Management Accounting Report: Systems, Techniques, and Challenges

This report provides a comprehensive analysis of management accounting practices within the context of Cream Ltd, a medium-sized UK company specializing in desserts. The report begins by defining management accounting and its essential systems, including cost accounting, inventory m...Read More

Management
Accounting

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Description of management accounting and its systems along with their essential
requirements................................................................................................................................1
P2 List of method which are used by companies to report information of management
accounting....................................................................................................................................2
M1 Application and benefits of management accounting systems used by companies..............4
D1 Analysis of the way in which systems and reporting of management accounting is
integrated with organisational processes.....................................................................................4
TASK 2............................................................................................................................................5
P3 Use of different costing techniques to determine cost and profits.........................................5
M2 Application of range of management accounting techniques...............................................7
D2 Interpretation of data..............................................................................................................7
TASK 3............................................................................................................................................7
P4 Analysis of different types of planning tools used in budgetary control................................7
M3 Use of different planning tools and their application to prepare budget and forecasts.........8
TASK 4............................................................................................................................................9
P5 Use of management accounting in responding financial issues.............................................9
M4 Analysis of techniques which are used by companies to deal with financial challenges....11
D3 Use of planning tools to deal with financial challenges......................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is an approach which is used by managers to keep track record
of internal reports of the business. It guides employees and other internal stakeholders to make
sure that their entity is performing good or not in the market. For all the companies it is very
important to make sure that they are able to meet the predetermined goals or not and for this
purpose they are required to be aware of the concept of management accounting (Alyousef and
Mickan, 2016). While planning to enhance or improve performance it facilitates managers to
formulate strategic decisions for future. This assignment is based upon Cream Ltd which is a
medium sized company of UK and offer doughnuts, waffles and ice-creams to the customers.
Present report is focused with different topics which are management accounting systems, its
report, accounting techniques to calculate cost, planning tools for budgetary control etc. Along
with this, comparison of organisations on the basis of use of management accounting techniques
to deal with finance related problems is also covered in this project.
TASK 1
P1 Description of management accounting and its systems along with their essential
requirements
Management accounting is a technique which is mainly used for the purpose of recording
information of organisational activities that are performed for the purpose of meeting long-term
business goals. It is very important for all the companies to make sure that they are focused with
it so that effective strategies for future could be formulated. Managers of Creams Ltd are also
using it as they want to make sure that business is executed in systematic manner. For this
purpose, various types of systems are used by them. Description of them along with essential
requirements of them:
Cost accounting system: It is a management accounting system which is used by
companies for the purpose of recording information of cost which have taken place during the
accounting year. With the help of it, managers in Creams Ltd get aware of the expenses which
are arising while carrying out operations so it is used by them. The essential requirement of it for
the entity is that it guides the management to analyse costs and arrange funds accordingly to
meet them (Aouni, McGillis and Abdulkarim, 2017).
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Inventory management system: All the companies which are making any type of
product or item use it so that details regarding the stock which is used to carry out operations
could be kept. In Creams Ltd. it is utilised by the management to make sure that the enterprise is
able to meet requirements of all the customers regarding doughnuts, waffles and ice creams by
managing the items that are required to make them. There are three types of it which could be
used by entities according to their requirements. All of them are as follows:
 LIFO: When this inventory management system is used by enterprises then they make
sure that recently bought items are used to make products.
 FIFO: If it is used by companies then already purchased goods are used to make the
final product.
 AVCO: In this system of inventory management the goods are used for business on the
basis of their average cost.
From all the above described systems of inventory management first in first out method is
used in Creams Ltd. Its essential requirement for the company is to use fresh and good quality
goods to make all the items ordered by the customers (Arunruangsirilert and Chonglerttham,
2017).
Price optimisation system: All the organisations which are focused with meeting the
long-term business goals by attracting large number of customers use it because it helps them to
set appropriate price for all the products that are sold by them. In order to determine the right
price for all the items that are sold by Creams Ltd to its customers this system is used by the
entity. It is essentially required for the organisation because it can help to decide best suitable
price for all the items that can help to meet expectations of customers.
Job order costing system: When entities want to keep track record of all the activities
that are performed by them then it is used as it is highly focused with performing all the jobs
according to specifications of customers. In Creams Ltd. it is used by management so that the
managers can record the requirements of clients separately and try to meet them all. It is very
important for the enterprise to use it as it facilitates to meet the demand of targeted audience
(Bedford and Speklé, 2018).
P2 List of method which are used by companies to report information of management accounting
When an organisation records information of all its activities in different reports then it is
known as management accounting reporting. While formulating strategies for future it is very
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important to analyse all the internal report so that best options for performing operational
activities in future could be determined and selected. There are various methods or report that are
used for management accounting reporting in Creams Ltd. These are used by the managers to
make sure that they are having detailed and accurate information of all the activities of
organisation. Discussion of all of them is as follows:
Account receivable aging report: Some of the companies which are offering credit
facilities to the customers generate their report to keep information about them. Managers of
Creams Ltd use it to record the same details and make sure that they get all the payments from
the credit clients on time. It is beneficial for the entity because with the help of it, the owed
amount which is not yet paid by the debtors could be determined and they could be asked to
make the payment as soon as possible (Black, 2017).
Budget report: It can be defined as a report which is focused with recording information
of funds that are required to be allocated to different departments of the company so that they
can meet the obligations that are set by management for them. Managers of Creams Ltd. also
formulate it in order to make sure that appropriate amount is assigned to all the functional units
which are working for benefit of the organisation. It is very beneficial for the entity because with
the help of it all the pre-planned activities are carried out smoothly (Charifzadeh and Taschner,
2017).
Performance report: It is very important for all the business entities to keep track record
of performance of business so that timely modifications could be made in the strategies. This
type of information is recorded in performance report and it also keep the details of presentation
of employees. Creams Ltd. is creating it to make sure that it performs well in the market and the
staff members who are contributing in its growth get benefits for their contribution. The main
advantage of using is that it helps in motivating employees by providing them incentives
according to tehri performance. Apart from this it also helps to make efforts to improve the
position of company by making changes in the strategies (Dávila, 2019).
Inventory management report: It is mainly formulated by such companies that are
selling some tangible items to the customers so that information of goods could be kept in
records. Creams Ltd. use it to analyse that it is able to keep the sufficient items that are required
to meet the expectations or orders of customers regarding Doughnuts, Waffles and Ice creams. It
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is advantageous for the enterprise because with the help of it, possibility of lack of goods to meet
expectation of customers could be ignored.
M1 Application and benefits of management accounting systems used by companies
There are various types of management accounting systems which are used by Creams Ltd.
Application and benefit of all of them are as follows:
 Inventory management system: In Creams Ltd it is used by the managers as it helps
them to make sure that they use inventory properly for meeting requirements of
customers.
 Cost accounting system: It is applied within Creams Ltd because with the help of it the
managers can determine the costs of all the activities and make arrangements of funds to
meet them.
 Job order costing system: This management accounting system benefits Creams Ltd by
analyse the cost of all the activities that are performed according to specifications of
customers therefore it is used within the entity.
 Price optimisation system: Managers of Creams Ltd are using this system as it helps
them to analyse the best price for its products that can help to meet expectations of
customers.
D1 Analysis of the way in which systems and reporting of management accounting is integrated
with organisational processes
Creams Ltd. is a medium sized entity of United Kingdom which is dealing in different
types of deserts such as doughnuts, waffles and ice creams. In order to perform the operations
properly the entity uses different management accounting systems such as cost accounting,
inventory management, job order costing and price optimisation. On the other hand, different
report such as performance, account receivable, budget and inventory management are also
generated by the managers. All of them are integrated with the organisational processes. For
example, account receivable helps to formulate or tighten the credit policies by analysing the
outstanding amount by the defaulters. Price optimisation system is used to formulate pricing
policies to meet the expectations of customers.
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TASK 2
P3 Use of different costing techniques to determine cost and profits
Marginal costing: It is also known as variable costing as only variable expenses are used
in it to determine costs for the company (Manyaeva, Piskunov and Fomin, 2016). Creams Ltd
uses it to determine the marginal cost for all the activities.
Absorption costing: This technique is used by managers of Creams Ltd to analyse that
all the expenses that have taken place could be recovered from the sale of units or not.
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Reconciliation statement:
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M2 Application of range of management accounting techniques
Creams Ltd. can apply various types of management accounting techniques to formulate
the income statements and analyse profits along with costs. Description of some of the is as
follows:
Standard costing: This technique is used by companies to analyse that they are able to
meet the predetermined standards or not. In Creams Ltd. it could be used to assess that the
standards that are set by the entity for meeting long term business goals are met or not. Apart
from this, it can also be used to analyse variance between the budgeted and actual figures.
Historical costing: This costing technique states that all the entities should evaluate the
assets on their actual cost rather than the market price as it can help to analyse their accurate
value. By using it Creams Ltd will also be able to record all the assets in their actual value in the
books.
D2 Interpretation of data
From the income statement of marginal costing it has been determined that when it will be
used by the company then the total profits for January will be 50000 and for February t will
result in loss of 25000. On the other hand, absorption costing will create profits of 50000 for
January and for February the losses will be 5000.
TASK 3
P4 Analysis of different types of planning tools used in budgetary control
Budget is an essential element which is required to be focused by all the organisations to
maintain the performance of company. In order to make sure that all the activities are performed
properly it is very important for the top-level managers to make sure that they are managing
budgets and assigning appropriate funds to different divisions of company. While planning to
reduce overspending of funds budgetary control is focused (Mueller and Trost, 2017). In Creams
Ltd different types of planning tools are used by the management which are discussed below:
Flexible budget: It is a budget in which modifications could be made according to
changes in the money spent on different activities. It is used by managers of Creams Ltd. to be
updated about the latest expenses that are made by the entity.
 Advantages: It is very sophisticated and useful as compared to other budgets as it
provides accurate information about position of the company. It is also beneficial to
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determine the actual sales level after modifications so that estimation of future sales
could be performed.
 Disadvantages: The time required to prepare is very high as continuous modifications
made in it according to the changes in expenses and sales level. Apart from this, it is very
confusing as it has multiple figures to reflect the organisational data.
Zero based budget: It is mainly used by companies to analyse the accurate transactions
and other expenses that are made in a specific year as it starts with a zero balance. In Cream Ltd.
managers are using it to make sure that they estimate the future expenses properly or not by
analysing the records of this budget (Nielsen, 2018).
 Advantages: It helps to allocate the funds effectively to all the divisions according to
requirements. It also helps to detect the inflated budget so that possibility of negative
impact of them upon business could be reduced.
 Disadvantages: When the entity is not able to estimate the future income then it will be
very difficult to make this budget. In order to prepare it proper experience is required for
which the entities are required to hire a skilled manager which costs very high.
Activity-based budget: This type of budget is focused with the recording of information
of all the activities which are resulting in costs for the entity (Phan, Baird and Su, 2017).
Mangers of Creams Ltd. are using it to determine cost of different activities that are performed
by them so that appropriate funds could be allocated to them according to their requirements.
 Advantages: With the help of it, all the activities which are unnecessary could eliminated
so that cost of business could be saved. It also facilitates to gain competitive advantage in
the market.
 Disadvantages: The major drawback of activity-based budget is that it is very costly
method to implement and very expensive as compare to the traditional method of
preparing budgets. On the other hand, technical details are also required to maintain the
costs in this method.
M3 Use of different planning tools and their application to prepare budget and forecasts
Managers of Creams Ltd are using different types of planning tools for the purpose of
maintaining budgets and prepare them. These are flexible, zero based and activity-based budget.
All of them are used in budgetary control so that non-essential exploitation of budget could be
controlled. All these planning tools help to analyse the requirements of the business and then
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allocate funds accordingly. With the help of them long term business goals could be met which
help to grow the business. For example, activity-based budget help to analyse the requirement of
different activities and then the managers can assign monetary resources of them so that all the
predetermined objectives of the company could be accomplished successfully.
TASK 4
P5 Use of management accounting in responding financial issues
When an organisation is not having sufficient funds to meet obligations of business then
it results in financial challenges. It is very important for all the companies to deal with all of
them properly so that possibility of their negative impact upon the business could be reduced.
Some specific finance related problems that are faced by Creams Ltd. are as follows:
Improper money management system: This problem takes place when accounting
professional of an organisation are not able to manage the funds properly by using right
principles, rules and regulations of accounting. In Creams Ltd this problem is creating financial
issues because of it the managers are not aware of actual funds that are available for future
activities (Sedevich-Fons, L., 2018).
Insufficient funds for operations because of delayed payments from debtors: When
an entity is not able to receive the owed amount from the clients on time then it may also result
in financial issues which will affect the execution of operations. Some of the customers of
Creams Ltd. are not able to make payments on time and due to this the entity is facing the
challenges related to availability of finance.
In order to identify and respond to all the above described financial problems the
managers of Creams Ltd are using following techniques:
Benchmarking: This technique is mainly used for comparison of an entity with another
one so that the elements that are resulting in business issues could be identified properly. In
Creams Ltd it is used by the managers for the purpose of identifying the problem of delayed
payments from the debtors so that sufficient funds for operations could be arranged. It guides the
managers to determine the major errors in the credit policies by comparing it with a competitor
and the make changes in it (Shields and Shelleman, 2016).
Key performance indicator: It is also a technique which is used to identify the issues
for business. With the help of it, errors in the management of business could be determined by
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evaluating success or failure of business projects. There are two main types of it which are as
follows:
 Financial KPI: It is highly focused with the identification of financial problems that are
affecting business in negative manner.
 Non-Financial KPI: This KPI is used by companies to analyse mistakes in non-financial
activities such as supply chain, distribution management etc.
From both of KPIs the managers in Creams Ltd are using financial KPI to identify the
problem of improper money management as it will help them to analyse it properly and analyse
the issues which are making it weaker (Sugahara, Daidj and Ushio, 2017).
Financial governance: This technique is mainly focused with principles, rules and
regulations that should be focused by the organisations to carry out operational smoothly. While
planning to deal with the financial challenges that are faced by the organisation. With the help of
it, they try to formulate all the accounts according to specific rules and regulations which will
help to respond the problems properly.
Comparison:
Creams Ltd. Madame Waffle
The managers of the company are using cost
accounting system of management accounting
so that they can deal with the problem of
improper money management. With the help of
it they try to manage the costs properly and
respond to the business challenge (Tucker and
Lawson, 2016).
Managers within the entity are using job order
costing to deal with the problem of lack of
funds for operations as it guides them to
analyse requirements of all the activities and
arrange funding for the same.
In order to deal with the problem of late
payments from clients the entity is using price
optimisation system so that appropriate price
for all the products could be set and the
willingness of them for asking credit could be
reduced.
The enterprise is dealing with the problem of
weak management of inventory and to deal
with it the managers are using inventory
management system which helps to manage
stock properly (Yigitbasioglu, 2016).
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M4 Analysis of techniques which are used by companies to deal with financial challenges
In Creams Ltd different types of management accounting techniques are used by the
managers. These are benchmarking, KPI and financial governance. All of them are utilised for
the purpose of dealing with financial problems such as delayed payments from customers and
improper money management system. The managers are using them to identify and respond all
the issues properly. KPI helps to analyse errors in financial activities and determine causes of it.
Benchmarking is used to compare the organisation’s policies with competitor so that appropriate
changes could be made.
D3 Use of planning tools to deal with financial challenges
There are various types of planning tools that are used by Creams Ltd for the purpose of
forecasting and preparing budgets for all the operational activities of the company. These are
flexible, zero based and activity-based budget. With the help of them, the managers get aware of
requirements of business and then try to allocate funds according to them. For example, activity-
based budget helps to analyse requirements of all the activities which help the managers to
prepare budget for them. Apart from this, zero based budget helps to forecast future expenses of
business. These are also beneficial to deal with financial issues such as lack of funds for
operations and improper money management because all these planning tools help to keep
sufficient funds so that financial challenges could be responded properly.
CONCLUSION
The above report on management accounting concludes that management accounting is
an approach which is used by most of the companies to analyse the internal performance and
position of business in the market. Different types of systems and reports of it are used to keep
the detailed information of business so that effective strategies for future could eb formulated.
There are various techniques such as marginal, absorption, standard etc. which are used by the
organisations to analyse cost and profit for the year. Apart from this, various planning tools such
as flexible, zero based and activity-based budgets are used to forecast and analyse future
requirements of funds for business. There are various techniques such as bench marking, KPI
and financial governance that are used to identify and resolve financial challenges. On the other
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hand, planning tools are also used to deal with financial challenges because all of them can help
to analyse them in advance can keep funds to deal with them when they arise.
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REFERENCES
Books and Journals:
Alyousef, H. S. and Mickan, P., 2016. Literacy and numeracy practices in postgraduate
management accounting. In Multimodality in Higher Education (pp. 216-240). Brill.
Aouni, B., McGillis, S. and Abdulkarim, M. E., 2017. Goal programming model for management
accounting and auditing: a new typology. Annals of Operations Research. 251(1-2).
pp.41-54.
Arunruangsirilert, T. and Chonglerttham, S., 2017. Effect of corporate governance characteristics
on strategic management accounting in Thailand. Asian Review of Accounting.
Bedford, D. S. and Speklé, R. F., 2018. Constructs in survey-based management accounting and
control research: An inventory from 1996 to 2015. Journal of Management Accounting
Research. 30(2). pp.269-322.
Black, W. H., 2017. Book review: History of Management Accounting in Japan: Institutional &
Cultural Significance of Accounting.
Charifzadeh, M. and Taschner, A., 2017. Management accounting and control: tools and
concepts in a Central European context. John Wiley & Sons.
Dávila, A., 2019. Emerging Themes in Management Accounting and Control Research. Revista
de Contabilidad-Spanish Accounting Review. 22(1). pp.1-5.
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costs. International Review of Management and Marketing. 6. p.S5.
Mueller, D. and Trost, R. eds., 2017. Game Theory in Management Accounting: Implementing
Incentives and Fairness. Springer.
Nielsen, S., 2018. Reflections on the applicability of business analytics for management
accounting–and future perspectives for the accountant. Journal of Accounting &
Organizational Change.
Phan, T. N., Baird, K. and Su, S., 2017. The use and effectiveness of environmental management
accounting. Australasian Journal of Environmental Management. 24(4). pp.355-374.
Sedevich-Fons, L., 2018. Linking strategic management accounting and quality management
systems. Business Process Management Journal.
Shields, J. and Shelleman, J. M., 2016. Management accounting systems in micro-
SMEs. Journal of Applied Management and Entrepreneurship. 21(1). p.19.
Sugahara, S., Daidj, N. and Ushio, S., 2017. Value Creation in Management Accounting and
Strategic Management: An Integrated Approach. John Wiley & Sons.
Tucker, B. P. and Lawson, R., 2016. Moving academic management accounting research closer
to practice: A view from US and Australian professional accounting bodies. Advances
in Management Accounting. 27. pp.167-206.
Yigitbasioglu, O., 2016. Firms’ information system characteristics and management accounting
adaptability. International Journal of Accounting and Information Management.
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