Comprehensive Management Accounting Report: Systems and Analysis

This report provides a comprehensive overview of management accounting, focusing on its functions, systems, and practical applications within an organization, using Katie Walker Furniture as a case study. It defines management accounting, highlighting its role in decision-making, planning, and performance management, and contrasts it with financial accounting. The report details various management accounting tools, including margin analysis, inventory valuation, and cost accounting systems, and discusses the importance of accurate data for effective decision-making. It further explores different budgeting systems, measuring tools, and the characteristics of a management accountant. The report also examines the integration of management accounting systems and reports, along with an analysis of absorption and marginal costing, offering insights into their impact on profitability. Finally, it concludes with a discussion on how organizations can adopt and integrate these systems to improve performance.

MANAGEMENT
ACCOUNTING
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TABLE OF CONTENTS
INTRODUCTION...............................................................................................................3
Different function of management accounting...............................................................3
Difference between Financial and management Accounting........................................4
Requirement of Management Accounting.....................................................................5
Importance of having reliable and accurate data in organization..................................6
Way through which MA system and reports can be integrate in the organization........9
Different type of Budgeting system and its pros and cons of using the same in the
organization………………………………………………………………………………….10
Different type of measuring tool...................................................................................12
Different characteristic need to show by Management accountant............................ 13
Way different organization adopt different MA system in organization.......................13
CONCLUSION.................................................................................................................14
REFERENCES................................................................................................................15
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INTRODUCTION
Management accounting is the process in the organization which looks at improving
the performance of the business in by making different management decision with the
help of different information. Katie walker furniture is retail furniture selling company.
This report highlights the definition of management accounting and requirement of
same. After that the report highlights the different type of management accounting tool
in the organization and looks at different type of the report which is used by the
organization to collect information. After that report highlight budgetary report in the
organization and different type of measuring tool used by the organization. In the end
the report highlights how different organization uses the accounting system in the
organization.
As per Institute of Management accounting (IMA): Management accounting is
defining as a profession which used to partner the manager in the organization to take
different management decision in the organization (Malina ed., 2018). This decision is
generally regarding planning, performance management and providing expertise in
financial reporting.
As per ICAI, management accounting is defining as Management accounting relates to
the provision of appropriate information for decision-making, planning, cost control
and performance evaluation (Maskell and et.al., 2016). In simple terms, it refers to
gathering relevant information according to which decisions are made which will be
used in planning and controlling process for implementing business strategies.
Different function of management accounting
Margin Analysis: Management accounting used to perform the activity of margin
analysis in an organization. As Management accounting helps organization in
ascertaining cash flow from a specific product and region.
Inventory Valuation: Management accounting used to perform activity of Inventory
valuation in an organization as it helps the organization in forecasting future and
amount of inventory require in the organization.
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Planning: Management accounting performs a supportive function in the
planning activity of the organization. As it used to provide good information about the
different strategy and policy of the business.
Supervising: Management accounting also perform the function of supervising
in the organization, as with the help of management accounting manager in the
organization used to control many different activities (Messner, 2016). As it helps
manager in finding out the variance in the organization.
Organizing: Management accounting also perform the function of organizing in
the organization. As with the help of the management accounting manager used to
coordinate and regulate different activity in an organization.
Price setting: Management accounting also help the organization in setting
different prices in the organization. As management accounting help the organization in
forecasting the future and ascertaining different cost that may be there in the future.
Difference between Financial and management Accounting
Basis Management Accounting Financial Accounting
Accumulation Management Accounting in
general used to have a in
depth impact as they look at
to enhancing different
performance i.e. profit,
product line, customer and
geographic region.
Financial Accounting at the same
time looks at the end goal of
enhancing the overall business
performance.
Compliance Management accounting is
the internal report, so they
do not have to compile with
any of the standard.
Financial report at the same time
must compile with many different
standards in real before showing
the result.
Time Span Management accounting
used to be prepared in the
organization on short span
Financial accounting at the same
time is generally prepare on annual
basis or twice the year.
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of time or can be said as on
frequent basis (Otley,
2016).
Requirement of Management Accounting
Strategy Development: Management accounting is required in the organization for the
purpose of making and implementing variety of the different strategy in an organization.
As management accounting help the organization in providing the different option which
can be selected by the organization.
Decisions making: Management accounting is also requiring in the organization
to improve the level of the decision making. As management accounting provides a very
good basis for different manager to make different decision.
Future Forecasting: Management accounting also help the organization in
forecasting the different future cash flow of the company beforehand itself. This
eventually help the organization in building good information regarding the different
resources require in the organization (Cooper, Ezzamel and Qu, 2017).
Integration: Management accounting is also requiring in the organization for the
purpose of integrating different activity of an organization. As management accounting
used to consider variety of different information to make decision in the organization.
Different type of Management Accounting system and benefit of MA System
Cost accounting system: It is the management accounting system of the
organization which used to consider variety of the different aspect of different cost of the
company. Generally, this system in adopted in the organization for the purpose of
ascertaining inventory cost, product cost and provide different activity to control the
same. The essential of this system is to manage the cost structure of the business
which will result in greater profits.
Benefit
 This system used to help organization in optimum utilization of different
resources in the organization. As this cost system used determine variety of
different fixed and variable cost of the company.
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 Cost system also help the organization in offering the product at good price to
maximize the profit of the business, as cost accounting system help the
organization in reducing cost of the company by eliminating different
unnecessary item.
Inventory management System: Inventory management in the organization
used to tracking and managing different inventory of an organization. Implementation of
this system is very essential for the organizations for effectively and efficiently managing
the inventory of the product and materials.
Benefit
 This generally help the organization in reducing the amount of wastage of
product in the organization and help organization in satisfying consumer need
more statistically in the nation. As inventory management system help the
organization in ascertaining the future need of the product and help them in
planning the same in the organization.
 Inventory management also help organization in organization warehouse of
organization.
Job costing system: Job costing system is the system in the organization which
looks at ascertaining the different cost which is paid by the organization for the specific
job and product in the organization. It is essential because it provides cost and profit
information of each process under which a product goes through.
Benefit
 This system helps the organization in understanding the different type of the job
which can be performed in the organization in coming future (Maas, Schaltegger
and Crutzen, 2016).
 This is also performed in the organization to identify different pros and cons of
different job in the organization.
Importance of having reliable and accurate data in organization
It is very important for different authority in the Katie walker furniture to provide the
accurate and reliable data to the manager in the organization. Reason behind the same
is identified that with the help of relevant and accurate data manager can make an
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effective decision in the organization. Otherwise it may impact the decision making of
the organization in long run of the business.
Profitability statement as per marginal and absorption costing system is enumerated below:
Absorption costing
Calculation of cost per unit (CPU)
Year Overall cost
Add: indirect production
cost Total cost of production
1 30 25 55
2 30 23 53
3 30 24 54
Income statement
Year
Sales
(1)
COGS
(2)
GP
3 = (1 -2)
S&D
overhead
(4)
Adm.
overhead
(5)
Int.
expenditure
(6)
Total
expenses 7
=(4 + 5
+6)
NP
(3 – 7)
1 252000 152865 99135 5600 10100 1100 16800 82335
2 333000 242650 90350 7400 10100 1350 18850 71500
3 306000 199605 106395 7000 10100 1600 18700 87695
COGS calculation
Year Prod. Closing stock
1 3700 2800 900
2 4000 3700 300
3 3800 3400 400
7

Year
Stock
at the
beginni
ng of
period
CP
U
Amou
nt (in
£)
purchas
es
CP
U
Amou
nt (in
£)
Endin
g
stock
CP
U
Amou
nt (in
£)
COGS
(opening
stock +
purchas
es –
closing
stock)
1 0 55 0 3700 55 202000 900 55 49135 152865
2 900 53 47475 4000 53 211000 300 53 15825 242650
3 300 54
16184.
2 3800 54 205000 400 54 21579 199605
Fixed indirect production cost
Year Production Total cost CPU
1 3700 91000 25
2 4000 91000 23
3 3800 91000 24
Marginal costing
Calculation of cost per unit
Particulars Amount (in £)
Direct material 10
Labor 16
Variable production expenses 4
Total CPU 30
Profitability statement
year
Sales
(1)
COGS
(2)
Contribution
3 = (1 – 2)
S&D
overhead
(4)
Adm.
Overhead
(5)
Interest
expenses
(6)
fixed
indirect
prod.
cost
(7)
Total
expenses
8 = (4 + 5
+ 6 +7)
NP
9 = (3
– 8)
1 252000 84000 168000 5600 10100 1100 91000 107800 60200
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2 333000 138000 195000 7400 10100 1350 91000 109850 85150
3 306000 111000 195000 7000 10100 1600 91000 109700 85300
year
Openin
g stock
per
unit
Figure
s (in £)
Add:
purchas
es
per
unit
Figure
s (in £)
Less:
closin
g
stock
per
unit
Figure
s (in £) COGS
1 0 30 0 3700 30
11100
0 900 30 27000 84000
2 900 30 27000 4000 30
12000
0 300 30 9000 138000
3 300 30 9000 3800 30
11400
0 400 30 12000 111000
Interpretation: After going through the different data collected it has been interpreted
that absorption costing sytem is better option for the organization as compare to the
marginal costing system. As absorption costing has given the net profit for three year
are 82335, 71500 and 87695. Wheras profit derived with the help of marginal costing
shows that organization will have a profit of 60200, 85150 and 85300, which is slightly
lesser as compare to absorption costing for an organization.
Different type of inventory report and its benefit
Inventory report: Inventory report is the report in the Katie walker furniture which used
to note down and track all type of the inventory in the organization. Organization
generally used to record the inventory on periodic basic. This helps the organization in
maintaining good amount of the inventory in the organization to carry out different
operation of the business (Hopper and Bui, 2016).
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Account Receivable Aging report: Account Aging report is the report in the
organization which used to highlight the different debtor of the organization with the
amount of the due from them and the date on which organization is liable to ask for the
money. This help the organization in managing the different debt of the company very
efficiently. This eventually help the organization in building good financial position of the
business.
10

Budget report: Budget report is the report which used to show the estimated cash flow
and expenditure of the business. This report used to help the organization in estimating
the future condition of the company and on the basis of the same organization used to
plan different activity of the future. Generally, all the organization used to estimate
different expenses and revenue in the organization with regards to set goal and
objective in the organization.
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Cost report: Cost report is the report which used to demonstrate different element of
the cost in the organization. Organization generally used to take different decision in the
organization to element different unexpected cost in the organization. This help the
organization in improving the efficiency of the business in long run of the business (Ax
and Greve, 2017).
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Way through which MA system and reports can be integrate in the organization
It is very important for all the organization to integrate management accounting system
and report in the organization. As for all the manager requires a qualitative and
quantitative information in the organization. Management accounting system help
organization in providing variety of the qualitative information to the manager, at the
same time management report used to provide variety of different quantitative report to
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the manager. Generally, manager used to integrate both quantitative and qualitative
information to make different decision in the organization.
Different type of Budgeting system and its pros and cons of using the same in the
organization
Zero based budgeting is the type of the budgeting system in which organization used to
consider every element and expenses as a zero for every new period. This budget used
to start from zero and every other function in the organization are performed to analyze
its needs and costs.
Advantage
 This used to enhance the efficiency of the business. As in this budget all the
decision is taken based on the current situation of the business rather than
looking at the previous year performance of the business.
 Zero based budgeting also help the organization on focusing on the cost benefit
in the organization, as this budgeting system in the organization does not
focuses on the changes in the expenses or preparing variance analysis in the
organization (Malmi, 2016).
 This also help the organization in overcoming the different obsolete process of an
organization. As ZBB used to identify different scraped process of previous year
and based on the same used to make different decision to discontinue with
different unprofitable process.
Disadvantage
 This type of budget in the organization used to consume good amount of time for
the organization to prepare budget in the organization. As organization has to
invest good amount of human resource and efforts to carry out this budget in the
organization.
 This has also seen that this type of the budget in the organization used to make
the organization rigid to follow the same budget in the organization. This
sometime used to create the issue at the time of decision making.
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Purchase budget is the type of the budget in the Katie walker furniture which used to
contain the amount of inventory that a company must purchase during
each budget period. The amount shown in the budget used to show the amount of the
money which will be require by the organization to satisfy the need of customer in the
market.
Advantage
 This eventually help the organization in optimum utilization of the different
resources in the organization, as after going through the purchase budget in the
organization used to allocate that amount of resources only which can able to
produce the amount of production require. Hence it helps organization in
optimum utilization of resources in the organization.
 Production budget help organization in satisfying the need of the consumer in the
market efficiently, as organization is ready with the amount of the inventory which
can satisfy the need of the customer in the market.
 Production budget also used to bring good amount of clarity in the organization,
as different department are clear about the goal of the business.
Disadvantage
 Production budget does not grantee success for the organization as this budget
generally depends heavily on various assumption in the organization. This
sometime impact the productivity of the business in negative way as well (Malmi,
2016).
 Production budget also used to consume a good amount of time for the
organization to prepare production budget in the organization. As, they must
collect information from many different sources in the organization.
Incremental budget: Incremental budget is the type of the budget in the organization
which is formed based on the previous year budget in the organization. Generally,
organization used to make different changes in the budget of the organization by
analyzing current situation, trends and some future assumption of the market.
Advantages
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 Incremental budgeting is easy to calculate as it does not have any complicated
calculation as it is based on some assumption and it also help in saving of time of
company.
 This budget maintain consistency as it is depending on figure of previous year.
 In this method funding become easy as expense can be predictable earlier and
help in maintaining stability of funding.
Disadvantages
 Incremental budget can lead to unnecessary wastage of fund of the firm because
the budget which has allocated in current year might be sufficient for the
department but in this method every year budget will be increase and then only
allocated which will result in wastage of fund.
 It discourages innovation in company as is based on figures of previous year
which is not enough for financing any new project. This eventually reduce the
chances of innovation in company.
Different type of measuring tool
Benchmarking is the process of checking the performance of firm or industry with
other firm on basis of quality, cost and time. Benchmarking has some standard indicator
on basis of whom performance can be evaluated like cost of per unit products produce,
number of damaged products, operating cycle of the product etc. After this actual
performance of the company is compared with the performance of companies which are
best at all this aspect and find deviation between the performance. Now new and
improved plan had made so to improve the performance of the company (Tucker and
Schaltegger, 2016). This is also known as 'process benchmarking' as this process used
to followed by the company for comparing their performance with that of other who are
successful in this field and try to focus on finding the reason behind the success which
help them to improve their performance. It may believe that it is one-time process but in
reality, it is a Continuous process as company evaluate each aspect of the company to
improve their performance. It can also act as a motivational aspect for firm as they have
the target to compete with the best company and become more successful than them.
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Key performance indicator it is measurable value which determine how
company achieving the key objective of the firm. It focusses on how effectively company
is achieving his goal. KPI id implement in organization by using five step process. In first
step organisation establish goals and objective to be achieve by firm. After that
organisation establish critical success factors (CSF) from the goals and objective. After
that they establish key performance indicator (KPI) from CSF. In fourth step they collect
different types of measures. In last step they calculate metrics from different measures
which are useful for organisation in overcome financial barrier (Ax and Greve, 2017).
Budget variance is the process in which firm set the standard budget for each
department of the organisation. On this basis actual performance of the firm will be
compared. On comparing if they find any deviation, corrective measures will take. For
this company will make new plan and policy for the organisation which will lead to
improvement in the performance of the firm and achieving firm objective efficiently.
Different characteristic needs to show by Management accountant
Decision maker: Management accountant need to make different decision in the
organization by going through variety of different information in the organization.
Communication: Management Accountant also need to be good communicator as they
have to communicate different result which has been made in management accounting.
Team leader: Management accountant also need to be good team leader in the
organization, as they must lead the team in the organization to collect information and
make different decision in the organization.
Honest: As management Accountant can impact the performance of the business. So,
they need to show honesty characteristic in them.
Different types of pricing policies and its advantages
There are different types of pricing policies some of them are stated below.
Competitive pricing: Under this strategy, prices of the products are set with respect to
the competitor’s price. The aim is to lower the price in comparison to competitors.
Advantages:
 Helps in retaining the customers and the market share.
 Tends to keep the price of the product very low.
Disadvantages:
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 It has a negative impact on the profits of the company.
 It may require to use different tactics apart from pricing to attract customers in
case of similar prices.
Skimming pricing strategy: In this strategy, businesses enter the market with the new
product at a very high price. After sometime, it lowers the price because it becomes less
popular in the market.
Advantages:
 It helps in earning higher profits.
 It creates an effective image.
Disadvantages:
 Customers may not accept high price.
 Tough competition.
Penetration pricing strategy: In this, the companies enter the market with the low-
priced products with the objective of drawing attention of the customers. It is beneficial
only in the short run.
Advantages:
 It will force small competitors to exit the market.
 Increases the probability to achieve dominant market position.
Disadvantages:
 Price war may lead to no gain in market share.
 High price paced customers may not switch to low priced products.
Way different organization adopt different MA system in organization
Ikea Starbuck
Ikea generally uses cost accounting system in the
organization. In this system organization used to
measure the different cost of the company by
benchmarking different target of other organization.
Based on the same organization used to look at the
element of the cost which is scraped and used to
take different decision to overcome the same in the
At the same time Starbucks in the organization used
to adopt inventory management system in the
organization in which they used to manage the
different inventory in the organization by tracking
different inventory of the organization. Result of the
same in the organization is measure with the help of
KPI in the organization in which organization used to
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organization. set different key performance indicator in the
organization (Messner, 2016).
Accounting system used by IKEA and Starbucks
Ikea has successfully implemented inventory management system in its business
for effectively and efficiently managing and utilizing its inventory. This will help it in
timely placing orders for the material and controlling the ordering and handling cost
which will result into reduction in the inventory management cost. Apart from this, it has
also used cost accounting system which has helped it in effectively managing its cost
structure resulted in higher profits.
Starbucks has used price optimization system that has enable it to set the price
of the products by taking into account the target customers and their willingness to pay.
It has also helped in quick decision making. Also, at the time of financial crisis it will help
in cutting down the prices to continuously earn profits.
CONCLUSION
After going through report, it has been concluded that there are many different types
of management accounting system in real such as inventory management system and
cost system. After that the report highlights that there are many different types of report
which are integrated with the management system. After that the report concluded that
there are many different types of budgetary system. In the end the report concluded that
different organization used to adopt different management accounting system in
different ways in the organization.
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