Management Accounting System: Costing, Reporting and Adaptations

This report provides a comprehensive overview of management accounting, encompassing its definition, essential requirements of different management accounting systems, and various methods used for management accounting reporting. It delves into cost analysis techniques, including marginal and absorption costing, to prepare an income statement. The report also discusses the advantages and disadvantages of different planning tools used for budgetary control. Furthermore, it compares how organizations are adapting management accounting systems to respond to financial problems, highlighting issues such as late payments, sudden expenses, abnormal losses, and bad cash flow management. Tools like benchmarking and key performance indicators (KPIs) are explored as solutions. The report concludes that management accounting is crucial for maintaining financial records and making informed decisions in a competitive market, emphasizing the importance of effective costing methods and financial issue resolution tools.

Management
Accounting

INTRODUCTION
TASK
P.1. Explain management accounting and give the essential requirement of different type of
management accounting system ?
Management Accounting is the activity of summarising, recognising, presenting as well
as recording of all the transactions that are related to money in the accounting books like cash
flow statement, balance-sheet, P&L . It is concerned to tracking and estimating cost which will
be incurred in future and through managing the business operations wastage of money can be
reduce. To maintain financial record various accounting system is adopted by Prime Furniture
all the decision making is done on the basis of it. Following are the accounting system followed
by the company .
Management Accounting system: It is used by organisation to provide the information
which is most important to the business. Generally manufacturing concern use such system to
ascertain cost as well as managing their process.
Cost Accounting system: This system is used to analyse different types of cost such
variable cost, semi variable cost, fixed cost, overhead cost. It is important for every company
Like Prime furniture to estimate the cost that are incurred in their offering. So it become easy to
finance unit to prepare budget after analysing these cost. This system is followed by Prime
furniture to analyse the cost of various furniture. It is used to simplifying the task of the
manufacturer, who require to continuously track the flow of stock through various stages of
production.
Job costing System: As it is a method of costing in which different cost are charged to
different product. As per specification of customers products are prepare so the value are vary
from product to product. Mostly the industries which are related to printing printing press, ship
building, auto mobile garage, repairing workshops, furniture are follow this method of costing.
Job costing involves approximating the expenses of three primary aspects of the job such as
material , overhead and labour. company Prime Furniture uses the job costing process to track
the true costs to deliver a job, so a firm can charge the right price to achieve its target profit
margins.

Inventory Management System: It is the system that are used to track the inventory. It
is fully computerised system which is commonly used in the organisation to analyse deliveries,
inventories, sales. To overcome with the issues that are related to overstocking and under
stocking this system are followed by Prime Furniture as it helps in maintaining sufficient stock in
the go downs or stores. To clear the inventory from the stores Prime furniture use the method
HIFO( Highest in first out ). To avoid obsolescence problem , following system is adopted by
furniture company due to this unnecessary expenses are also eliminated. Various cost such as
ordering cost, carrying cost are attracted to manage inventory for that this system is used. t has
become vital for the survival of an organization to have a good control over inventory, otherwise
the company can lose their control over the profits.
P.2. Explain different methods used for management accounting reporting?
Management Accounting reporting: It is also known as cost accounting. It focus on
those information which is received from inside with the help of financial accounting For various
purpose reports related to management accounting are prepare. These are used in business for do
planning, regulating , performance measurement, to take important decisions . During the book
keeping period these reports are generated on continuous basis. Managers of organisation Prime
furniture use these reports for the purpose to high light the pattern and also try to convert them
into information which is most useful for the company.
Accounts receivable ageing report: These reports are prepare by Prime Furniture
employees in which details of all the debtors are recorded. Record of due date of payment,
amount of credit sale are done. If there are large number of defaulters are there than company
may need a complete transformation to tighter credit policies as cash flow is critical to the
operation of any business.
performance report: Performance reporting is a part of communications management
plan. Collecting information related to work performance, analysing it, creating reports and
sending them to respective stakeholders is involved in reporting performance of the project.
Performance reporting improves customer insights by focusing on the best sales opportunities. It
also develops a visibility of the business partner activities and the purchasing behaviour. With

these reports, employees of Prime Furniture understand the needs of the consumers (Kober,
Subraamanniam, and Watson, 2012). On the other hand, senior managers can understand the
demands of the employees thus reducing workplace conflicts. Investors are able to understand
the current status of the business performance and where it’s heading. Performance Reporting
generates real time information about the business performance and helps in setting realistic
targets for the workers that are achievable and it allows the management to focus the employee’s
efforts in the right areas which leads to increase productivity and profitability.
Budget report: It is very important in measuring performance of the company. For small
business it is generally prepare and different budget reports are prepare department wise in the
organisations that are large in size. On the basis of previous experiences budget is to be estimate
as It can guide prime furniture managers to provide better incentive to employees, cut
unnecessary cost as well as negotiate with suppliers and vendors.
Inventory management report An inventory report is a summary of items belonging to a
business, industry, or organization. It provides a comprehensive account of the stock or supply of
various items to keep track of the goods as they move through the process, including lot
numbers, serial numbers, cost of goods, quantity of goods and the dates when they move through
the process. Inventory management reports helps the company to discover trends, identify
weaknesses and strengths, and fill gaps and inefficiencies (Maher, Stickney and Weil, 2012). The
knowledge gained from this report can help management of Prime Furniture to make more
informed decisions. It shows all the costs associated with obtaining, holding, transporting
inventory, and ensuring inventory stock in its proper condition to sell. It has become vital for the
survival of an organization to have a good control over inventory, otherwise the company can
lose their control over the profits.
P.3. Calculate cost using appropriate technique of cost analysis to prepare an income
statement using marginal & absorption cost?
P.4. Explain advantage & disadvantage of different type of planning tools used for
budgetory control ?
Budget : It is a formal statement in which expenses and revenues are estimate for
future . On periodic basis it is mostly compiled as well as re evaluated. It can be prepare
for individual, for a business, group of people , government. It is a quantitative plan that

are develop for the purpose of acquiring or using available resources over specified time
period .
budget preparation
Different type of Budget
 capital budget:
Advantage
Disadvantage
 Operating Budget:
Advantage
P.5. Compare how organisations are adapting management accounting system to respond
to financial problems ?
Due to various reasons financials issues are create in the Business. Some of these
examples are explain in detail in below mentioned paragraphs-
 Late payment by debtors: As prime furniture provide both the facilities such as cash
purchase and credit. Late payment by debtors eventually fails the business. Due to non
payment or delayed payment the cycle of business disturb it tends to create problem
related to shortage of working capital which are need to perform daily activities.
 Sudden expenses: Financial issue faced by Prime Furniture is due to inefficient planning
which incurs more cost and less income
 Due to the reason of abnormal losses: Abnormal expenses such as loss by theft, natural
disaster, fire , obsolescence are also create money loss.
 Investing large amount on advertisement and so many sales promotion also create
financial problems in business
 Bad cash flow management: Unorganized book keeping also affects the business
negatively. Mostly small organisations are bad record keepers As due to not proper
recording of cash transactions. Actual position of cash can not be ascertain which tends to
represent cash flow statement.
Tools to solve these issues are explain as follows:
Bench marking : Benchmarking is the quality improvement tool that identifies what the
company is doing, how the company is doing, how other companies do it, how well the company

is doing it in references to measures and what and how to improve. For example – Benchmarks
could be used to compare the processes used in Prime Furniture with Laz furniture company.
Key performance indicator:
Financial governance refers to the way a company collects, manages, monitors and
controls financial information. It helps Prime Furniture to have the entire view of life cycle of
data and where that data appears which results in clear ownership and accountability of the
financial issues.
CONCLUSION
It has been concluded from the above project report that management accounting is
essential part of every organisation as it directs them to maintain the financial records of every
year due to acquiring sufficient knowledge about their actual financial position in competitive
market. For this, accounting manager is held liable to prepare financial accounts such as profit
and loss accounts, balance sheets etc. on annual basis. In addition with this, it also required for
manager to use different costing methods to calculate net profitability. There are various
management accounting and reporting systems which is useful to adopt in order to make easy for
management to formulate an effective decisions and plans for the betterment of an organisation.
KPI, Benchmarking tools etc. are some kind of financial issues resoling tools which protects an
organisation from any financial instability or losses.

REFERENCES
Books and Journals