Management Accounting and Its Applications: ABC Ltd Report

This report provides an in-depth analysis of management accounting and its various applications within ABC Ltd, a manufacturing firm. It begins by defining management accounting and its essential requirements, focusing on systems such as cost accounting, inventory management, job costing, and price optimization. The report then explores different management accounting reporting methods, including cost reports, budget reports, and performance reports, and evaluates their benefits. Furthermore, it assesses the integration of management accounting systems within the enterprise and their role in performance evaluation, decision-making, and cost control. The report concludes by emphasizing the importance of utilizing these systems to ensure quality and improvement within the work environment for enhanced decision-making and achieving business success.

Management Accounting And
Its Applications

Table of Contents
INTRODUCTION...........................................................................................................................1
Task LO1.........................................................................................................................................1
Explaining the meaning of management accounting and essential requirements of its system..1
Explaining various methods that are used for the management accounting reporting................2
Evaluating the benefits and application of the management accounting systems in the
organization. ...............................................................................................................................2
Critically evaluating the integration of the management accounting system and its reporting
within the enterprise....................................................................................................................4
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Management accounting is the process that identifies, measures, analyze, accumulate the
communication and the preparation of the financial information. It is used by the management to
evaluate, control and plan the resources in the enterprise. The present study is based on ABC Ltd
company, a medium sized firm which deals in manufacturing business. Furthermore, the report
explains essential requirement of the systems and reporting of the management accounting.
Task LO1.
Explaining the meaning of management accounting and essential requirements of its system.
Management accounting is the process of analyzing and preparing the management reports and
the accounts that facilitate accurate financial information relating to the operations and the cost
of the business. It enables the managers in making the decisions and in managing the operations
of the ABC Ltd. Effectively and efficiently (Maas, Schaltegger and Crutzen, 2016). There are
several systems of management accounting which plays a crucial role in assessing the cost, price
and inventory of the organization.
Cost accounting system- It is the system that is used by ABC Ltd. For estimating the
product cost for analyzing the profitability, cost control and the valuation of the inventory. It is
critical for the managers of the firm to evaluate the cost for making the operations profitable.
Inventory management system- Under this system the supervision of the stock items and
the non -capitalized asset is made by the managers of the firm. It is crucial as it helps the
enterprise in managing the flowing of the goods from the manufacturers to the warehouses and
by these facilities to the point of scale.
Job costing system- It is the process of ascertaining the information regarding the costs
attached with the particular production or the service job (Quattrone, 2016). This system is
essentially required for submitting the information of the cost to the customers under the contract
where reimbursement of the cost takes place.
Price optimization system- It is the system where the mathematical analysis is made by
the ABC Ltd. in order to determine the response of the customers at different price levels for its
services and the products through various channels.
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Explaining various methods that are used for the management accounting reporting.
ABC Ltd make use of different management accounting reports for assessing the information in
relation to the budgets, cost reports and performance of its product.
Cost report – Managerial accounting helps in determining the price of the items. Price of
the product, labor, overhead and considers other prices as well. Entire cost of the enterprise are
divided by the total items (Messner, 2016). In this report, all the information regarding the price
and the cost are involved which enables the managers in measuring the cost of selling versus the
price of the goods. It also assists the managers of the ABC Ltd in planning and managing the
income limits.
Budget report- This report relates with the planning of the spending plans of the
organization. Budgets are prepared by using the previous year financial data and assessing it for
future projections. The spending plans of the enterprise includes all the sources of the expenses
and the incomes of the ABC Ltd. An entity aims for meeting its objectives and the goals as
budgeted in the budget report. By this report managers search for the new suppliers on regular
basis for getting sufficient raw material in order meet the smooth flow of the working capital
within the workplace (Dávila, 2019). They can also discover several approaches for expanding
the deals with diminishing cost so that higher profitability can be gained.
Performance report- This report of management accounting addresses the result of the
activity or the performance of the task by an individual. It helps the managers in comparing the
actual outcomes to the budgeted outcomes so that variance analysis can be efficiently made. If
any deviation or adverse variance resulted then the managers of the ABC Ltd will take corrective
action or measures to enhance the operational performance of the entity.
Evaluating the benefits and application of the management accounting systems in the
organization.
Cost accounting system
Advantages Disadvantages Application
Effective cost accounting
system leads to optimum use
of resources as it eliminates
the losses, inefficiencies and
It includes only the past
performances but management
of the entity need to take
decision for the future
This system is applied by the
ABC Ltd in fixing the price of
the product. Application of this
system helps the managers in
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waste by fixing the standard
for each and everything in the
ABC Ltd.
It facilitates improved and new
methods for the production
which leads to reduction in
cost.
(Nishimura, 2019). This
system does not provide for
future anticipations.
It incurs heavy expenditure as
installation of this system
needs maintenance of several
costing records.
choosing the best alternative
for achieving the success of
the entity.
Inventory management system
Advantages Disadvantages Application
Inventory management system
saves time and the cost by
keeping the proper records of
the inventory.
Efficiency in the operations of
the ABC Ltd increases through
this system as it provides the
well organization of the
warehouses and data security.
This system is considered as
the complex tool as it requires
highly skilled staff in
understanding this system
(Messner, 2016).
It is expensive because it
includes the hardware
expenses which are very
costly.
It is applied by the firm to
automate its business
efficiently. Without this
system it is difficult for the
ABC Ltd to maintain control
and to handle the wants of its
customers.
Job costing system
Advantages Disadvantages Application
Through this system the
enterprise can ascertain the
cost at any stage of job
completion.
Profits generated from each
job can be known.
No standardization is present
in the system which requires
close supervision.
Job costing is applied by the
ABC Ltd for tracking the cost
accumulated either by the job
or in batch.
Price optimization system
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Advantages Disadvantages Application
It helps in assessing the
demand of the customers for
the product so that price can be
fixed accordingly.
The main disadvantage of this
system is it prevent the poor
people as they get the things at
the price they need which
results in lower profits in the
business.
It is the strategy which is
applied by the firm in knowing
the competition level and the
overall demand of their
product in the market.
Critically evaluating the integration of the management accounting system and its reporting
within the enterprise.
Management accounting systems facilitate formulation of the management accounting reports
effectively. It provides for controlling, performance evaluation, decision making, costing etc. soi
that performance of the ABC Ltd can be enhanced and growing success could be achieved by the
firm in the future.
CONCLUSION
From the above report it is concluded that it is important for the ABC Ltd to utilize the
management accounting systems for ensuring the quality and the improvement aspects within the
work environment. Management accounting reporting is very essential in determining the
opportunities and in making best decisions by the managers.
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REFERENCES
Books and journals
Dávila, A., 2019. Emerging Themes in Management Accounting and Control Research. Revista
de Contabilidad-Spanish Accounting Review. 22(1). pp.1-5.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136.
pp.237-248.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice. Management Accounting Research. 31. pp.103-111.
Nishimura, A., 2019. Uncertainty and Management Accounting: Opportunity, Profit
Opportunity, and Profit. In Management, Uncertainty, and Accounting (pp. 73-95).
Palgrave Macmillan, Singapore.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
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