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
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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
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(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
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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.
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(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.
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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.
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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).
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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).
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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.
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(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).
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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.
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M1) Benefits of management accounting systems in context of Tech (UK) Limited
The advantages of the management accounting systems in Tech (UK) Limited are as follows:
o It helps in increasing the efficiency of the company by striving for better performance
through comparing and evaluating (De Toni, et. al., 2017).
o It enables the top level managers to take the strategic decisions for the organization for
the betterment of the organization (De Toni, et. al., 2017).
o The cost transparency will be maintained by ensuring that the actions are taken within the
planned budget.
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D1) How management accounting system and management accounting reporting is
integrated within the organization.
Both management accounting systems and management accounting reporting are integrated as
the management accounting helps in taking the strategic decisions for the organization but those
decisions are taken by the management reports of the Tech (UK) Limited (Kienzler and
Kowalkowski, 2017). The budgetary reports are prepared so that any action related to cost can be
taken within the prescribed cost. The management accounting helps in analyzing the areas for the
variances and then proper action is taken to remove or eliminate those differences (Kienzler and
Kowalkowski, 2017).
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Conclusion
It can be stated that management accounting reporting and management accounting systems both
are integrated within the organization. The various reports are prepared by the managers of the
organization so that the appropriate decisions can be taken.
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TASK 2 (P3, M2, D2)
Marginal Costing
Particulars Amount
(£)
Revenue (Sales) 52500
Less: Variable production Overheads 30000
Variable Selling Cost 7875
Add: Closing Stock 7500
Contribution 22125
Less: Selling cost (Fixed) 10000
Less: Production Cost (Fixed) 15000
Net Profit/Loss -2875
Absorption Costing
Particulars Amoun
t (£)
Revenue (Sales) 52500
Less: Cost of Sales
Opening Stock 0
Production Cost 40000
Add: Closing Stock 10000
Gross Profit 22500
Less: Fixed and variable selling expenses 17875
Net Profit/ Loss 4625
Reconciliation Statement
Particulars Amount
Marginal Costing Loss -2875
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Add: Closing Stock 7500
Absorption Costing Profit 4625
Absorption costing is costing which includes all the factors that the production involves that are
fixed as well as the variable factors (Kovaleva, et. al., 2016). During the September 2007 it can
be seen that the Tech (UK) Limited earned the profit amounted to be £4625 which can be said
that both the fixed as well as the variable factors involves the income statement of the absorption
costing (Caldwell, 2018).
Marginal costing is the variable costing which includes only the variable cost and ignores the
fixed cost during its analysis (Kienzler and Kowalkowski, 2017). The difference in the income
statement of the Tech (UK) Limited has occurred due to the presence of the variable cost. The
company incurred losses in September that amounted to be £2875 (Caldwell, 2018).
Then the reconciliation statement is prepared so as to match the balances which have been
occurred due to the closing stock (Kovaleva, et. al., 2016). For this analysis it can be seen that in
Tech (UK) Limited the accounts are reconciled that is the amount of the marginal costing has
matched with that of the absorption costing (Caldwell, 2018).
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TASK 3
Introduction
This part of the report explains the meaning of budget with that it also highlights various types of
budgets which can be used in the organization. It also gives the understanding of preparing
budget and the importance of budget as a tool for planning is also depicted.
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(A) Different kinds of budget and their advantages and disadvantages.
The budget is prepared by the top level managers in the organization so that the cost can be
controlled in order to increase the revenue (Omotayo, 2015). There are various types of budget
which are prepared.
Image: Types of Budget
Source: By Author, 2018
Operating Budget: These budgets help in analyzing and forecasting the projected expenses and
income over the specific time period (Kovaleva, et. al., 2016). Operating budgets are prepared on
monthly, weekly and quarterly basis.
Advantages
o These does not helps allocating money in the short run but also allocates money in long
run.
o It is flexible budget which can be changed according to the change in policies (Kovaleva,
et. al., 2016).
Disadvantages
o Time required for preparing the operating budget is more as the process for preparing the
budget is time consuming.
Financial Budgeting: This budget makes the strategy for managing the assets, income and cash
flows of the company. These budgeting are established to provide the exact picture of the
company’s financial health (Omotayo, 2015).
Advantages
o These budgets help in reviewing the cost of the organization so that the revenue and the
profitability can be increased.
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OperatingBudgetFinancialBudgetMasterBudget

o It promotes principle of coordination (Omotayo, 2015).
Disadvantages
o These budgets are inaccurate as if the policies are changed than the analysis of the
company gets impacted.
Master Budget: The master budget defines the financial health of the organization by
considering all the factors such as sales, assets, operating expenses so that goals can be
established and the performance can be evaluated (Omotayo, 2015).
Advantages
o It helps in identifying the problems in the budget and then plan for the future.
o It reveals the earning and spending of not as a particular department but as a whole.
Disadvantages
o It is difficult to update as there are many categories which are included in budget
(Omotayo, 2015).
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(B) Process for preparing budget
Obtaining Estimates: The managers of the department obtain estimates of future activities that
will impact company (Kovaleva, et. al., 2016). Then the written report of plans is submitted to
the budget committee for the approval.
Coordinating Estimates: The budget committee evaluates the plan and then determine the
potential of plan for the overall interest of the company.
Communicating Budget: The budget is communicated to the managers of different department.
Then the changes and modifications which are to be made in the budget is communicated to the
managers to obtain their support (Ada & Ghaffarzadeh, 2015).
Implementing the Budget plan: The budget plan is implemented and presented to the managers
for the coming accounting period. Various resources such as material, labor and facilities are
required to carry out the budget (Omotayo, 2015).
Review and Feedback: The performance reports are prepared to analyze the true picture of the
performance of the managers according to the planned objectives. If the budget shows the much
difference so it is revised during the year (Ada & Ghaffarzadeh, 2015).
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(C) Importance of Budget as planning and controlling process
Budget is important as it balances the income as well as the expenses of the organization (Ada &
Ghaffarzadeh, 2015). It is the essential tool which helps in translating the general plans into
action oriented goals and objectives. It also helps the organizations to manage the allocation of
limited resources available. The good manager will take the decision accordingly which will help
in maximizing the profits of the organization by controlling the cost (Ada & Ghaffarzadeh,
2015). It also identifies the constraints and bottlenecks. The learning can be gained in advance
about the distribution of bottlenecks.
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M3) Analyze use of different planning tools and their application for planning and
forecasting budget.
PEST: The PEST analysis is done so as to measure the ability of the business to compete in the
external environment (Valeiras, et. al., 2015). Here P denotes political, E as environmental, S as
social while T as technical. This analysis is important to check the competitive spirit of the
company.
SWOT: It measures the internal ability of the company. Here the strength and weaknesses are
internal factors while the opportunities and the threats are the external factors of the organization
(Valeiras, et. al., 2015).
Porter’s Five Forces: Five forces are used to describe this model so that the competition can be
predicted. This will help in increasing the profit of the business. The five forces are the threats of
entry, bargaining power of buyers, bargaining power of suppliers and threats of substitutes.
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D3) Evaluate how planning tool for accounting respond appropriately to solve financial
problems to lead to sustainable success.
The planning tools can solve the financial problem as these tools help in evaluating the
performances by analyzing the financial accounts. This analysis is done so that the financial
health of the company can be determined (Marder, 2017). The budget is the planning tool which
compares the actual performance with the standard one so that the variances can be calculated
and the improvements can be made. The solutions of these will helps in attaining the sustainable
success as the profits will maximize and the transparency will be enhanced (Valeiras, et. al.,
2015).
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Conclusion
The budgets are prepared so that the performance can be evaluated by analyzing the areas of
improvements. The process for preparing the budget should be well known to all the mangers so
as to reduce the risk of wrong analysis. Therefore, the planning tools contribute majorly to the
organization for achieving the sustainable success.
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TASK 4
Balance Score card is one of the planning tools which are used in the organization so that the
strategic planning can be done analyzing the areas of improvements. To make the decision
process effective the managers of the organization gathers various information so that the
information can be analyzed to provide the positive results (Nawaz, 2013). The balance score
card can solve the financial problems in many ways. The budget is another tool which is used for
the comparison.
 The balance score card like that of the budget helps in preparing the standard for the
organization so that the performance can be evaluated by comparing with that of
standards. This will help Tech (UK) Limited in evaluating the financial health of the
organization (Marder, 2017).
 The balance score card helps in minimizing the cost and maximizing the profits by
keeping the track on both cost as well as the revenue. The control of the cost will increase
the revenue of the Tech (UK) Limited and will help in maximizing the profits.
 The balance score card like budget helps in evaluating the areas of improvements so that
the profitability can be increased and the transparency as well as the accountability can be
maintained.
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M4) Analyze how in respond to financial problems, management accounting can lead
organization to sustainable success.
Like the planning tools, management accounting also solves the financial problems as the
management accounting is the process through which the important decisions for the
organization can be predicted (Nawaz, 2013). The decision making will be done in proper way
by the managers of the Tech (UK) Limited so the financial problems of the organizations will be
solved. As soon as the problem will be solved the efficiency will be increased which in turn will
help in increasing the profitability of the business. So, the management accounting plays the
crucial role in solving the financial problem and attaining sustainable success (Nawaz, 2013).
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Conclusion
It can be concluded that for increasing the profitability of the organization and maintaing the
sustainability, the management accounting as well as the planning tools play a crucial role. The
financial accounting is not same as that of the management accounting they both differ to each
other according to some basis. The analysis of cost has been done by preparing the income
statements both from marginal as well as the absorption costing. The various kinds of budgets
are prepared in the organization and each one of them their own advantages as well as
disadvantages. The process for preparing the budget is depicted so that the risk element can be
reduced and the budgets can be prepared in proper way. Balance score is the tool which helped
the Tech (UK) Limited in solving the financial problem so that the sustainability can be
maintained and the profitability can be increased.
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References
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 Caldwell, M., 2018. A Guide to Budgeting. [Online]. The Balance. Available at:
https://www.thebalance.com/budgeting-4074043. [Accessed On 6 May 2018]
 Richards, L., 2017. The Steps to Budget Processes. [Online]. Bizfluent. Available at:
https://bizfluent.com/info-8150552-steps-budget-processes.html. [Accessed On 6 May
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 Kovaleva, T.M., Khvostenko, O.A., Glukhova, A.G., Nikeryasova, V.V. and Gavrilov,
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