Management Accounting: Cost Analysis, Budgeting & Financial Adaptation

This report provides a comprehensive overview of management accounting, exploring its various methods and systems used for performance evaluation within organizations, focusing on Zylla Company as a case study. It delves into different types of management accounting systems such as inventory management, cost accounting, job costing, and price optimizing systems, highlighting their essential requirements and benefits. The report also examines management accounting reporting methods, including accounts receivable aging reports, budgeting reports, order information reports, job cost reports, and performance reports. Furthermore, it includes a practical application of cost analysis techniques to prepare income statements using both marginal and absorption costing. The advantages and disadvantages of budgetary control are discussed, along with an analysis of planning tools for budget preparation and forecasting. Finally, the report compares how organizations adapt management accounting systems to address financial problems and achieve sustainable success, critically evaluating the integration of management accounting systems and reporting within an organizational context.

Management Accounting
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Contents
Introduction.................................................................................................................................................3
LO 1............................................................................................................................................................4
P1) Explain management accounting and give the essential requirements of different types of
management accounting..........................................................................................................................4
P2) Explain different methods used for management accounting reporting.............................................6
M1) Evaluate benefits of management accounting systems and their application within organizational
context.....................................................................................................................................................8
D1) Critical evaluation of how management accounting systems and management accounting reporting
are integrated within organizational context............................................................................................9
LO 2..........................................................................................................................................................10
P3) Calculate cost using appropriate techniques of cost analysis to prepare income statement using
marginal and absorption costing. (M2, D2)...........................................................................................10
LO 3..........................................................................................................................................................13
P4) Explain advantages and disadvantages of different types of planning tools used in budgetary
control...................................................................................................................................................13
M3) Analyze the use of different planning tools and their application for preparing and forecasting
budget....................................................................................................................................................15
LO 4..........................................................................................................................................................17
P5) Compare how organizations are adapting management accounting systems to respond to financial
problems................................................................................................................................................17
M4) Analyze how in responding to financial problems, management accounting can lead organization
to sustainable success............................................................................................................................19
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D3) Critically evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organization to sustainable success.............................................................................20
Conclusion.................................................................................................................................................21
References.................................................................................................................................................22
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Introduction
This report discusses the management accounting and its various methods which are used by the
managers of the organizations so as to evaluate the performance. It also includes the explanation
of the management accounting systems and how they are integrated with management
accounting reporting. Through this, the understanding of the management accounting systems
will be developed. Zylla company is the multinational organization which has expanded its
business in different locations so that the new market share can be captured with the use of the
management accounting systems. Further, the income statements are also prepared using
marginal and absorption costing. The report also explains the advantages as well as the
disadvantages of the budgetary control so that the performance can be appraised. An analysis has
also been done which shows that how management accounting systems and reporting help in
solving the financial problems so that the sustainability can be achieved.
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LO 1
P1) Explain management accounting and give the essential requirements for different types
of management accounting.
Management accounting is the provision of financial data which help the organization in making
the development of the business (Financial Accounting.org, 2015). Through management
accounting, the managers of the Zylla Company will be able to analyze and interpret the
accounting information which in turn will help in evaluating the performance of the organization
as well as employees (Hamlett, 2018). The management accounting will help the managers of the
Zylla Company for taking the strategic decisions about future. It will also help in formulating the
policies so that day to day operations of the company can easily be done.
There are various types of management accounting systems and each of them carries the distinct
essentials in the Zylla Company, they are explained below:
Image: Management Accounting Systems
Source: By Author, 2018
Inventory management Systems: This method is used for overseeing the inventory so that the
ordering cost can be determined (Hamlett, 2018). The inventory management systems combine
various applications such as desktop software, mobile devices, and barcode scanners so that the
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Inventory
Management
Systems
Cost
Accounting
Systems
Job Costing
systems
Price
Optimizing
Systems

inventory can be managed as suppliers, stock as well as the goods. The tracking of quantities will
enable the managers of the Zylla Company to take inventory related decisions effectively
(Hamlett, 2018).
Cost accounting Systems: These systems will determine the cost of Zylla Company’s product
so that the inventory can be evaluated, the cost can be controlled and the profitability can be
attained. This system will also help in measuring the financial performance by evaluating the
costs of input outcomes to that of the actual output (Hamlett, 2018). It is the main concept as it
offers the analytical tools such as marginal costing and absorption costing so that the
productivity can be effectively utilized.
Job Costing Systems: It is the system which allocates the cost to the individual item or the batch
of the products (Hamlett, 2018). This job costing is mainly used in the manufacturing firms
(Lister, 2018). This information is necessary as it helps in determining the accuracy of the
systems of Zylla Company which is capable of quoting prices for the reasonable income
(Hamlett, 2018).
Price Optimizing Systems: It will help Zylla Company in determining that how consumers will
react to the various prices offered for the goods as well as the services (Hamlett, 2018). It also
helps the company in determining that which price is best suited for the goods and the services
so that the gross profit can be maximized. With this, the undesired price can be minimized.
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P2) Explain different methods used for management accounting reporting.
Management accounting in the organizations is basically used for planning, controlling and
decision making. The accountants of the Zylla Company will be dependent upon the financial
statements such as balance sheet and profit & loss accounts for calculating the results
(Sarokolaei, 2012). However, the preparation of the accounting reports plays the crucial part in
the organization. Some of the reports are:
Accounts Receivable Aging Reports: These report basically focuses on managing the accounts
receivable of a particular company. These reports are prepared by the Zylla Company so that the
problem of the company’s collection period can be identified. The invoices of the customer's
balances are segregated which reveals how long the credit will be owned (Lister, 2018). It
ensures the tight credit policy of the company so that the old debs can be reduced and the
liquidity can be maintained.
Budgeting Reports: These reports help in evaluating the performance of the company. It also
provides the motivation spirit among the employees so that the organizational objectives can be
achieved (Sarokolaei, 2012). With the help of the budgets, the organization can forecast the
future costs and the expenses which will impact the company in the coming accounting period
(Lister, 2018). Through these reports, the top level managers of the Zylla Company will be able
to evaluate the financial performance of the employees.
Order Information Reports: These reports help the organization in evaluating the current
trends. This will help the Zylla Company in integrating the management and the operations to
achieve low cost while ordering the product (Lister, 2018). This will help in controlling the cost
and increasing the revenue simultaneously.
Job Cost Reports: This report provides an opportunity to the business to identify the areas of
improvement by evaluating the cost, expense as well as the profits of the particular job. By
evaluating the cost as well as the expenses the wastage of the cost can be reduced which in turn
will enhance the profitability as well as the accountability.
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Performance Reports: It calculates the differences between the actual results as well as the
budgeted results so that the performance can be evaluated (Lister, 2018). The results of these
variances are then recorded in the performance reports. The performance reports are prepared on
the yearly basis as the budgets are prepared for the whole accounting period (Lister, 2018). The
results arrived from these reports also helps in determining the areas where the effectiveness can
be maximized to attain profits (Sarokolaei, 2012).
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M1) Evaluate benefits of management accounting systems and their application within an
organizational context.
The application of the management accounting systems will provide various benefits to the Zylla
Company but for the ease of understanding the benefits of those systems are explained which
have been discussed earlier.
Inventory Management Systems:
 The application of the inventory management systems in the Zylla Company will
improve the effectiveness as well as the productivity in the organization by saving the
time as well as money (Lister, 2018).
 The accuracy of the ordering cost will be maintained.
Cost Accounting Systems:
 The will be controlled cost control which in turn will help in reducing the prices of the
Zylla Company (Lister, 2018).
 It also provides all the information which is necessary for planning.
Job Costing Systems:
 It will help in eliminating the wastage of cost during the manufacturing process.
 Through this Zylla, Company will be able to evaluate the quality of the goods produced
(Lister, 2018).
Price Optimizing Systems:
 With the price optimizing system, the Zylla Company will be able to maximize the gross
profit of the organization by selecting the appropriate price.
 The attitude of customers towards the various prices of the products can also be evaluated
(Lister, 2018).
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D1) Critical evaluation of how management accounting systems and management
accounting reporting are integrated within an organizational context.
Both management accounting systems as well the management accounting reporting are
integrated within the organizations as they both help in attaining the profits for the organization.
 With the accounts, receivable aging reports the timely collection of the accounts
receivable can be done in the organization which will help monitoring the collection
policy from time to time so as to ensure accuracy as well as profitability (Gregory, 2018).
 The budgeting reports will help in analyzing the performance with that the targets are
also set through which all the employees in the Zylla Company will work toward the
achievement of the common objectives (Gregory, 2018).
 The performance of the employees can be evaluated through the performance reports
which will bring the competitive spirit among the employees.
 With the integration of the inventory management reports with that of the systems will
help in reducing the wastage of the inventory as it helps in determining the accurate level
of the purchases. The integration process helps in better management of the inventory
levels.
 Through the cost reports the Zylla Company will easily be able to evaluate the pricing
strategy for the product which in turn will help them to capture the market share and
hence increase profits.
 All the reports critically help in analyzing the situations which will help in making the
decisions related to the financial position of the Zylla Company (Kolios and Read, 2013).

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LO 2
P3) Calculate cost using appropriate techniques of cost analysis to prepare income
statement using marginal and absorption costing. (M2, D2)
Scenario:
Selling Price £35
Unit Costs:
Direct Material £6
Direct Labor £5
Variable Production Overhead £2
Variable Sales Overhead £1
Fixed Costs:
Production Overhead =£1,800
Administration Cost = £800
Selling Cost = £400
Actual Sales = 500 Units
Actual production =600 Units
Solution:
Working Notes
Direct Materials £6
Direct Labor £5
Variable cost £2
Total cost £1
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Cost: The cost is defined as the value of money in the monetary terms. These costs are incurred
in the goods as well as the services (Nawaz, 2013). The cost can be fixed as well as variable.
Fixed costs are those costs that remain constant with the change in the level of the output. The
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value of the fixed cost decreases with the increase in output. The variable cost is the cost which
changes with the change in output. It increases with the increase in output (Nawaz, 2013).
Marginal Costing: It is that cost which will be used by the Zylla Company for taking the
strategic decisions (Financial Accounting.org, 2015). Marginal costing is the variable costing as
it allocates variable cost to cost units and the fixed cost is written off to calculate the amount of
contribution (Nawaz, 2013). This is the method which is used to calculate the number of profits
with the change in the variable cost factors. To calculate the profits fixed selling and distribution
expenses are deducted from the contribution (Nawaz, 2013). The profit of the amount during the
year is amounted to be £7500 which means that the company is not much affected by the change
in the variable cost amount.
Marginal Costing Income statement
Particulars
Amoun
t (£)
Amoun
t (£)
Sales Revenue 17500
Cost of Sales:
Opening Stock 0
Add: Cost of Production 7800
Less: Closing Stock 1300 6500
11000
Less: Variable distribution and
administration cost
500
Contribution 10500
Less: Fixed Cost 1800
Less: Selling and administration cost 1200
Profit for the year 7500
Absorption Costing: Absorption Costing considers all the resources and expenses while
calculating the cost of production. It includes all the cost of both variables as well as the fixed
price (Nawaz, 2013). It is the fixed overhead cost along with that of the variable manufacturing
cost. The presence of the variable cost and the contribution makes it easy for the managers of the
Zylla Company to take the decisions (Nawaz, 2013). Same as the profits were earned while
calculating the cost under marginal costing the absorption costing also showed the positive
results. The profit earned from the absorption costing was £7800 (Financial Accounting.org,
2015).
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