Management Accounting Systems: Financial Analysis and Planning Tools

This report provides a comprehensive overview of management accounting, emphasizing its role in enhancing business operations and achieving a competitive advantage. It covers the meaning of management accounting, essential requirements of management accounting systems, and methods of management reports, illustrating their importance within organizations. The report also explains the significance of management accounting systems, highlighting the need for understandable financial information presentation. It evaluates the integration of management accounting systems and reporting within organizational processes, using ThirdWay Group as an example. Furthermore, the report discusses absorption and marginal costing, advantages and disadvantages of different planning tools for budgetary control, and the application of planning tools for preparing, forecasting, and analyzing budgets. It also analyzes how management accounting techniques can respond to financial problems, leading the organization to sustainable success, and evaluates how planning tools can be used to solve financial problems and lead the organization to sustainable success.

Unit -5 Management Accounting

Table of Contents
Introduction....................................................................................................................................4
Task 1:.............................................................................................................................................5
A. Explain the meaning of management accounting and give essential requirements
management accounting systems in the business........................................................................5
B. Explain the methods of the management reports as well as justify their importance in
the organization context................................................................................................................7
C. Explain the significance of the management accounting systems in the organization as
well as explain the importance of the management accounting and explain why it is
presented in an understandable manner.....................................................................................9
Task 2............................................................................................................................................13
A. 1) Explain absorption costing and marginal costing.....................................................13
2) Prepare an Income Statement based on the calculations of costs using both a) absorption
costing method and b) marginal costing method......................................................................13
B.....................................................................................................................................................14
Task 3............................................................................................................................................17
Introduction..................................................................................................................................17
A. Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.........................................................................................................................17
B. Show the application of the planning tools for preparing, forecasting and analyzing
budgets..........................................................................................................................................19

C. Compare how your organization is different in adapting management accounting
systems to respond to financial problems..................................................................................20
D. Analyse how your management accounting techniques could respond to financial
problems and lead the organization to sustainable success.....................................................20
E. Evaluate how planning tools could be used to solve financial problems and lead the
organization to sustainable success............................................................................................20
Conclusion....................................................................................................................................21
Conclusions...................................................................................................................................22
References.....................................................................................................................................23

Introduction
The give report has been prepared with the aim of providing a detailed knowledge as well as
scope and ambit of management accounting. This will help the every business organization to
perform better in the business operations so that it can achieve competitive advantage. Through
the application of management accounting, strategic competitive advantage can be achieved.
Also, for the ease of understanding of the concept of management accounting, a real instance of
the small and medium enterprise of UK namely, ThirdWay Group has been taken. This will
facilitate to understand the concept in a better way. Each part has its own introduction and
conclusion so that the reader of the report can get an idea regarding what is going to be covered
in the report, as well as what have been discussed throughout the report.

Task 1:
A. Explain the meaning of management accounting and give essential requirements
management accounting systems in the business.
The management accounting is defined as a process of making the financial and final reports of
the company. It helps the company to maintain the accurate financial and statistical information
of the company. It helps the managers in decision making process (Holt, 2014).
There is a difference in management and financial accounting where the former focus on helping
the insiders the latter used to serve the outsiders with the financial report of the company.
Particulars Management accounting Financial accounting
It is a process of making the
financial reports that helps the
managers in decision making.
It is process making the
financial reports which help
the public in large.
Focus It helps the insiders of the
company.
It helps the outsiders of the
company (Hemmer and Labro,
2016).
Range of accounting It deals in both management
and financial accounting
It only deals in financial
accounting.
Approach It has a long approach in
serving organization.
It used to serve the outsiders
of the company.

Different types of management accounting systems.
 Cost accounting Systems: By this method the company Thirdway Group can assess the cost of
the products and the services. The factors of profitability are analyzed by this method.
Different cost in costing system is;
Normal costing: all the units of the business like direct material labor and overheads are valued
at the actual cost. So, the base they used to value is the actual cost (Kerzner and Kerzner, 2017).
Actual cost; the actual cost of the company is measured in forms of actual material, actual labor.
This method also records the product cost.
Standard costing; it is a method of substituting the expected cost with the actual cost. The
difference of the expected and actual cost can be ascertained through this (F.O., 2015).
Job costing systems: this method helps to establish a manufacturing cost to each product and
item of the business, thus assigning each product a manufacturing cost, this may help the
company in knowing manufacturing cost of each product. Also this system helps in allocating
the manufacturing cost of each product (Holt, 2014).
Inventory management system; this system helps to maintain the inventory level at each
interval of the construction business.
Types of inventory management;
Types Explanation
FIFO; first in first out the company used to sale its
first purchase items
LIFO last in first out, the company focuses on
clearing the last purchase item at first

Perpetual Inventory This method recorded the sale and purchase of
the inventory (Kerzner and Kerzner, 2017).
Periodic Inventory It updates the inventory at the periodical basis.
This helps the company in long run.
Price optimizing systems; this method helps to ascertain a price in which the customer response
is good. So, it includes the best price for the customers and organization in large.
Essential requirements of management accounting systems;
It helps the company in maintain accurate financial and statistical information. Provides decision
making to the managers, upkeeps all the information of the company, helps to update all the
financial and statistical information of the company.
B. Explain the methods of the management reports as well as justify their importance in
the organization context.
The management reports consist of preparation of final accounts which includes the financial
statements and profit and loss account (Hemmer and Labro, 2016).
 Cost reports; these reports are used by the Thirdway company to allocate the cost to each
products and the items of the business. It will help the company in knowing the cost of each
product ( Harrison and Lock, 2017)
 Financial reports; these are the reports which are prepared by the company to know its final
accounts information like balance sheet, profit and loss account. These final accounts are
ascertained to reveal the true position of the company which is required by the outsiders of the
company (Kerzner and Kerzner, 2017).

 Budgeting reports; these reports are prepared to know the different budget of the company such
as cash budget, purchase and sales budget. The budget report is prepared for a particular period.
These reports guide the managers and the organization in providing a business plan.
 Performance reports; these are the reports through which the performance of the company can
be measured. The performance of the company is measured by comparing the actual and the
estimated standards set by the company.
 Inventory management report; this report is prepared to record the entire inventory at each
level; it helps to maintain the level of inventory. It updates and upkeep the level of inventory.
They acquire the FIFO and LIFO methods to solve the problem of maintain the inventory.
Importance of these reports in the management;
These reports are really very important from the organization point of view, it ensures the
organization with the right information, helps in the decision making. It ensures to provide the
organization to have accurate and relevant information available with them. It reduces the
ambiguity in any field of the organization. It saves the time, and ensures all the information
delivers to their client in a transparent manner.

C. Explain the significance of the management accounting systems in the organization as
well as explain the importance of the management accounting and explain why it is
presented in an understandable manner.
There are various kinds of management accounting systems that are explained above. The
benefits which are discussed below:
 Systematic maintaining of the records; it helps to maintain a records of the company by timely
knowing the cost of each product and item (Hemmer and Labro, 2016).
 Accurate interpretation of financial information; these cost systems helps in ascertaining the
actual and expected cost of each product. This helps interpreting this knowledge in the final
accounts of the company.
 Ascertain the cost of each product; it helps to ascertain the cost of each product and the
services thus helping the managers in the decision making approach (Ptak and Schragenheim,
2016).
 Ascertain the price of the product; these systems also helps in predicting the prices of each
product, the prices are either determine by the customers approach or by the organization itself.
 Cost reduction; the timely predicting and assigning cost to each product helps the company in
reducing the cost of the product and attains the economies of scale.
 Saving time and cost; it helps in saving per unit cost of the product. It also saves the time and
money of the organization.
The financial information of the company should be reliable and transparent because they bear
the real cost, and if they are produce in and uneven manner then they can lead to misleading of
the facts which is not good for the company. The financial information of the company creates
the value and goodwill in the eyes of the outsiders and the insiders. If any information is
presented in manner unpreventable manner than they can lead to misleading of the facts which
can give the insider trading, disclosure of confidential information to the competitors which can
directly affects the share price of the company.

It is important for the company to present any information of the company in an understandable
manner because this information are really confidential to the company point of view and all
these information creates the value addition like goodwill which directly effects the intangible
assets. This information cannot be presented in uneven manner otherwise they will prove a
disaster to the company accounts. They should be projected in a proper manner as like the
financial statements interpreted in the accounts (Booth, 2018).
Thus entire information of the company has some confidentiality and if they are predicted in an
uneven manner then they can lead to disclosure of financial information which is not good in
organization point of view.

D. Evaluate how management accounting systems and management accounting reporting is
integrated within organizational processes.
The management report and the management systems are correlated with each other. It is very
important for the organization to integrate them in the organization so that they can gain the
benefits to the organization, which they were not getting it before. The integration of these is
discussed below (Warren and Jones, 2018).
Management accounting systems; the management accounting system defines in interpreting all
the financial reports also consist of maintaining the accurate financial and the statistical
information of the company. This helps the managers in decision making approach.
Management accounting reporting; this is the report which consist making of the financial and
other reports of the company which includes the cost report, inventory report, budget report and
the performance report. These reports help the company in every aspect.
Particulars of management accounting
system and the management reports.
Integration of these reports in the
management.
Inventory management system and the
inventory management report
These reports must be integrated in the
inventory management that maintains and
records of stock
Price optimizing systems and the other
report.
These reports must be integrated in the pricing
policy of the business. They determine and fix
the price of the manufacturing goods and
services (Booth, 2018).
Cost accounting systems and the cost
reports
They must be integrated in the business to
insure the reduction in manufacturing and other
cost. For example allocating direct cost with

finished goods produced (Warren and Jones,
2018).