO2
P3 Determining costs using the cost analysis techniques
Marginal costing: It is the cost analysis technique in which while determining the cost of
production, the only variable cost is being considered and the fixed cost is charged completely as
against the amount of contribution.
Absorption costing: It refers to the method in which the complete cost irrespective of fixed
and variable is being included in the cost of production (Shichkov, 2018). This method is more
acceptable and is used for the external reporting as well.
Income statement as per Marginal Costing
Particulars May June
Sales Revenue 25000 18750
Marginal COS
Direct Materials 6000 4800
Direct Labour 4000 3200
Variable sales commission 500 375
Variable Production O/H 2000 1600
12500 9975
Add:
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Stock at the beginning 0 0
Less:
Stock at the end 0 600
12500 9375
Contribution 12500 9375
Fixed production O/H 2000 2000
Fixed selling cost 1000 1000
Fixed administration cost 3000 3000
Net Profit 6500 3375
Income statement as per Absorption Costing
Particulars May June
Sales Revenue 25000 18750
COS
Direct Materials 6000 4800
Direct Labour 4000 3200
Variable Production O/H 2000 1600
Fixed production O/H 2000 1600
14000 11200
Add:
Stock at the beginning 0 0
Less:
Stock at the end 0 700
(Under)/over absorbed Fixed prod o/h 0 -400
14000 10900
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GP 11000 7850
Fixed selling 1000 1000
Fixed administration cost 3000 3000
Variable sales commission 500 375
Net Profit 6500 3475
Reconciliation of profit figures
May June
Profit under absorption 6500 3475
Difference in units of inventory * fixed production overhead p/u 0 100
Profit under marginal costing 6500 3375
Interpretation: It can be seen that the profits for the month of May is same under both the
method because there is no opening and closing inventory (Ciuhureanu, 2018). While in the
month of June, profit as per the absorption costing is higher in comparison to the marginal
costing which is difference in the units of inventory. It is favourable to use absorption costing as
it meets with the financial reporting criteria.
Variance analysis
CALCULATION OF VARIANCES:
i) Material Price Variance = Standard Price - Actual Price
= (std price - actual price) x actual qty)
(£12 - £9.3) * 2400 kg
6480 (Fav)
ii) Material Usage Variance = Standard Usage - Actual Usage
= (std qty - actual qty) x std price)
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(2000 kg - 2400 kg) *£12
-4800 (Adv)
iii) Material cost variance = Standard cost for actual output – Actual cost
= (Std qty* Std price)-(Actual qty * Actual price)
(24000-22400)
1600 (Fav)
Inventory ledger
Inventory ledger record using LIFO method
Date
(Jun
e) Goods purchased
Cost of goods
sold Inventory balance
1 Beginning Balance
£350 (10 units *
£35)
9
15 units *£38
=£570 £570 (15 units *£38)
15 £456(12*£38)
£350 (10 units *
£35)
£114 (3 units *£38)
20
10 unit * £32=
£320
£350 (10 units *
£35)
£114 (3 units *£38)
£320 (10 unit * £32)
Total 23 units £784
23 £320 (10 * £32)
£350 (10 units *
£35)
£114 (3 units *£38)
Total 13 units £464
27 £114 (3*38)
£350 (10 units *
£35)
30 £70 (2*35) £280 (8 units * £35)
Inventory ledger record using Average Cost method
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Date
(Jun
e) Goods purchased
Cost of goods
sold Inventory balance Average cost
1
£350 (10 units *
£35) £35
9
15 units *£38
=£570 25 units £920 £36.8 (920/25)
15 £441.6(12*£36.8) 13 units £478.4
20
10 unit * £32=
£320 23 units £798.4
£34.7
(798.4/23)
23 £347 (10 * £34.7) 13 units £451.4
27 £104.1 (3*34.7) 10 units £347.3
30 £69.4 (2*34.7) 8 units £277.9
Interpretation: Under the LIFO method, goods purchased in last is sold first and under the
inflationary situation, this approach will pull down the gains. In the average cost method, the
average of the total purchases is divided against the total units which is based on the assumption
that the inventory contains mix of stocks which irons out eth pros and cons of the FIFO and
LIFO.
LO3
P4 Advantages and disadvantages of planning tools used for budgetary
There are various factors within planning tools which are used for budgetary for
analysing business effective working hemispheres and larger goals efficacy aspects which
overall evolve business positioning within industry paradigms on varied functional targets. The
planning tools used for budgetary also enables easy effective comparison of various budgetary
figures which enables business to be widely analysed and take corrective actions for keeping
innovation active. The planning tools ensures structural planning within future work scenarios
for analysing performance metrics, comparison for analysing future growth goals and also to
ensure key growth domains in business. Capital Joinery will be able to enrich overall growth
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potentialities within working horizons by keeping active focus on pertaining higher effective
operational metrics for larger work growth domain, keen target metrics and also to evolve on
larger growth domains (Ahmad, 2017).
Incremental budgeting
This budget is created using the past year's budget or the actual performance as the base
value and on which incremental amount is added for the next year budget.
Advantages:
 This budget is stable and varies gradually.
 Coordination between the budgets is easy to accomplish. In this impact of change can be seen quickly.
Disadvantages:
 Budget may become out dated.
 There are chances of budget slack.
Flexible budgeting
This budget adjusts or changes with the variation in the volume or activity level. It is
considered more sophisticated than the static budget.
Advantages:
 It helps in determining, sales, cost and profits at different levels.
 The budget can re-formed as per the activity levels as it is not rigid. It helps in determining budget based on changing market conditions.+
Disadvantages:
 It requires highly skilled personnel which is a challenge for the company.
 It is very expensive and laborious.
 This budget depends upon factors of production which are predicted, thus, accuracy is not
guaranteed.
Zero based budgeting
Under this tool, the budget is being prepared from the starting without taking into regard
the previous year’s budget (Le and Nguyen, 2019). Each item is incorporated with justified based
on the needs of each and every division.
Advantages:
 It helps in identifying any unnecessary activities.
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 It changes in case if there is any change in the set assumptions. This tool assists in better management of the resources.
Disadvantages:
 This tool is basically the cost benefit analysis thus, the outcome of it can be seen in the
long term.
 It is very time exhausting procedure in formulation of it.
 This might incur the chance of creating conflicts among the managers of the various
divisions.
Capital budgeting
This tool is useful in determining the right project in which the company should make an
investment (Sedevich-Fons, 2018). Under this, there are various techniques which are utilized for
analysing and evaluating the projects and its profitability.
Advantages:
 This approach helps in determining the level of risk and its overall impact over the
business.
 Supports in taking better and improved decision pertaining to the investment. It helps the organization in avoiding the situation of under and over investing.
Disadvantages:
 Once the decision taken, cannot be reversed.
 Uncertainty or the inappropriate assumptions might result into wrong analysis leading to
huge loses.
 For using this tool, experienced and skilled personnel is required.
LO4
P5 Organisations adapting management accounting systems to respond to financial problems
There are various management accounting systems that have been actively heading on
larger scale work scenarios for gaining effective pace on financial problems to be widely
evolving on larger work growth aspects, keenly leverage active functional scale determinants.
The major financial problem which is being faced by the organization's are increase in the cost of
production due to rise in the input cost, reduction in sales, increase in competition affecting the
revenue.. Financial problems are effectively worked on by using innovative strategies and
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