Report on Management Accounting Systems, Budgeting and Cost Analysis

This report provides a comprehensive overview of management accounting systems, distinguishing it from financial accounting and highlighting its importance as a decision-making tool. It explores cost accounting systems (actual, normal, and standard costing) and inventory management systems, emphasizing their role in cost control and profitability analysis. Different types of management accounting reports, such as budget, inventory, and cost reports, are examined, stressing the importance of understandable information presentation. The report includes a comparative analysis of marginal and absorption costing methods, along with a reconciliation statement. Furthermore, it discusses various types of budgets (operating, financial, and master budgets), their advantages and disadvantages, and the budgeting process. The analysis extends to the use of planning tools in forecasting and addressing financial problems, demonstrating how management accounting contributes to sustainable success. Desklib provides access to similar solved assignments and resources for students.

Management Accounting
1

Contents
Introduction.................................................................................................................................................4
TASK 1.......................................................................................................................................................5
Introduction.............................................................................................................................................5
(A) I. Distinguishing management accounting from financial accounting..........................................6
II..............................................................................................................................................................7
III. Cost Accounting Systems..................................................................................................................8
IV. Inventory Management Systems........................................................................................................9
V. Job Costing Systems.........................................................................................................................10
(B) I. Different types of management accounting reports................................................................11
II. Why it is important to present the information in the manner that it is understandable.....................12
M1) Benefits of management accounting systems in context of Tech (UK) Limited............................13
D1) How management accounting system and management accounting reporting is integrated within
the organization.....................................................................................................................................14
Conclusion.............................................................................................................................................15
TASK 2 (P3, M2, D2)...............................................................................................................................16
TASK 3.....................................................................................................................................................18
Introduction...........................................................................................................................................18
(A) Different kinds of budget and their advantages and disadvantages............................................19
(B) Process for preparing budget.....................................................................................................21
2

(C) Importance of Budget as planning and controlling process........................................................22
M3) Analyze use of different planning tools and their application for planning and forecasting budget.
...............................................................................................................................................................23
D3) Evaluate how planning tool for accounting respond appropriately to solve financial problems to
lead to sustainable success.....................................................................................................................24
Conclusion.............................................................................................................................................25
TASK 4.....................................................................................................................................................26
M4) Analyze how in respond to financial problems, management accounting can lead organization to
sustainable success................................................................................................................................27
Conclusion.................................................................................................................................................28
References.................................................................................................................................................29
3

Introduction
This part of the report explains about the understanding of the management accounting systems
and with that the explanation about the use of planning tools in management accounting systems
are also highlighted. Financial accounting helps in tracking the financial transactions so that the
financial performance of the organization can be evaluated. Various types of the management
accounting systems are also depicted such as cost accounting systems and the inventory
management accounting systems. The management reports are prepared and presented in the
understandable manner so that the managers can easily analyze those reports for evaluating
performance. The income statements of the Tech (UK) Limited are prepared by using absorption
and the marginal costing methods so as to analyze the cost. The last part of the report shows that
how management accounting and planning tools helps in solving the financial problems which in
turn leads to attainment of sustainability.
4

TASK 1
Introduction
This part shows that how important management accounting systems are to the managers of Tech
(UK) Limited for taking the strategic decisions. With this it also explains the types of
management reports which are prepared by the managers for analyzing the financial statements.
5

(A) I. Distinguishing management accounting from financial accounting.
Management accounting is the process which provides the guidelines to managers for taking
strategic decisions while the financial accounting is the process for preparing the financial
statements so that the performance can evaluated.
Basis Financial Accounting Management Accounting
Audit In financial accounting the
audit is necessary and is done
by the chartered accountants
hired externally (Richards,
2017).
In management accounting
auditing is not necessary.
GAAP It follows the rules as well as
the regulations of GAAP.
It does not include the rules
and regulations of GAAP
(Richards, 2017).
Time It deals with the past activities
(Kovaleva, et. al., 2016).
The management accounting
deals with the decisions which
are related to the future.
Timeline versus precision It highlights precision. It emphasis on the timelines.
6

II. Importance of management accounting information as a decision making tool.
Management accounting is the crucial part for decision making as it is the factor which helps in
identifying the dynamic changes in the environment (Caldwell, 2018). The importance of
management accounting is:
 It helps in analyzing the reasons that why the deviations are occurring also provides the
measures to reduce those deviations (Caldwell, 2018).
 It also helps in comparing the actual data with the planned or expected information.
 It helps in identifying the key performance matrices for all the departments.
7

III. Cost Accounting Systems
The cost accounting system is the system which will be used by the Tech (UK) Limited so as to
estimate the cost of the products for profitability analysis and cost control. It involves three types
of costing actual costing, normal costing and standard costing (Caldwell, 2018).
Actual costing: When the products are recorded according to the actual material, actual labor and
actual overhead then it is called actual costing.
Normal costing: It is the predetermined annual overhead rate which is used to assign
manufacturing overhead to products (Caldwell, 2018).
Standard Costing: It is the process of substituting the expected cost for an actual cost in the
accounting period and the record all the variances between the actual and the expected cost
(Richards, 2017).
8

IV. Inventory Management Systems
Inventory management system is the tool used for tracking the inventory levels, orders and sale
of inventories (Marder, 2017). It will be used in the Tech (UK) Limited to prepare bill of
material, work order and other documents related to production. The main feature of inventory
management system is that it helps in identifying the product easily by scanning the barcodes. Its
main purpose it to avoid the wastage of inventory as the over and under inventory both will
impact the overall profitability of the organization (Marder, 2017).
9

V. Job Costing Systems
Job costing is the method of recording the cost for a manufacturing cost rather than the
processes. With this a project manager can keep the proper track on the cost of each job and the
manufacturing data which is useful for the business operations (Caldwell, 2018). It is used in the
industries which are producing different products from each other.
10

(B) I. Different types of management accounting reports
There are various types of management accounting reports which are prepared by the Tech (UK)
Limited but some reports which are of most importance are:
Image: Types of Reports
Source: By Author, 2018
Budget Reports: These reports are prepared by the managers of the organization so that the
proper funds can be allocated to each department and all the employees of the organization
should work according to that budget (De Toni, et. al., 2017). These are prepared by forecasting
the future.
Inventory Reports: These reports are prepared to analyze the movement of inventory in the
organization. It also helps in valuation of the inventory. It also includes the amount which has to
be used for the inventory purpose during the accounting period (De Toni, et. al., 2017).
Cost Reports: These reports help in tracking the cost. It helps in analyzing the areas where the
cost is more and where it is less and then allocated the cost accordingly so that the overall profit
of the organization can be increased (Caldwell, 2018).
11
BudgetReportsInventoryReportsCostReports

II. Why it is important to present the information in the manner that it is understandable.
The information must be presented in the report in the understandable manner as it helps the top
level management for taking the appropriate decisions (De Toni, et. al., 2017). If the information
is not presented in the proper manner so all the results of the organizations which are taken from
that information will get impacted (De Toni, et. al., 2017). The proper disclosure of the
information will enable the investors to take the decisions related to investment and which will
also motivate the internal employees of the organization.
12