Management Accounting Systems, Cost Analysis, and Budgetary Control

This report provides a comprehensive overview of management accounting principles and their application within a business context, using Milk Train, a medium-sized organization in London, UK, as a case study. It explores various management accounting systems, including cost accounting, inventory management, price management, and job order costing, highlighting their essential requirements and benefits for the company. The report also examines different methods of management accounting reporting, such as account receivable ageing reports, job cost reports, and inventory reports, and their role in internal decision-making. Furthermore, it delves into cost analysis techniques, specifically marginal and absorption costing, to prepare an income statement. Finally, the report discusses the impact of financial issues on the company and how management accounting systems can be used to respond to these challenges, providing valuable insights for managers and stakeholders.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Management accounting systems..........................................................................................3
P2. Different methods of management accounting reporting ....................................................6
TASK 2............................................................................................................................................7
P3. Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs............................................................................7
TASK 3..........................................................................................................................................12
P4. Planning tools used for budgetary control...........................................................................12
TASK 4..........................................................................................................................................14
P5. Management accounting system respond to financial problem...........................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting is considered as a practice is useful in identifying, measuring,
communicating financial information and interpreting it to the managers for the goodness and
betterment of the goals and objectives of company. In this context it is analysed according to the
financial accounting as its intended purpose of Management Accounting is to help various users
internally to the organisation in creating and developing will informed business decision.
Moreover it is used by the internal team of the company which is considered as the significant
thing that makes a prominent difference from the financial accounting (Otley, 2016). In this
context financial reports and information include financial balance statement and invoices that is
shared by the finance department with the management of the company. Along with this the
purpose of management accounting is to significantly utilise the statistical data and take
significant decision in order to control the enterprise and business activities.
To carry forward this report Milk Train is considered which is the medium size organisation
situated in London UK as company deals in Candy Floss and ice cream cones within the UK.
The report is going to cover several concepts of accounting that are required to understand by the
management system and also identify the different methods that are useful in generating various
results. By using financial information the Accountants are capable to measure the net income by
considering various costing approaches. Lastly, the impact of financial issues on the company
and its business activities are described and also addressed by executives with the help of several
systems.
TASK 1
P1. Management accounting systems
Financial accounting is considered as the special reporting part which is useful in
maintaining the record of business transaction within an organisation. By considering this the
payments are reported scheduled and available on quarterly report and financial statement
considering the statement of balance sheet and income with the help of structured guideline.

Management accounting is considered as a methodology which is used by the managers
in order to analyse the significant operations of company. It also includes the collection of data
from the various departments and also reviews them with the help of efficient manner as it is
beneficial in order to take decisions by the manager (Maas, Schaltegger and Crutzen, 2016). In
this context the Milk Train uses several accounting systems that are helpful for the managers in
order to develop significant strategies to achieve success in their business activities. Few of types
of management accounting are mentioned with their essentials as under:
Cost accounting system: This method is useful by the provider in order to analyze the cost
of product and other internal activities. In this context to measure the cost of commodities leads
to reduced fat and also control the cost over the whole manufacturing cycle which company
prominently requires (Hopper and Bui, 2016). Moreover managers of the Milk Train take
significant decision regarding the expenditure and spending of company by considering the
actual cost. With the help of this method the administrators are capable enough to know about
the production cycle and the level of inventory within the company. In this context the Milk
Train adopt this program which is useful in providing benefit to the company in order to develop
strategy which is useful in assessing the significance level of the Inventory of company.
Therefore it is significantly required for Milk Train to adopt this system as it is beneficial for
them in identify the cost of goods and build significant strategy for them. The essential
requirement regarding the Milk Train is to develop effective cost for their overall units that are
manufactured by the company. Moreover, this system is also useful in order to estimate cost for
all the products and also consider the purpose and profitability for the inventory.
Inventory management system: It describes the variety of procedure and Technology which
is required in order to control and handle the Inventory of company. In this context it is
significant for the company to arrange their stock by considering the criteria of sale. Therefore
there is some specific inventory management methods and essentials that are mentioned below: First in first out (FIFO): In this company use the last stock in order to manage their
inventory program concerning the production process. Last in first out (LIFO): The products that are acquired earlier are useful for the
production under this procedure.
 Average cost: It is useful on the grounds of cost by which company calculate its average
cost of the commodities.

Therefore, Milk Train can follow LIFO inventory management system which is useful for
them in order to manage the Inventory of company. Moreover the system is important for the
company to keep the record of their inventory level that prevents them from critical situation
considering shortage and wastage of products. For this, the essential requirements for the
inventory system at Milk Train is to track the products and materials considering their supply
chain and warehouse. It is also useful in checking the flow of materials in order to make sure the
demand within the accurate period of time.
Price management system: According to the system company learn regarding the activities
of their buyers by considering the several price levels. As per dress Company develop various
pricing levels for the commodities by which they want to consider regarding their actions
towards the price of each product. After identifying the price structure the managers develop the
expected price for the commodities (Quattrone, 2016). In this context the manager of Milk Train
develop acceptable pricing points for their products in order to match the requirements of
customers and also achieve the targets in order to enhance their sales revenues and profitability.
Therefore it is important for the managers of Milk Train to develop considerable prices by
analysing the market area and income level of their customers. For the Milk Train, the essential
requirements for the price optimisation is to analyse the demand of their offerings regarding the
levels of prices. In terms of this, this system also offer effective prices for the commodities in
order to offering in the market.
Job order costing: This management system is useful in calculating the production cost
regarding the actual output units. In terms of Milk Train it prominent lead this system which is
useful in measuring their cost regarding each unit. It is also helpful for the managers in order to
develop an effective plan for optimum productivity by eliminating the expenditure. The essential
requirement for Milk train is to keep the record for all the prominent expenses that are concerned
with the particular product and also separate their records for the associated job including the
product line. Along with this, it also accumulate the information regarding the direct labor and
overhead concerned with job.
Comparison between management and financial accounting
Basis Management Accounting Financial accounting
Purpose The objective of management
accounting is to offer the
The purpose of financial
accounting is to develop

knowledge regarding the
internal decision making by
focusing on the objectives of
Management. In this the
managerial decisions are
depends on the accounting
knowledge.
financial reports that are
offered by third party
including the shareholders tax
authorities and suppliers
about the business outcome.
Preparation criteria In this context the reports are
prepared on the quarterly
monthly and yearly basis.
In relation with this the
financial reports include on
the grounds of balance sheet
cash flow statement profit and
loss account and many more.
P2. Different methods of management accounting reporting
Management accounting report is considered as a procedure which is useful in making and
preparing the internal reports that are used by the top level authority and supervisors in order to
take significant decision for the growth and success of company. For this few of its methods are
discussed as under:
Account retrievable ageing report: This type of method consider prominent details with it
concerning all the credit transactions of the company that are helpful for the managers in order to
identify the probable amount that is required buy them and collected from their debtors. It is
helpful for Milk Train in monitoring and observing the collection policies in order to reduce the
previous bad debts and also manage the insolvency of an organization (Weetman, 2019).
Job cost report: This report is helpful in order to identify the significant expenses
concerning the financial efficiency and cost of each and every task in order to develop it more
profitable project and also offer significant attention to it. It is helpful for Milk Train in
analyzing the waste area by which extra cost is occurring and need to be reduced and controlled.
Inventory report: This report is helpful in order to provide significant information
concerning the inventory and stock of company which is useful in maintaining the balance
between the customer service and inventory investment (Järvinen, 2016). In relation with Milk

Train, it also carries labor cost with it regarding the inventory per unit transparency cost which is
useful in developing and managing the inventory.
Purpose of financial statement Profit and loss statement is helpful in evaluating the net profits and losses that are
generated by company at the ending of financial year. Cash flow statement is useful in analyzing the significant position of revenues and cash
of business by overseeing the cash inflows and outflows in the company. Balance sheet is helpful in analyzing Assets and liabilities of the company at the
conclusion of financial year. Cost of goods sold is helpful in providing the significant information and data that is the
cost which is include in selling of commodities.
Types of management accounting system
Price optimizing system: It is helpful in identifying the price of goods and commodities
of the organization by identifying the fluctuations with their requirements and demand that
modify the price level of products (Hall, 2016). In relation with Milk Train can adopt the system
which is useful in managing their prices and several products on the grounds of the needs and
requirements of customers. In addition to this it is also useful in advertising discount and initial
pricing regarding the enhancement of their sales.
Job costing system: It is helpful in overseeing the manufacturing and production cost for
each and every individual product and also manages the record of expenses that arises. In this
context the goods that are provided by Milk Train are significantly different this is useful in
determining the prominent cost that is capable to satisfy the requirements and preferences of
customers.
Inventory management system: By considering the system it describe the significant
technology which is used in order to analyze and maintain the stock of commodities by which
the cost can be maintained at all the levels of the production process within the Milk Train and
also consider the production of their significant products.

TASK 2
P3. Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs
Cost describe the overall amount and money which is useful in manufacturing and
developing the significant commodities and services by considering the natural resources
including raw materials labor capital opportunity cost and many more. In this context the income
statement can be developed by considering the marginal and absorption cost:
Marginal cost: It is the significant costing method by which the marginal and variable cost
is charge by considering the units of cost that changes the overall cost in terms of quantity and
also developed one by one (Schaltegger and Burritt, 2017). Therefore it is the cost of enhancing
one or more units.
Income statement using marginal costing for January
Income statement using marginal costing for February

Absorption cost: It is considered as the significant costing method which includes the
Production and Manufacturing unit considering the fixed and variable cost. As per this the
significant methods of the prominent cost are concerned with the production of goods and
services that are accumulated and allocate for the individual commodities (Tucker and
Schaltegger, 2016).
Income statement using Absorption costing for January

Income statement using Absorption costing for February
Reconciliation of profit

Calculation of variances:

TASK 3
P4. Planning tools used for budgetary control
Budget: It is considered as the summary of expenses earning cost and plant resources is
useful in getting into the physical period by which income can be plant and estimated regarding
the specific period which describe the potential financial needs that stand beside and collectively
to achieve the objectives of company (Honggowati and et. al., 2017). It is important to classify
the year in order to comprise the cash flow volumes obligations assets resource amounts earnings
assets and many more. In this context the responsibility of top level management of Milk Train is
to prepare budgets and account for each of the organizational member in order to consider and
perform their significant activities.
 Budgetary control: