Comprehensive Report on Management Accounting Systems and Reporting

This report delves into the realm of management accounting, specifically focusing on its application within LM Engineering Ltd. The report begins by defining management accounting and differentiating between various systems like cost accounting, price optimization, job costing, and inventory management. It then explores different management accounting reporting methods, including performance reports, budget reports, accounts receivable ageing reports, and cost managerial accounting reports. The report further analyzes cost analysis techniques, such as absorption and marginal costing, and provides an income statement example. Additionally, it examines the advantages and disadvantages of planning tools used for budgetary control. Finally, the report discusses how organizations adopt management accounting systems to address financial problems and achieve sustainable success, supported by financial data and analysis.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................5
TASK 1............................................................................................................................................5
P1. Management accounting and its different types of system...................................................5
P2. Explain different method of management accounting reporting. ........................................6
M1. Evaluation of benefits of various management accounting systems...................................7
D1 Management accounting system and management accounting reporting are integrated
with organisation process. ..........................................................................................................8
TASK 2............................................................................................................................................9
P3 .Appropriate techniques of cost analysis to prepare an income statement.............................9
Annex (A)....................................................................................................................................9
Annex (B)....................................................................................................................................9
M2. Management accounting techniques and financial reporting documents..........................11
D2. Financial reports which applies to interpret many business activities...............................12
TASK 3..........................................................................................................................................12
P4. Advantages and disadvantages of different types of planning tools used for budgetary
control.......................................................................................................................................12
Budget: A plan to control the accounts in future. It is always stated in value of money. It is a
idea to predict that how much amount is required for our business or for each department of a
company. Budget are made annually. Mostly it is used by firms as a pricing tool..................12
M3. Usage of different planning tools for preparing and forecasting budgets.........................15
TASK 4............................................................................................................................................1
P5 Comparison of how organisation adopt management accounting system so as to respond to
financial problems.......................................................................................................................1
M4 Analysis of how in responding to financial problems management accounting can lead
organisations to sustainable success............................................................................................3

D3 Various planning tools to resolve financial problems...........................................................3
CONCLUSION ...............................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Management accounting can be defined as a process which involves partnering in
management decision making, planning and performance management system. It also helps in
providing expertise knowledge related with the financial issues and controlling the management
properly in accordance with the formulation and implementation of an organisation's strategy
(Adler, 2013). It is also known as cost accounting and assist in analysing the cost involved in the
business operations to prepare the financial reports, records to successfully accomplish the
business goals. To understand the concept of management the present report is constructed and
it is based on the LM Engineering Ltd. which deals in civil engineering and planning services
based in UK and serves the people of northern British Columbia. The report will include the role
of management accounting and will describe the importance of different types of management
accounting systems, different methods used for the management accounting reporting. The report
will also show the appropriate techniques used to conduct cost analysis for preparing an income
statement using marginal and absorption costs. Further, the report will include the use of
planning tools for budgetary control. In last it will discuss the ways adopted by the organisation
in management accounting system to respond with the financial problems.
TASK 1
P1. Management accounting and its different types of system.
Management accounting: It can be described as the accounting process related to the
management of the internal part of an organisation. This process is majorly used in formulating
managerial reports which helps the organisation in constructing suitable policies and business
plans for the future. The accounting system is not mandatory to be maintained, it depends on the
companies if they want to maintain it or not. In general, the accounting system has its own
importance in the internal part of the business organisation and helps in achieving the desired
objectives effectively and efficiently. The different types of management system are as follows:
 Cost accounting system: This accounting system helps in analysing the costs of the
products which will include all elements like fixed cost, variable cost, etc. the cost
accounting system is very essential for the organisations to maintain the estimated costs
of the products and services as it helps in generating information about profit and loss of

the organisation. The LM Engineering Ltd. uses this cost accounting system for
analysing the cost of their different services that helps them in focusing on the services
which are beneficial.
 Price optimisation system: The price optimisation system is the process that
demonstrate a framework which helps in determining the price of the products and
services in appropriate manner which will satisfy the perspective of customer as well as
the organisation effectively. It also helps in analysing the view of the costumers on the
various pricing levels. The main purpose of this system is related with providing the
factors that play a important role in price setting. The LM Engineering Ltd. use this
accounting system for setting the price of the products and services at that level where it
will be suitable for the company and customers as well.
 Job costing system: This system is used to calculate the total cost that is involved in
rendering products and services and also tracks the costs by the jobs and determine
standardized reporting of the profitability by the job (Arroyo, 2012). This accounting
system is used by the organisations which provide varieties of products and services. The
LM Engineering Ltd. deals in different financial services so, they are required to
construct an estimate about the cost incurred in each individual unit.
 Inventory management system: This is considered as one of the important accounting
system as it is used to track the status of the products and services which helps in
analysing the requirement of goods and services for the organisation. This management
accounting system works properly in the overall supply chain management within an
organisation. LM Engineering Ltd. has adopted this system to keep a track on their
services and also helps in keeping a check on the financial products and services.
P2. Explain different method of management accounting reporting.
The different types of accounting reports holds their own importance for the business
organisation but management accounting reports have their own significance. These accounting
reports has a great impact on the internal management of an organisation. It helps the accounts
manager to formulate the effective strategies and decisions for the company. These management
accounting reports consist of both the monetary and non monetary informations. The LM
Engineering Ltd. prepares different types of reports which are described as follows:

 Performance reports: This report is constructed to measure the performance of the
organisation. In relation with the management accounting, the performance report is
formulated to measure the performance of the employees and of the products and
services. It helps in analysing the best performers and make the task easy of distributing
rewards. LM Engineering Ltd. construct these reports to analyse the performance of the
employees and the organisation and to take the required measures accordingly.
 Budget report: The budget report is constructed to measure the estimated performance
of the organisation with the actual performance. This report also helps in constructing
suitable policies and strategies for future plans. The basic role of this report is to make an
estimation of the incomes and expenses of the organisation for a certain period of time
and the organisation use it to achieve their desired objectives effectively. The LM
Engineering Ltd. use this report to measure their performance with the desired plans and
formulates effective strategies appropriately.
 Accounts receivable ageing report: This report contains the informations which is
related with the credit transactions. It is considered to be helpful for the organisations that
proceed their business operations mostly in credit. This report assist the finance
department in analysing the financial condition of the organisation and to analyse the
information of the credited amount in the market. The LM Engineering Ltd. construct
this report to check the total collections the company has got from the customers and it
also helps in bringing transparency in credit collection within the organisation and also
helps in maintaining clear image in the market (Bennett and James, 2017).
 Cost managerial accounting report: This report helps in providing a framework to the
organisation for evaluating the profit or loss occurred from the different business
activities. This report also helps in calculating all the expenses before selling and the
money earned by the organisation after selling. If the expenses are more than the selling
amount, then it will definitely result as a loss for the company and vice a versa. The LM
Engineering Ltd. construct this report for analysing the profit and loss for the
organisation and to formulate the required strategies and future plans to improve the
business conditions effectively.
M1. Evaluation of benefits of various management accounting systems.
Advantage of cost accounting system:

 It is accommodating in producing computation of cost related with the products and
services which the organisation offers in the market.
 Helpful in determination reason incidental to the high cost occurring in the production
process of products and service the organisation is planning to offer.
Advantage of inventory management system:
 this system is beneficial in keeping a track on the status of different products and services
provided by the organisation.
 It helps in redeeming time and cost for the welfare of the organisation.
Advantages of price optimisation system:
 This system helps organisation in deciding the level of price which will be appropriate
for both the company and customers as well.
 It gives a structure to examine the reactions of the customers at various pricing level.
Advantage of job costing system:
 this system is important as it assist in calculating and assigning the costs of each unit's
individually.
 This aid in maintaining a constant observation on the all the business activities of
business particularly on the cost occurring activities.
D1 Management accounting system and management accounting reporting are integrated with
organisation process.
The integration of management accounting system with the accounting reporting is
considered to be very important for the organisational process to flow in a smooth manner. This
integration is important as these both have good interrelation with each other. For instance, a
organisation are preparing some managerial reports so, they are required to gather information
like facts and data and it can be accomplished by the help of the management accounting system.
Without this the organisation will not be able to make the future plans appropriately (DRURY,
2013). The LM Engineering Ltd. constructs different management reports by the help of various
accounting techniques and tools which helps in eradicating the complexities from the preparation
of these reports.

TASK 2
P3 .Appropriate techniques of cost analysis to prepare an income statement
Absorption costing: The absorption costing can be defined as the method which
calculates the costs involved in manufacturing the product and services and it involves both fixed
cost and variable cost. This method is also known as the full costing method.
Marginal costing: This method can be defined as the process of costing in which the
variable cost is taken in the form of unit cost and fixed cost as the period cost.
Annex (A)
Budget 2019 2020 2021
Cost
Centre
Budgeted
production
overhead
costs in £)
Basis of
production
(overhead
absorption)
Cost
per
Hour Hours Cost Hours Cost Hours Cost
A 66000 22000 3 24200 72600 26620 79860 27500 82500
B 75000 15000 5 16500 82500 18150 90750 19500 97500
C 83600 41800 2 45980 91960 50578
10115
6 51500
10300
0
Annex (B)
(a) Labour hour: -
Product X = £6000*1 = £6000
Product Y = £8000*2 = £16000
Labour hour = £2,64,000
------------
22,000
= £12 per hour.
Overhead absorption on labour hour: -
X Y
Overhead absorption = 1*12 = 2*12

= 12 = 24
Total Overheads = £6000*12 = £8000*24
= £72,000 = £192,000
(b) Using ABC approach: -
Machine hour per period:
Product X = £6000*4 = £24,000
Product Y = £8000*2 = £16,000
Cost driven rate: -
Production set up = £179,000 = 2893 per set up.
60
Order handling = £30,000 = 416.666 = 417 per order
72
Machine cost = £55,000 = 1.375 per order
40,000
Overhead using ABC approach: -
X
Set up = 15*2983 = 44,745
Order = 12*417 = 5004
Machine cost = 24000*1.375 = 33,000
Total 82749
Y
Set up = 45*2983 = 134,235
Order = 60*417 = 25,020
Machine cost = 16000*1.375 = 22,000
Total 181,255
Annex (c)
Year X PV@ 12%
Dis Cash
Flow Y PV@ 12%
Dis Cash
Flow
0 -5000 -8000
1 2500 0.893 2232.143 1500 0.893 1339.286

2 1000 0.797 797.194 2000 0.797 1594.388
3 1000 0.712 711.780 2500 0.712 1779.451
4 500 0.636 317.759 1000 0.636 635.518
5 1500 0.567 851.140 1000 0.567 567.427
6 1000 0.507 506.631 2500 0.507 1266.578
Total 5416.647 7182.647
Payback Period = Initial Investment
Average Cash Flow
Project X = 5000 = 4
1250
*Average Cash Flow = 7500 = 1250
6
Project Y = 8000 = 4
1750
*Average Cash Flow = 10500 = 1750
6
NPV: -
Project X = Dis Cash Flow – Initial Investment
= 5416.647 – 5000
= £416.647
Project Y = Dis Cash Flow – Initial Investment
= 7182.647 – 8000
= - £817.353
M2. Management accounting techniques and financial reporting documents.
The management accounting techniques are very important to construct the financial
reports and statements. The organisation is required to form various financial documents like
balance sheet, profit and loss accounts, etc. with the help of various accounting techniques and
tools. The LM Engineering Ltd. Formulate their financial statements with the help of various

accounting tools and methods because financial data which is essential for the financial reports
can be obtained by the management accounting tools (Gibassier and Schaltegger, 2015).
D2. Financial reports which applies to interpret many business activities
The Financial reports indicate all the business activities in way which is easy to realize.
With the usage of financial statements like p&l, balance sheet, organisation can check about the
financial position. These financial reports are connected up with the business activities because
all the data in these reports comes from the business activities. Basically, financial reports shows
the business activities in a financial form (Hartmann, Perego and Young, 2013) . Aim of
preparing of these reports is to evaluate the organisation and also to show the external parties like
shareholders the financial position. LM Engineering Ltd. prepares many financial reports like
p&l, income statements to check the effectiveness of the business activities.
TASK 3
P4. Advantages and disadvantages of different types of planning tools used for budgetary
control.
Budget: A plan to control the accounts in future. It is always stated in value of money. It is a
idea to predict that how much amount is required for our business or for each department
of a company. Budget are made annually. Mostly it is used by firms as a pricing tool.
Types of budget:
Operating budget: are those which held by a company to bear its day to day expenses. It
include all factors such as sell, purchase, material and labour cost. It can be made annually,
quarterly, monthly and at last to be matched with actual output that company is not much
spending from his estimated prices.
Cash flow budget: includes debtor, creditor etc. and help a company to know whether
its cash is being managed properly or not. It help to know that on what average cash come in and
go out from our business.
Budgetary control:
To match the figures of the budgets with our actual output. It is a daily process for our business.
If there is any loop hole remain in budget we can fill it by co-ordinate and evaluate with
budgetary control process.