Management Accounting Report: System, Reporting, and Cost Analysis

This report delves into the core principles and practices of management accounting, providing a comprehensive overview of various systems and methodologies. The report begins by exploring the essential requirements and suitability of different management accounting systems, including cost accounting, job costing, process costing, and throughput accounting. It then examines different management accounting reporting methods, such as job cost reports, budget reports, and sales and profit reports. The report further analyzes cost calculation methods, including marginal and absorption costing. Additionally, it discusses the advantages and disadvantages of various planning tools used for business control. Finally, the report concludes by outlining ways in which organizations adapt management accounting systems to respond to financial problems, offering valuable insights into effective financial management and cost control strategies. The report is a comprehensive resource for understanding the nuances of management accounting.

MANAGEMENT ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...............................................................................................................................................3
TASK 1...............................................................................................................................................................3
P1 Management accounting system and essential requirements of different management accounting systems........................................................3
P2 Different method use for management accounting reporting...............................................................8
P3 Calculation of cost using appropriate methods.....................................................................................9
P4 Advantages and disadvantages of different planning tools used for business control.......................12
P5 Way in which organization adapt management accounting systems to respond to financial problems15
CONCLUSION.................................................................................................................................................17
REFERENCES..................................................................................................................................................18

INTRODUCTION
Management accounting is the one of the important area which has significant importance for the business firms. In the current
report, management accounting systems are explained in detail in terms of their essential requirements and suitability. Apart from this,
in the report reporting systems are explained in detail and along with this marginal and absorption costing method are explain in detail.
At end of the report, different ways that can be adopted to respond to financial problems are explained in detail and in this way entire
research work is carried out in research report.
TASK 1
P1 Management accounting system and essential requirements of different management accounting systems
From: Budgeting officer
To General manager of White elephant restaurant
Subject: Management accounting system
Management accounting is the domain that encompasses varied tools and approaches that are used for calculation of cost in proper
manner. It is basically an important tool that is used to compute overall cost of production in the business and measuring firm
performance in terms of cost control in the business. Business managers use number of techniques of management accounting in
their business so as to control cost in the business. Usually it is observed that firms face lots of difficulty in controlling cost in their
business (Zainun Tuanmat and Smith, 2011). There are number of reasons behind this and one of them is that fluctuation remains
consistently in the business and due to this reason it becomes very difficult task to control cost in the business. In order to solve this
problem there are number of tools and methods that can be used in the business. One of these methods is variance analysis and
budgeting. Under budgeting method some of important parameters are determined and firm target to make its real expenditure

within these determined standards. By doing so it is ensured that cost will remain in control in the business. Apart from this, there is
another method variance analysis by using which it is identified whether firm perform well good or bad in its business. In case
performance is good there is no issue by performance is bad then in that case management take in to consideration situation very
seriously and take action on time. By doing so situation is improved in the business. Varied management accounting systems are
given below with their requirements. Cost accounting system: Cost accounting system is one under which cost of each and every department is done separately.
Means that cost accounting system is different from other accounting system. This is because in this there is no specific
parameter by considering which accounting is done in the business. Wired retail can use this accounting system in its
business and under this it can collectively compute cost of all products and can segregate them in class of fixed, variable and
semi variable expenses (Fowzia, 2011). By adding all sort of expenses cost of product can be computed. Importance of this
costing system can be estimated from the fact that in this cost is computed for each department separately and then same is
added to compute total business cost.

Figure 1Cost accounting system
(Source: Fowzia, 2011 )
Apart from department classification on the basis of characteristics also cost classification is done like fixed expenses,
variable expenses and semi variable expenses. Means that under this accounting system all expenses are taken in to account
and then they are separately classified in to category of fixed expenses, variable expenses and semi variable expenses. All
these expenses are then added to compute total cost of production in the business. This cost amount is divided by number of

units produced in order to identify per unit cost. It can be said that it is the one of the important costing system that is
available to the business firms. Mentioned technique is employed by lots of firms in their business. Wired retail can also use
cost accounting systems in its business and for logistics, marketing and finance department costing can be done separately.
Reporting of same can be done time to time which will help business firm in analyzing cost of its business operations. Apart
from this, values of fixed, variable and semi variable expenses is computed and reporting of same is done which help
managers in identifying that at what rate variable expenses are increasing in the business. In case growth rate is high then
steps are taken on time to control cost in the business. Job costing system: Job costing system is one under which for each product line individually costing is done separately. In
the business there may be multiple products that firm is producing in its business. In case of Wired retail for each product
line cost can be computed separately and by doing so cost for overall business can be calculated in easy and effective
manner. For each product separately costing is done in order to identify trend in which expenses are incurred in the business
(Abrahamsson, Englund and Gerdin, 2011). It can be said that there is huge importance of job costing for the business firms.
This is because closer eye is kept on rate at which expenses are incurred in the business. Managers come to know about
product line in which at fast rate by higher amount expenses are made in the business. They also get an information about
product line where there is strict need to control expenses in order to prevent negative variance. It can be said that there is
huge importance of job costing system for the business firm. Wired restaurant can also use above mentioned costing system
in its business (Cokins, 2013). This is because under this it can do costing separately for each edible item and can identify
which product cost is very costly in the business and accordingly sales price of product is determined. Process costing system: Process costing is quite popular method of costing for the business firms. Under this method, cost of
product is computed by taking in to account process by which product is produced in the business. In this method each and
every component costing is done individually and then same is added to calculate cost of the product. Thus, it can be said
that there is very high significance of process costing for the firms. Production related firms usually use this approach for

costing of their products. This is because under this for each stage of production costing is done separately and manager
comes to know about specific stage of manufacturing where cost of product is high. Managers by taking steps like process re
engineering can evaluate entire production process of specific stage and by doing so cost can be reduced in the business and
wastage can be eliminated. Thus, it is one of the important stages of production and it is very important to make use of
mentioned accounting system in the business.
 Throughput accounting system: It is the one of the accounting system which is totally different from other systems. Few
years earlier this costing system was developed by Israeli businessman and from that times period this accounting system
become more popular among business firms (Gond and et.al., 2012). It can be said that this accounting system have due
importance for the firms. This accounting system mainly main aim is to reduce waste in the business and by doing so main
attempt is made to control cost in the business. Thus, it can be said that this accounting system has significant importance for
the business firms and must be widely used by them in their business. Reduction in wastage is the one of the important
feature of this method that makes it most popular among firms. Thus, it can be said that this accounting system have due
importance for the firms.
P2 Different method use for management accounting reporting
From: Budgeting officer
To General manager of White elephant restaurant
Subject: Management accounting reporting
Reporting is the one of the most important technique that is used by most of business firms. Reporting may be related to

anything which may be cost or anything in the business. Varied methods that can be used for management accounting reporting are
given below. Job cost report: Job cost report is the one of the important method of costing and under this for each product line separately
costing is done. Managers always like to know about way in which cost is moving across different product lines so that
actions can be taken on time in case it is identified that cost is increasing rapidly in specific product line. Job cost report is
prepared by most of business firms so that standards that are determined in the budget can be meet up on time. Hence,
through this reporting managers easily identify point where they need to take action. On right time steps are taken to control
expenses in the business (Dosch and Wilson, 2010). There are many other positive points of job cost report for the firms. It
is the reason due to which most of business firms periodically prepare job cost report. It is noted that mangers specially
demand job cost report when new product is launched in the market or any new product order under specific specification is
received from any client. This reflects that there is huge importance of job cost report for the business firms. Budget report: It is another reporting approach that is quite popular among people. In this method results of different sort of
budgets are reported. In report standards in respect to different expenses are clearly mentioned and actual values are
mentioned in front. By doing so performance is measured and it is determined whether firm is performing better or worst in
specific time period. It can be assumed that budget report have due significance for the firm because it can be prepared for
each and every month and on basis of comparison it can be identified that in which month for specific variable budget was in
surplus or in deficit. There are different sort of budget that can be prepared by the business firms like increment budget and
fixed budget etc. All these budgets have their own benefits and limitations. Main importance of budget report is that it help
firm in making best use of its resources in the business. It is usually observed in the business that funds are limitedly
available in the business and it is very important to make best use of funds that are available in the business. In this regard it
is necessary do close monitoring of expenses in the business so that less cash used in business and it can be used in best
manner. All these things are possible to do if budget report is prepared in the business (Libby and Lindsay, 2010). This is the

reason due to which at end of each month budget report is prepared in the business.
 Sales and profit report: Sales and profit report is very important in the business. There is huge importance of sales and profit
report in business because it helps managers in tracking direction in which sales and profit are moving. Interesting fact is
that it is not necessary that always if sales are increasing then profit will also elevate. This is because many times heavy
amount of indirect expenses are made in the business. Due to this reason even sales increased in the business profit amount
decline in business. This reflects that there is importance of both sales and profit report in the business. Under sales and
profit report per month sales and profit trends are revealed and apart from this classification of sales is done which reflect
sales that is made through different product lines. Thus, this report helps mangers in identifying those product lines which
are very high or moderately profitable in nature.
P3 Calculation of cost using appropriate methods
Marginal costing

Particulars Details Details
Sales revenue 600*35 21000
Direct material 700*6 4200
Direct labour 700*5 3500
variable production overheads 700*2 1400 9100
Less: Closing stock
Direct material 100*6 600
Direct labour 100*5 500
variable production overheads 100*2 200 1300
Variable expenses 7800
Per unit contribution 13200
less: variable sales overheads 600*1 600
Less: Fixed expense
Production overheads 2000
Fixed administrative cost 700
Fixed selling cost 600 3300
Net profit 9300
Amount in(£)
Absorption costing:

Particulars Details Details
Sales revenue 600*35 21000
Direct material 700*6 4200
Direct labour 700*5 3500
variable production overheads 700*2 1400
Variable sales overheads 700*3 2100 11200
Less: Closing stock
Direct material 100*6 600
Direct labour 100*5 500
variable production overheads 100*2 200
Variable sales overheads 100*3 300 1600
lees: Absorption of fixed overheads 100
Cost of production 9500
Per unit contribution 11500
Less: Fixed expense
Fixed administrative cost 700
Fixed selling cost 600
less: variable sales overheads 600*1 600 1900
Net profit 9600
Amount in(£)
There are number of ways of computing profit in the business and it can be observed that firms according to suitability select any
specific method of computing profit in the business. Usually, in cost accounting there are two methods namely absorption and
marginal costing that are used in the business for computing profitability in the business. There is big difference between both costing
methods and one of them is consideration of expenses in the business. It can be observed that in marginal costing method only
variable expenses are taken in to account but in case of absorption cost both fixed and variable expenses are taken in to account. On
this ground it can be said that there is big difference between both costing methods. It can be observed that in marginal costing there is
high amount of profit which is 9600 but in case of absorption costing profit of only 9300 is earned. It can be said that in case of
marginal costing method higher amount of profit is earned relative to marginal costing method. This happened because in marginal
costing method main focus is only on variable expenses and fixed expenditures are not taken in to account.

On other hand, in case of absorption costing method both fixed and variable expenses are taken in to account. This is the
reason due to which low amount of profit is observed in case of absorption costing method. There are number of benefits of using
marginal and absorption costing method in the business because each of these methods evaluates firm profitability from different
angles. It is right approach to only select variable expenses in calculation. This is because fixed expenses are not made in the business
each and every year. Thus, from this point of view inclusion of fixed expenses in calculation process cannot be justified. On other
hand, in absorption costing method both expenses are taken in to account. It can be said that this approach reflect overall net profit
after considering all sort of expenses in the business. Thus, accurate amount of profit is computed by using absorption costing method
in business. It can be said that there is significance of both methods and it depend on managers that which of these they find more
suitable. Management of the firms can use both approaches at workplace. There are number of advantage of using both approaches in
the business. This is because through marginal costing method business firm identify that if fixed expenses will not be taken in to
account then what will be profit amount. On other hand, if absorption cost method is used then in that case managers come to know
about net and accurate amount of profit that is earned in the business. Thus, it is very important for the firms to make use of both
methods in the business (Gates, Nicolas and Walker, 2012). Practically, it is observed that firms use specific approach for profit
computation so that better decisions can be made at the workplace. Many times when both approaches are used managers get confused
that which of approach they must use in their business to make decision. In order to solve this problem often business firms make use
of specific method in their business. It depend on managers discretion that which of method they prefer to make use to compute profit
in the business. Managers must evaluate their business and according to requirement must select any specific method to compute
profitability in the business. Both approaches have their own merits and it depend on the company that which method it think is
appropriate for business.
P4 Advantages and disadvantages of different planning tools used for business control
Budgetary control refers to the process under which in order to control expenses in the business different tools and methods are
used. Budgetary control is one of the most important techniques that are used in the business because by using same strict control is