KEF Limited: Management Accounting Systems and Applications Project

This project report delves into the realm of management accounting, focusing on its importance for companies, particularly KEF Limited, a manufacturing sector entity. The report meticulously covers various aspects, including different types of Management Accounting Systems (MAS) like inventory management, cost accounting, and price optimization systems. It further examines Management Accounting (MA) reports, such as accounts receivable aging reports, budget reports, and performance reports, along with their benefits. The project includes detailed calculations of production costs using absorption and marginal costing methods, alongside the preparation of income statements. Additionally, it explores the benefits and drawbacks of planning tools like budgetary control and capital budgeting, and provides suggestions for enhancing the company's financial strategies. The report emphasizes the integration of MAS and MA reports with organizational processes, offering a comprehensive analysis of management accounting principles and their practical applications.

MANAGEMENT
ACCOUNTING
SYSTEMS AND ITS
APPLICATIONS

Table of Contents
INTRODUCTION...............................................................................................................3
MAIN BODY.......................................................................................................................3
Task 1............................................................................................................................3
Task 2............................................................................................................................6
Task 3..........................................................................................................................11
Task 4..........................................................................................................................13
CONCLUSION.................................................................................................................16
REFERENCES................................................................................................................17
REFERENCES................................................................................................................18

INTRODUCTION
Management accounting is an act of taking relevant monetary & costing data and
turning the data into valuable information for administrators and managers within a
company. This is also known as managerial accounting, in other words it can be defined
as a method of analysing costs of doing business and procedures to prepare inner
financial reports, records to help managers for making decisions to achieve business
objectives (Crosson and Needles, 2013). The objective of project report is to evaluating
importance of MA for companies. In the project report, KEF limited company has been
chosen which operates in manufacturing sector.
The report covers detailed information about types of MAS, MA reports, costing
techniques and planning tools. In the end part of report role of MA in sorting monetary
issues is covered.
MAIN BODY
Task 1.
Meaning of management accounting and requirements of various MAS.
MA- Management accounting is the practice of preparing management statements and
accounts which provide reliable and appropriate numerical and qualitative information to
executives. This information is needed to make brief-term and lengthy-term judgements.
There are various types of MAS:
 Inventory management system - The inventory management system is intended
to improve the work of producers who need to constantly monitor the flow of
stock across different manufacturing stages (Hart, Wilson and Fergus, 2012).
Essentially, even before the manufacturing process starts, a business uses the
inventory management system to identify the materials. Such raw materials
gradually transform in real-time to finished products. It is essential for companies
in order to track movement of material in entire production process. In the KEF
limited company, their manufacturing department implies this system which helps
in managing overall value of stock and for minimising cost.

 Cost accounting system - It is a method that businesses use to determine the
cost of their goods for the study of productivity, stock assessment and controlling
costs. It is important for successful operations to determine the exact cost of
products. A business must know that goods are competitive and which ones are
not, and this can only be calculated if the appropriate cost of the product has
been measured. Hence, it is essential for companies for accurate estimation of
costs and for reducing total expenditures. In the KEF limited company, their
finance department applies this system for managing cost of overall operations
and activities.
 Price optimisation system – It is a type of accounting system which is aligned to
process of assessing how demand fluctuates at various price segments and after
that combining that data with information on costs to suggest prices which will
enhance profitability. This accounting system plays a key role for those
companies who want to make focus on targeted customers. In the aspect of KEF
limited company, they apply this accounting system which contributes them in
setting prices of products and services.
 Job order costing system- Job order costing system is a cost accounting process
which accumulates manufacturing costs of each job individually. This accounting
system is applied in those businesses which manufacture products and services
in accordance of order of any party. As well as it is essential for companies in
computing cost of job which involves in process of operations.
In the KEF limited company, they apply this accounting system for better
management of cost of job.
Different method of MA reports.
MA reports- Management accounting reports can be defined as those written
documents which provide data that companies want to cut costs, award fast-performing
workers, cut stagnating products and reinvest in the products which provide the
company with the best possible return (Schwaiger and Abmayer, 2013). Below some
types of reports are described in such manner:

 Accounts receivable ageing report – This report indicates the outstanding
balance of the invoice along with the time they are exceptional for. Accounts
receivable ageing reporting help companies recognize open receipts and enable
them to stay on top of slow paying customers. Basically, the receivable occurs in
companies due to selling of products and services of debt. In the KEF limited
company, they are using this report for making better evaluation of debt payment
and receiving.
 Budget report- Budget reporting is the method of assessing a firm's actual
accomplishment against its expected statistics. It lets them see if they are on
track to meet their business goals. It also allows the company to take appropriate
action where appropriate. On the basis of this report, managers of companies
keep in touch with overall performance. As well as they become able to make
and formulate effective strategies. In the KEF limited company, they prepare this
report for better management of performance.
 Performance report- A performance report deals with the results of an individual's
behaviour or function. The document compares actual results with a plan or
norm, as well as the disparity between the two estimates (Yerdavletova, 2015). If
there is an adverse difference, the receiver of a progress report is supposed to
take action. By help of this report, performance of employees and different
functions is managed in an effective manner. In the KEF limited company, they
prepare this report for keeping performance of each aspect over standards.
 Cost accounting report- A cost report provides an overview of all details regards
to raw material cost, overhead, labour cost etc. This report provides
administrators with the ability to recognize items' cost versus their sales prices.
Through these documents, profitability are measured and tracked as managers
have a clear understanding of all the costs involved in manufacturing or
distribution of the products. In the above company, their accountant prepares this
report for controlling cost of activities.

Benefits of different MAS.
MAS Benefits
Cost accounting system It is useful to all business entities as it helps to predict the costs of the
organization's products and services. Such as in the KEF limited
company, it helps them in minimising overall costs.
Inventory management
system
This is helpful for the organization as it helps to monitor the raw
material and finished goods on time. KEF Ltd monitors its stock or
finished good by implementing it, which helps to learn income by
reducing the cost of storage.
Job costing system This system's strengths are linked to the organizational mechanism
which gives information about cost of job of each activity. In the
above company, they use this accounting system for tracking cost of
each job.
Price optimisation
system
It is linked with setting the prices of products and services at an
effective level. In the above company, they use this accounting system
for setting prices at a level by which demand of their products can be
increase.
Integration of MAS and MA reports with organisational process.
MA reports are considered to be the key document of any company that shows
how much profit is made by the organization (Barnabè and Busco, 2012). The
department of business entities link with these reports. Like in KEF limited their
accounting department is aligned to account receivable ageing report. As well as
accounting systems are also linked to business process. Such as in above company,
their sales department is integrated with price optimisation system.
Task 2.
(I) Calculation of cost of production per unit.
Cost card (Absorption costing)

£/unit
Direct material 21.5
Direct labour 31.5
Variable Production Overhead 16.5
COGS Per Unit 69.5
Absorption cost of product 130000/ 20000= 6.5
Cost card (Marginal costing)
£/unit
Direct material 15
Direct labour 25
Variable Production Overhead 10
Marginal Cost 50
(ii) Total production cost.
Absorption costing:
Particulars
Per
Unit
cost
(in
£ )
Total
amount(in £)
Direct Expenses:
Material 15 19000 x 15 285000
Labor. 25 19000 x 25 475000
Variable pro. overheads. 10 19000 x 10 190000
Fixed overheads. (FO) 6.5 19000 x 6.5 123500
Total production
cost 56.5 19000 x 56.5 1073500

Marginal costing:
Particulars Per
Unit
cost
(in £ )
Total
amount(in £)
Direct Expenses:
Material 15 19000 x 15 285000
Labor. 25 19000 x 25 475000
Variable pro. overheads. 10 19000 x 10 190000
Total production
cost
50 19000 x 50 950000
(iii) Total cost of sales for June.
£/unit Total
amount(in £)
Direct material 21.5 19000x21.5 408500
Direct labour 31.5 19000x31.5 598500
Variable Production
Overhead 16.5 19000x16.5 313500
COGS Per Unit 69.5 19000x69.5 1320500
(iv) Preparation of income statements.
In order to prepare financial statements, it is essential for companies to follow standards
which are being set by international financial reporting standard. Herein, below
techniques of preparing income statements are mentioned in such manner:
Marginal costing- This is defined as a type of technique which is related to process of
considering all types of cost in a different manner. Under it, fixed cost is assigned as
cost of period and variable cost as cost of product.
Absorption costing- It is a kinds of technique in that total amount of occurred cost is
taken in an equal manner. In other words, under this technique total number of
expenditures are fully absorbed.

Statement of profit or loss using absorption costing for June:
No. of units £/Unit £ £
Sales 18000 70 1260000
Cost of sales: 0 56.5 0
Opening stock 19000 56.5 1073500
Add- Production 1073500
Less- Closing stock 1000 56.5 56500 -1017000
Profit 243000
Less- Under absorption 13000
Reconciled profit with the marginal
costing
230000

Working Note:
Fixed overheads absorbed on 18000 units (18000*6.5) = 117000
Fixed production overheads = 130000
Under absorbed the fixed cost= -13000
(v) If production units changed till 22000 units and closing stock remain of 2000 units.
Statement of profit or loss using marginal costing for June:
No. of units £/Unit £ £
Sales 20000 70 1400000
Prime cost:
Opening stock 0 50 0
Add- Production 22000 50 1100000

Less- Closing stock -2000 50 -100000 -1000000
Contribution 400000
Less- Fixed production cost -130000
Profit 270000
(vi) Suggestion to above company.
In the above part, two techniques are used which are absorption and marginal
costing. Apart from theses techniques, the company can use some other techniques in
order to produce in income statements. For example they may use costing techniques
like activity based costing. It is so because under this expenditures are allocated in
accordance of each particular activity. As a result, this becomes easier for companies to
find total amount of cost in an effective manner.
Task 3.
Benefits and drawbacks of planning tools.
Budgetary control- It refers to how well administrators use budgets in a specified period
of accounting to regulate expenses and activities. In other words, budgetary control is a

mechanism for management to set budget-based monetary and performance targets
then compare total results, and modify performance as necessary. This includes
different types of planning tools which are mentioned below in such manner:
Capital budget - It is one of the most significant cap used to maintain the firm's large
expenses. It includes land, machinery, and building costs (Alfian, 2017). The senior
management also makes the decision for long term investment under such budget and
obtains the approval for it. Basically, this budgeting technique evaluate efficiency of
different types of projects in an effective manner by help of investment appraisal
methods such as net present value, internal rate of return etc. In the aspect of KEF
limited company, they use this budget for making appropriate selection of investment
proposals.
Benefits –
 It contributes to finance managers in order to do long time period capital
planning.
 Provide great help in making decisions about which investment alternative to
choose for.
Drawbacks-
 Preparation of this type of budget needs higher excellence in accounting and it is
not affordable for all types of business entities.
 This budget makes just an estimation of future projects, companies can not relay
on its outcome completely. If companies consider only this budget for making
choice of investment then it may lead to lose in some cases.
Activity based budgeting - Activity-based budgeting is a top-down budgeting method
which specifies how much input is necessary to support the business's goals or
outcomes. A company, for example, establishes a sales production target of $100
million. The corporation would first need to identify the practices that ought to be
performed to achieve the sales goal, and then figure out the cost of undertaking those
activities. This budget is being prepared and used by KEF limited company with an aim
of finding those number of activities which will be needed to implement for achievement