Management Accounting: Systems, Techniques, and Analysis

This report on management accounting provides a detailed overview of its principles, systems, and applications. It explores various management accounting systems like inventory management, job costing, and cost accounting, evaluating their benefits. The report also examines different management accounting reports, including performance reports, cost managerial accounting reports, financial reports, and budget reports. It delves into cost analysis techniques, specifically absorption and marginal costing, with examples of income statements prepared using these methods. Furthermore, the report discusses planning tools used in budgetary control, weighing their advantages and disadvantages. Finally, it analyzes how organizations adapt management accounting systems to address financial problems, comparing Riverside Financial Consultancy Ltd and Bright-star Financial Limited, and concluding with how these systems contribute to sustainable success.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting and its different types of systems..................................................1
P2. Different methods used for management accounting reports................................................3
M1. Evaluation of various benefits of management accounting systems....................................4
D1. Management accounting reports and management accounting systems are integrated
within organisational processes...................................................................................................6
TASK2 ............................................................................................................................................6
P3 .Appropriate techniques of cost analysis to prepare an income statement.............................6
M2. Management accounting techniques and financial reporting documents.............................9
D2. Financial reports which applies to interpret many business activities..................................9
TASK3...........................................................................................................................................10
P4 Advantage and disadvantage of different planning tools used in budgetary control...........10
M3. Usage of different planning tools and their applications for preparing and forecasting
budgets.......................................................................................................................................12
TASK4...........................................................................................................................................12
P5 Organisations are adapting different management accounting systems to respond the
financial problems......................................................................................................................12
Comparison between Riverside Financial Consultancy Ltd and Bright-star Financial Limited:
....................................................................................................................................................13
M4. Management accounting in response to financial problems can lead organisations
sustainable success.....................................................................................................................14
D3.Various planning tools to resolve financial problems..........................................................15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is the another name for managerial accounting. Management
accounting is a technique which provides provisions to the managers for the purpose of analysing
the business operations to prepare some of the internal reports (Wilkinson, 2019). Such
techniques are required to prepare the financial statements on the basis of financial and non
financial information available with the managers for the purpose of taking short term along with
long term decisions for the sustainability of the organization. These reports are generated either
on daily basis or as per the demand as major decisions are based on such reports. To understand
the managerial accounting tactics, Riverside Financial Consultancy Ltd is selected. The selected
organization was established in the year 1988 having its headquarters at Hammersmith, London.
Such organization war form to provide financial services to various individuals as well as
business entities in performing the practices related to accounting obligations and tax benefits
(Adler, 2013).
In the project report, detailed information related to management accounting, meaning,
essential requirements of different types, benefits, applications along with methods and
techniques are described. It also includes various budgetary control planning tools with their
advantages and disadvantages as well as the ways in which an organization responds to financial
problems leading towards sustainable success.
TASK 1
P1. Management accounting and its different types of systems.
Accounting: Accounting is a systematic process of recording the financial transactions
related to the operations of the business entity. It includes identification, recording,
measurement, classification, summarization, interpretation and communication of the results in
any organisation. It is done to maintain the complete systematic records of all transactions to
analyse the financial position in the competitive world.
Management accounting: management accounting is the part of accounting. Such
accounting helps in providing information related to costing as well as operating to the senior
managers to take effective decisions for the business entity. It helps in providing the financial as
well as non financial information to formulate the future plans, policies ans strategies for the
success of the business organisation. It provides the managers with the problems associated
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while preparing the financial statements. The main objective of such accounting is to plan,
control and prepare the statements by reducing the cost and maximising efficiency along with
profitability. The Riverside Financial Consultancy Ltd uses the described management
accounting systems to analyse as well as evaluate the informations:
 Inventory management system: Inventory management system is used to monitor and
manage the available inventory with the entity. Such system is used in any organizations
to ascertain the actual information of the stock of raw material, goods in progress and
finished goods lying with them (Arroyo, 2012). Such system is essentially required in
Riverside Financial Consultancy Ltd to track its inventory by monitoring and
implementing various strategies for effectively management of the available stock of
capital with its clients.
 Job costing system: Job costing system is a technique used by top level managers to
optimize and allocate the associated costs of various jobs. such type of accounting system
is used to keep the information of the work done by an individual as well as team
performance. It is required in Riverside Financial Consultancy Ltd to keep a record to
different services provided to different customers in a systematic manner of the
individual projects.
 Cost accounting system: Cost accounting system is a tool used by the managers to
estimate the cots associated with the products for analysis of profitability, valuation of
inventory and controlling various costs. It focuses on the various costs associated with the
production processes in order to find new ways in which they can be reduced to achieve
maximum profits (Bennett, 2017). The essential requirement of such system in the
Riverside Financial Consultancy Ltd is to examine the cost structure as well as to divide
the costs of different commodities with different customers.
 Price optimization system: Price optimization system is a system which provides
framework for effectively determining and optimizing the prices of products in such a
manner to fulfil the objective of the business unit. Such system requires Riverside
Financial Consultancy Ltd to analyse the buying pattern and preferences of the clients
towards different prices of the securities along with investment in order to formulating
policies.
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P2. Different methods used for management accounting reports.
Management accounting reports are statements which describes the clear picture of the
financial health as well as position in the competitive market of any organisation. Such reports
are used by the managers in formulating new strategies, programmes and making decisions for
the processes of operations. These reports helps the management to take important and critical
decisions and are prepared very carefully without any errors as the managers relay on such
reports to take important decision for the betterment of the company (DRURY, 2013). These
reports acts as a basis for formulating future plans and strategies in the organisation. The
managers of Riverside Financial Consultancy Ltd prepares various reports to formulate effective
policies and taking important decisions. Some of the reports prepared by them are following:
 Performance reports: Performance reports are prepared to evaluate and review the
performance of organization along with its employees. Such reports provides the
managers with a measure to evaluate various performances without any errors. These
reports helps in reframe the organisational strategies against the competitors to take
various critical decisions. The management of any entity analyses such reports very
carefully to find out the deviations and ways to overcome them to maximise profitability.
The managers of Riverside Financial Consultancy Ltd prepares such reports to formulate
strategic decisions for the company as this report provides a clear picture related to health
and performance of the business.
 Cost managerial accounting report: Cost managerial accounting report helps in
computing the total costs of the products produced. It includes raw material cost, labour
cost, overhead costs and various other associated costs which are directly or indirectly
related in the production processes. Such report provides the summary of the associated
costs. It helps in providing the estimation of the profits or losses by comparing the cost
amount in relation to selling amount (Edwards, 2013). The managers of Riverside
Financial Consultancy Ltd analyses such reports to formulate policies and strategies for
future as such reports reflects the organisational performance and profitability.
 Financial report: Financial reports are the records which describes the financial
activities along with capabilities and position of the business entity. These are usually
prepared by the finance department of the organisation. It also acts a summary report
which explains the areas in which an organisation needs to raise capital, investing and
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earning revenues in order to expand its business. The information of such reports helps
the management of Riverside Financial Consultancy Ltd to check the reasons of
fluctuations in the financial statements over the accounting period.
 Budget reports: Budget reports are the internal reports used for comparing the estimated
projections with the actual performance during an accounting period. All the financial
transactions are recorder in systematic manner in such reports and are prepared for self
evaluation of the business entity to describe the difference between actual and budgeted
performance of individual as well as organization as whole. Riverside Financial
Consultancy Ltd prepares the budget reports to evaluate the performance of employees
as well as of clients to take important decisions (Hiebl, 2014).
M1. Evaluation of various benefits of management accounting systems.
Management accounting systems Benefits
Inventory management system  Inventory management system helps in
optimum utilisation of scarce and
available resources efficiently as well
as effectively.
 Such system helps in tracking the
inventory and placing the order before
its requirements in order to perform the
operations smoothly without any
hurdles.
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Job Costing system  The selected system helps in analysing
and reducing various costs of particular
jobs to achieve profits (Holsapple,
2013).
 It benefits the management of
Riverside Financial Consultancy Ltd by
tracking the performances of
individuals, organizational as well as of
its clients.
Cost accounting system  Cost accounting system helps in
controlling raw material cost, material
costs and overhead costs to provide
effective checks on the materials used
in the production processes (Lukka and
Vinnari, 2014).
 It benefits by formulating various
business policies and alternative
methods to get the appropriate
information of the profitable as well as
non profitable activities.
Price optimization system  Such system helps in providing a brief
idea regarding the customers and
clients perceptions related to the
Riverside Financial Consultancy Ltd
products and services.
 The selected system benefits the
management by providing a framework
to control the pricing decisions in order
to formulate better as well as effective
decisions as and when required.
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D1. Management accounting reports and management accounting systems are integrated within
organisational processes.
Management accounting systems and management accounting reports are directly
integrated within the organisational processes as both plays crucial part for each other. The
management accounting reports helps in finding the deviations or hurdles in the management
accounting systems as well as provides the framework to rectifying them (Messner, 2016). The
managers to Riverside Financial Consultancy Ltd applies the accounting systems as well as
accounting reports in their operational processes to analyse the health as well as financial
position of the business entity. For the preparation of management accounting reports,
management accounting systems plays an essential role. Managers carefully analyses the
available reports to formulate various systems in the organisation.
TASK2
P3 .Appropriate techniques of cost analysis to prepare an income statement.
Absorption costing- Absorption costing method is also known by the name of full
costing method. In the total cost of production is calculated including both the cost fixed and
variable cost (Moser, 2012).
Marginal costing- Marginal or variable costing is a kind of technique which considers
fixed cost as the period cost and variable cost as the cost of production.
Income statement by marginal costing method:
Particulars Amount
Sales(10000*25)
Less: Marginal cost of sales:
Direct material- 50000
Direct labour- 30000
Variable manufacturing expenses- 20000
Contribution
Less: variable selling
Net contribution Margin
250000
100000
150000
30000
120000
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Less: Total Fixed Cost
Fixed manufacturing expenses- 40000
Fixed selling and administration expenses- 30000
Net Income
70000
50000
Income statement by absorption costing method:
Particular Amount
Sales(10000*25)
Less: Cost of good sold:
Direct material- 50000
Direct labour- 30000
Variable manufacturing expenses- 20000
Fixed manufacturing expenses- 40000
Gross profit
Less: Selling and administration expenses
Fixed selling and administration expenses-30000
Variable selling and administration expenses-30000
Net profit
250000
140000
110000
60000
50000
Interpretation- From above solved numerical it has been analysed that company is
getting net profit in the both method of costing. In the marginal costing method, net profit is of
50000 which is same as in absorption costing method (Quinn and Jackson, 2014).
Income statement by absorption costing method (When 5000 units sold)
Particular Amount
Sales (5000*25)
Less: Marginal cost of sales:
125000
90000
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Direct material- 25000
Direct labour- 15000
Variable manufacturing expenses- 10000
Variable selling and manufacturing expenses- 40000
Contribution
Less: Fixed cost
Net loss
35000
(45000)
(10000)
Marginal costing
Particular Amount
Sales(5000*25)
Less: Cost of good sold:
Prod. Contribution Margin
Less: Variable Selling
Net Contribution margin
Less: Total Fixed Costs
Fixed Manufacturing Overheads
Fixed Selling & Admin
Net Loss
125000
(50000)
75000
(15000)
60000
40000
30000
(10000)
Interpretation- From above solved numerical it has been analysed that company is
getting net loss in the both method of costing (Richardson, 2012.). In the marginal costing
method company is facing net loss of (75000) as well as in absorption method, net loss is same.
For Fans
Labour Price variance:
(Budgeted Price- Actual Price)* Actual hours
(5-5.20)*3400
=-680 (Unfavourable)
Labour usage variance:
(Budgeted Hour -Actual Hours)* Budgeted price
(3000-3400)*5
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-2000 (Unfavourable)
For Packaging boxes
Material price variances
(Budgeted price- actual prices)* Actual usage
(10-9.5)*2200
1100 (Favourable)
Material usage variances
(Budgeted use- Actual use)* Budgeted Price
(2000-2200)*10
-2000 (Unfavourable)
M2. Management accounting techniques and financial reporting documents.
Management accounting techniques are crucial in the context of preparing financial
reporting documents. Financial documents like balance sheet, p&l etc. are prepared on the basis
of various management accounting techniques. In the absence of proper link between accounting
techniques and financial reports it would be difficult to make financial reports (Schaltegger and
Burritt, 2017). In the Riverside Financial Consultancy Ltd managers uses the appropriate
accounting techniques in making financial reports which represents the financial condition.
D2. Financial reports which applies to interpret many business activities
Financial reports works as the mirror of the organisation which shows the actual financial
condition of a business. The main basis of preparing financial statements like P&L, income
statement etc. is the all the business activities. It plays a crucial role in presenting a company's
financial condition. It all depends on the business activities, if all the activities in the favour of
business than, its effect will be on financial reports positively. Management of Riverside
Financial Consultancy Ltd uses various financial reports to present their business activities. This
helps them in showing their financial condition to the external parties.
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TASK3
P4 Advantage and disadvantage of different planning tools used in budgetary control.
Budgetary control: Budgetary control is a process of setting future financial and
performance goals with the help of budgets. This helps in comparing the actual performance with
budgeted performance. It is very useful tool for the managers in analysing the performance of
organisation and as well as of employees. It is a continuous process of controlling all the
business activities. The managers of Riverside Financial Consultancy Ltd use this tool in
controlling tool for measurement of actual performance and as well as controlling the business in
an effective manner. This enables most efficient use of both the resources human and financial
resources (Schaltegger, Gibassier and Zvezdov, 2013.). Budgetary control consist various tools
whose advantage and disadvantages are discussed below:
Forecasting tool: Forecasting tool is a kind of tool which is helpful in prediction of
activities related to the business which helps in preparing future plans and strategies. This
predicts the activities on the basis of past and present budgeted activities. It is very important
tool for an organisation because it minimise the risk of future's uncertainty. Riverside Financial
Consultancy Ltd company applies this tool which helps them in getting aware about the future
possible activities. In addition, they use this tool for making strategies which can guide them in
future to achieve desirable goals and objectives..
Advantages- Forecasting tool's advantages are described below:
 It is helpful in keeping the business ahead from their competitors because it
protects the companies from uncertainty of future.
 This is useful in providing guidance in right direction and as well as provide a
basis for control the cash flow.
Disadvantages-
 Company faces the problem of accuracy in result of this budgetary tool because
this makes estimation, it does not provide surety (Tucker and Lowe, 2014.).
 Sometimes this method becomes costly because due to collection of past data and
information.
Contingency planning tool: Contingency planning tool is related to making a plan for
future activities which may or may not happen. This is often considered as the plan “B” for
companies because it is applied by the companies in the condition if any particular uncertain
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activity happens. For an example a business make future plan for protection of lower sells in
future in this situation if company's sells goes down then this plan will activate as plan “B”.
Riverside Financial Consultancy Ltd uses this tool in keeping their business protect from the
uncertainty (Ward, 2012). The possibility of implementation of this tool depends on happening
of that uncertain activity.
Advantage-
 It is helpful in providing feeling of more prepared to the managers of company because
this works as an alternative plan for companies except the main plans.
 This tool enables companies in planning for worst activities.
Disadvantage-
 Implementation of this tool sometimes becomes complex because it depends on the
situation and if situation is crucial then it becomes tough to implement.
 It is needed time to time update because future is uncertain it may change over time.
Scenario planning: Scenario planning tool is a tool which is related to provide
framework to evaluate the efficiency and effectiveness of future plans, policies in context of
future environment (Lukka and Vinnari, 2014). It is very important tool in the aspect of
uncertainty of different activities. Riverside financial consultancy limited use this planning tool
in the examine of future plans and strategies. It helps them in reducing the effect of uncertainty.
Advantage:
 Scenario planning tool is helpful in the improving the effectiveness of plans and
policies.
 It is helpful in optimum utilisation of resources by minimisation of future activity'
s uncertainty.
Disadvantage:
 This tools requires detailed analysis of the future activities which consumes too
much time.
 It is suitable for particular factors and activities, but is not helpful in complex
conditions.
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M3. Usage of different planning tools and their applications for preparing and forecasting
budgets.
Budgetary control is a tactic which helps the managers to frame the financial as well as
performance targets with the ascertained budgets for future. There are various distinct planning
tools which helps in forecasting various budgets. The planning tools includes forecasting tools,
contingency planning tools and scenario planning. Forecasting tools are used to minimise the
risks associated with future uncertainty. Contingency planning tools is used for the formulation
of various plans, strategies to overcome uncertain issues evolving at the work place. Scenario
planning is used to formulate the strategic planning methods for the selected organisation for
preparing flexible long term plans. All the planning tools helps in preparing as well as
forecasting the budgets to identifying the needs and grabbing opportunities to overcome the
weaknesses (Quinn and Jackson, 2014).
TASK4
P5 Organisations are adapting different management accounting systems to respond the financial
problems.
Financial problems: Financial problems are the negative situations for companies in
which they suffers from the lack of money or fund. In this conditions all the activities impact
because finance is the key part to run any business. It impacts negatively on the company' s
growth and profitability. To overcome from these problems companies makes various strategies
and plans. Riverside Financial Consultancy Ltd faces some financial issues which are following :
 Lack of working capital: Working capital is a kind of capital which is required
to complete day to day activities. This arise due to lack of cash. Riverside
Financial Consultancy Ltd company faces this financial issue due to lack of fund
availability (Tucker and Lowe, 2014).
 Issue related balance sheet: In this financial problem, companies face the
problem of mismatch between liabilities and assets. This occurs due to lower
profit and sells. The selected company face this issue because in the balance sheet
of company, they have more liabilities in compare to assets.
 Problem of money management: Money management is a method of managing
the fund or allocation of fund appropriately. In the absence of proper management
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companies face many financial issues. Riverside Financial Consultancy Ltd
company face the problem of proper management of funds.
 Inappropriate risk management: Risk management may be defined as the tool
of reducing the risk of future's uncertain activities. If companies fails to proper
management of risk then it may become a financial issue. In Riverside Financial
Consultancy Ltd their management team is fail to minimise the risk of
uncertainty.
Management accounting approach: Management accounting approach is helpful in
appropriate use of management accounting techniques to solve the financial problems which
organisations face. Riverside financial consultancy limited applies this approach to solve their
financial issues (Edwards, 2013). They use following approach :
Benchmarking: Benchmarking is a tool which is used by the companies to compare the
strategies, plans and policies with the competitors to achieve competitive advantage. It enables
the actual performance measurement for the companies. This is also helpful in solving the
financial issues by comparing the results. The selected company use this tool to get competitive
advantage as well as to solve the financial issues.
Key performance indicator: Key performance indicator is a kind of performance
measurement tool which helps in evaluating the performance of an organisation and particular
activity. Riverside Financial Consultancy Ltd apply this tool to measure the financial
performance with an objective to solve financial problems.
Comparison between Riverside Financial Consultancy Ltd and Bright-star Financial
Limited:
Basis Riverside Financial Consultancy
Ltd
Bright star Financial Limited
Problem The company is facing the issue of
lack of management of money due to
this there are lot of financial issues
are arising. In the absence of money
management they are unable to use
effective use of fund for particular
This company is facing the issue of
mismatch balance sheet. Due to this
they are unable to match between
liabilities and assets. Their liabilities
are increasing continuously in
compare to assets and this is creating
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activity. burden on the company.
Approach On the basis of above financial
problem it is needed that they
required to apply the Key
Performance Indicator tool. With the
use of this tool they can overcome
from this financial issue. It is tool
which measures the financial
performance in an effective manner
so on the pressure of this tool the
management department of selected
company will surely make optimum
use of fund because this tool provides
guidelines to implement the activities
in way which is profitable.
After looking in this financial
problem of this company, it is
necessary for the company to apply
Benchmarking tool to solve the
financial issue. It is a tool which
provides a framework to make new
innovative strategies according to the
competitors. This will help company
in getting good profit with higher
growth so automatically assets will
also increase and the one point they
will be able to match liabilities with
assets.
M4. Management accounting in response to financial problems can lead organisations
sustainable success.
Management accounting helps the Riverside Financial Consultancy Ltd to formulate
various programs to achieve sustainable success by eliminating or overcoming and address all
the financial problems. The selected organisation uses management accounting approaches such
as benchmarking and key performance indicators which helps in reducing all the financial
problems to achieve the sustainable success (Adler, 2013). Riverside Financial Consultancy Ltd
uses key performance indicator tool to overcome its financial issues such as lack of money
management. Bright star Financial Limited uses benchmarking tool to solve the mismatch in
balance sheet issue. The selected organization is formulating various strategies, programs to
close the gap with its competitors.
D3.Various planning tools to resolve financial problems.
Planning is a technique which helps an organisation to formulate plans in present for the
future. It is a tool which helps in thinking about the future activities to achieve the targets. The
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Riverside Financial Consultancy Ltd and Bright star Financial Limited are facing various
financial problems but at the same time applies various approached to overcome them. Various
planning tools Riverside Financial Consultancy Ltd of forecasting tools, contingency planning
tools and scenario planning. These planning tools helps in predicting and formulating strategies
against the unexpected circumstances to overcome the problems efficiently and effectively
(Bennett, and James, 2017).
CONCLUSION
From the above report, it has been concluded that management accounting plays an
important role in all the businesses to perform the operations effectively and efficiently. It
includes various types of systems such as price optimisation system, cost accounting system, job
costing system and inventory management system. The benefits of all these systems are clearly
defined. There are various management accounting reports such as performance reports, budget
reports, cost managerial accounting reports as well as financial reports. Such reports are used in
the Riverside Financial Consultancy Ltd to prepare the income statements by applying marginal
and absorption techniques for cost analysis. The management uses approaches of benchmarking
and KPI to overcome its financial problems for the purpose of achieving sustainable success.
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REFERENCES
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management: current practice and future trends. Routledge.
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