Management Accounting: System Evaluation and Application Analysis

This report provides a comprehensive analysis of management accounting systems, focusing on Synergy Manufacturing Co. Ltd. It evaluates cost accounting, job costing, inventory management, and price optimization systems. The report explores the application and benefits of cost reports, budget reports, accounts receivable aging reports, and inventory reports. It explains management accounting principles and their integration, calculates costs using marginal and absorption costing, and analyzes the advantages and disadvantages of budgetary planning tools like cash budgeting, zero-based budgeting, and activity-based budgeting. Furthermore, it discusses how managers respond to financial problems and how management accounting can contribute to an organization's sustainable success, comparing Unilever Plc's adaptation of management accounting to address financial challenges.

Unit 5 Management
Accounting - LO 1, 2, 3 and 4

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................3
LO1..................................................................................................................................................3
Evaluating management accounting systems and MA reporting are integrated.........................3
Evaluating application of management accounting and its benefits...........................................4
LO2..................................................................................................................................................6
Explaining principles of management accounting and its integration........................................6
Calculating cost using marginal & absorption costing...............................................................6
LO3..................................................................................................................................................8
Analysing advantages & disadvantages of budgetary planning tools.........................................8
LO4..................................................................................................................................................9
Explaining the systems through manager respond to financial problems...................................9
Discussing ways in which MA can help organization to achieve sustainable success.............11
Comparing the ways in which Unilever Plc is adapting management accounting to respond to
financial problems.....................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting can be defined as a procedure which undertakes preparation of
reports regarding business operations to help managers in taking financial and corporate
decisions. The present report is based on Synergy manufacturing Co. Ltd. Which is medium-
sized enterprise. Report will evaluate different Management accounting system and its
application within an organization. Further, it will discuss benefits and application of
management accounting.
Study will also explain principles of MA and ways in which it is integrated in company.
It will also prepare and interpret income statement using different costing methods. In addition to
this, report will also discuss benefits and drawbacks of budgetary planning tools and methods in
which managers solve financial problems.
LO1
Evaluating management accounting systems and MA reporting are integrated
Cost Accounting System
It is a framework where firms estimate the cost of product in order to analyse
profitability, make valuation of inventory and to control the cost. Cost accounting helps in
estimating accurate cost which is required for attaining a certain level of profit. Costing system
helps Management accounting to evaluate the closing value of inventory and other resources,
WIP and finished goods for preparing financial statement (Ameen and et.al., 2018). There are
two costing system i.e. Job order costing & process costing and sometimes, combination is used
which is known as hybrid cost accounting system. Synergy Manufacturing Co. Ltd can make use
of Cost accounting system to analyse the costs in advance and identify the profit levels.
Job costing System
In this system, all the information related to a particular job and the associated costs are
collected. Synergy Manufacturing Co. Ltd. can use this costing system to determine the accuracy
of quoting prices in order to achieve profitability percentage. It can also help company to provide
cost information to its customers. The information collected is of direct materials, direct labour
& overhead. In reality such costing system is done according to the requirements of customer.
After completion of job, flag must be raised to close down the job, otherwise employees will
continue charging time to it.

Inventory management system
This system involves a procedure to track and trace all the goods throughout the supply
chain. Right from purchase of raw materials to its production to its final selling (Azudin and
Mansor, 2018). Synergy Manufacturing Co. Ltd. Can manage the stock in its own way because it
is a medium-sized enterprise having limited inventory. In the absence of inventory management
system, there will be situations where company is understocked or overstocked. It gives you
information what all resources is required to meet the production demand in order to satisfy
customer needs.
Price Optimization system
The system in which that prices is estimated which will give maximum profits to the
company and what customers are willing to pay is known as price optimization system. Synergy
Manufacturing Co. Ltd. make sure that price is quoted that will enable it to sell quickly its
product and earn a decent level of profit. If a price is quoted at higher levels, customers will not
purchase it and a low price will not allow company to cover cost and make profit.
Evaluating application of management accounting and its benefits
Cost reports
In cost reports, a process is followed about informing the party about the costs incurred in
taking a project which expressed in absolute terms (Maitanova and et,al., 2020). Synergy
Manufacturing Co. Ltd. Can prepare cost reports with the help of cost accountant to keep client
informed about all the details of a project.
Benefits
 Cost reports help in quoting prices accurately because all the cost that will be incurred is
known in advance. It helps in holding staff accountable if something is not done in accordance to the budget
or budget is exceeded.
Budget reports
Budget reports is used to make proper estimations of all costs that will be incurred which
helps in comparing the actual figures with estimated ones. It can assist Synergy Manufacturing
Co. Ltd. In keeping a complete track of activities performed and taking necessary actions to
reduce the deviations. It can be prepared yearly, quarterly, monthly or weekly depending upon

requirement (Brown and et.al., 2017). Such reporting aids company to identify operations which
require more attention of management.
Benefits
 Budget preparation helps management to focus on strategic goals of company and not on
day-to-day management. It aids company to pay attention on finance1 position and ways
it. Budgeting also helps in allocating cash resources to invest in fixed assets and working
capital. Company has limited resources which needs proper allocation to reap out
maximum benefits.
Accounts Receivable Aging report
This report is a periodical report which helps in dividing company's receivable in
accordance with the time the invoice has remained outstanding. It provides guidance to examine
financial health of the customers and their capability to settle dues on time (Frankel and et.al.,
2020). Now-a-days, automated platforms make it easy for Synergy Manufacturing Co. Ltd to
make such reports instantly.
Benefits
 Contacting customers regularly will make customers know that late payment is not
acceptable and requires quick settlement of payments. Determining the collection amount enables company to work efficiently on working
capital requirements.
Inventory report
This report summarizes the exact amount of inventory that business is having on hand at
a particular point of time. It represents in physical or electronic format the no. of outstanding
inventory in warehouse. Inventory reports help in tracking inventory and guides company to
avoid over-ordering or under-ordering of stock.
Benefits
 Synergy Manufacturing Co. Ltd. Can have reduction in lead time by properly managing
inventory reports.
 It also supports in reducing holding & carrying costs which are very costly for firm
(Shogren and et.al., 2020).

LO2
Explaining principles of management accounting and its integration
Principles of MA
 Designing and Compiling
 Management by Exception
 Control at Source Accounting
 Accounting for Inflation Use of Return on Investment
Integration of MA in organization
Management accounting helps in providing useful insights that assists management to
make rightful decisions. They provide wide range of information and facts & figures which
makes the decisions perfect (Rikhardsson and Yigitbasioglu, 2018). Synergy Manufacturing Co.
Ltd. Can frame strategies and policies through budgeting and preparing other essential reports.
By comparing actual performance with estimated one, company can track progress, in case of
any variances, remedial measure can be taken.
Calculating cost using marginal & absorption costing
Marginal costing: in this type of technique, variable cost is charged to no. of units produced
whereas fixed cost is written off against contribution. It basically means extra cost charged when
extra units are produced.
Income statement using marginal costing
Particulars Product A Total (£) Product B Total (£)
Sales 4600 4600 * 180
= 828000
3200 3200 * 150
= 480000
Less: Variable costs
Cost of goods manufactured 66 5000 * 66 =
33000
48 3500 * 48 =
168000
Variable selling expenses 2 2 * 5000 =
10000
2 2 * 3500 =
7000

Variable Administration expenses 24 24 * 5000 =
120000
16 16 * 3500 =
56000
Contribution 180-92 = 88 88 * 5000 =
440000
150–66 84 * 3500 =
294000
Less: Fixed Administration expenses 31764 22235
Fixed Production expenses 60 * 5000 300000 40 * 3500 140000
Total income 108236 131765
Interpretation: From marginal costing, it can be seen that total income from product A is
108236 and from Product B is 131765. This technique considers all variable cost and deduct
from sales to calculate contribution and from that all the fixed expenses are subtracted to
determine net income earned.
Absorption Costing: in this costing method, all the costs associated with production are taken
into account. The costs include direct and indirect costs and considers that variable cost changes
with change in production (Hamamura, 2019). Fixed cost does not change with change in
quantity produced. It calculates cost of inventory at end of accounting year which consists of
fixed cost.
Calculation of unit cost Product A (£) Product B (£)
Direct material 30 24
Direct labour 36 24
Variable production overheads 24 16
Variable selling overheads 60 40
Unit cost 150 104
Calculation of COGS
Cost of goods sold Product A Total (£) Product B Total (£)

Opening inventory 0 0
purchase 5000
5000 * 150
= 750000 3500
3500 * 104
= 364000
Closing inventory 400
400 * 150 =
60000 300
300 * 104 =
31200
COGS 4600 690000 3200 332800
Income statement using absorption costing
Particulars Product A (£) Product B (£)
Total sales 828000 480000
Less: Cost of goods sold 690000 332800
= Gross profit 138000 147200
Less: Fixed administration overheads 31764 22235
Variable selling overheads 9200 6400
Net income 97036 118565
Interpretation: In absorption costing, initially unit cost is calculated to further determine COG.
This technique includes all direct and indirect costs to reach the net income. Here, net income for
product A is £97036 and for product B is £118565.
LO3
Analysing advantages & disadvantages of budgetary planning tools Cash Budget: It is budget where estimation are made about the cash flows that company
will have during a particular time period. It examines whether Synergy manufacturing
Co. Ltd. Has sufficient cash funds to meet all the expenses and carry out business
activities smoothly without any interruptions.
Advantages Disadvantages
Cash is set out for emergency situation which For investing in bigger tickets by Synergy

allows company to never go in debt burden
(Salamah and Susilo, 2020).
manufacturing Co. Ltd, credit profiling is
important to finance the transaction which is
not possible, if company prepares cash budget.
When cash flows are known in advance, it
helps in proper planning and identifying ways
of growth.
Human errors are possible to be made which
leads to wrong estimation of inflows which can
affect the profitability levels as well.
 Zero-based budgeting: It is an accounting practice which forces managers to have a
critical view about the spending of funds in a budgeted period. This budgeting helps in
justifying or evaluating each expense before adding it in the budget. It helps in explaining
the revenue that will be earned by incurring that cost.
Advantages Disadvantages
It helps in accurate prediction of costs and
revenue by evaluating all the expenses
correctly (Fontes and et.al., 2020).
The method is time-consuming which requires
large no. of manpower. Budget is to made from
scratch which consumes a lot of time.
Such budgeting method supports Synergy
manufacturing Co. Ltd. in reducing costs and
gives efficient allocation of resources
according to requirements.
Along with this, it is a very complicated task to
perform which need high level of expertise and
knowledge. Sometimes, training is imparted to
employees to prepare such budgets.
 Activity based budgeting: In this type of budgeting, all the activities are analysed
minutely in order to predict costs which doe not consider historical cost while creating
budget (Keel and et.al., 2017). All the costs are thoroughly examined to identify any
efficiencies and reduce cost, if possible.
Advantages Disadvantages
This budgeting helps in better prediction of
profitability levels by examining the costs
exhaustively.
ABB is a very costly method which consumes
a lot of time in implementation.
ABB methods focuses on the output that Moreover, this method requires a lot of

initiate the costs which aids in evaluating
different business units and allocating funds.
understanding about the business practices
undertaken by Synergy manufacturing Co. Ltd.
Which is a tough job to be done by employees.
LO4
Explaining the systems through manager respond to financial problems
Benchmarking
This system helps in comparing all policies, processes and products of Synergy
manufacturing Co. Ltd with other firms or against standard sets. The end result of benchmarking
provides guidance in identifying opportunities and developing improvement plans to perform
better. It can be done internally by comparing performance of unit or function against another or
competitive benchmarking.
Advantages
 Benchmarking helps company to understand thoroughly by analysing strengths and
weakliness about all processes (Bajaj and Singh, 2020). It adopts the practice of adapting to the competitors activities and outperform them,
thereby reducing time and money.
Disadvantages
 Following competitors' movement lead to develop complacency by just excelling
competitors standards. It is not beneficial just to become industry leader when there is
more scope of improvement. It is only one of the means to achieve standard performance, rather it should be
accompanied by other plans as well.
Key performance iHamamura, J., 2019. Unobservable transfer price exceeds marginal cost
when the manager is evaluated using a balanced scorecard. Advances in accounting, 44,
pp.22-28.ndicators
KPIs help to measure the goals and objectives in quantifiable manner by providing a right
direction. KPIs should be SMART i.e. Specific, Measurable, Achievable, Realistic & Timely (Al
Dakheel and et.al., 2020). Synergy manufacturing Co. Ltd. can make use of KPI to achieve goals
clearly and accurately.

Advantages
 KPI help in identifying and addressing any deviations and gaps, if certain objectives are
not achieved, then manager can take necessary actions to improve the situation. KPI are defined in measurable format i.e. in quantitative terms which can be tracked. It
becomes easier for manager of Synergy manufacturing Co. Ltd to track performance and
end result.
Disadvantages
 The actionable information is not immediately provided by KPIs, for example, Synergy
manufacturing Co. Ltd. Has to wait for few months after giving employee training to see
the end result of training. Many KPIs at one time will overload the company and will not be of mush use. It is
better to take one KPI at one time.
Balanced Scorecard
This approach help in providing complete and comprehensive framework for analysing
company's performance from different perspective like financial, customer and business
perspective. All these perspectives identifies goals of profitability, customer satisfaction,
innovation by setting performance measures like ROI, cash flows, customer orders, R&D
activities etc.
Advantages
 It adopts a thorough approach to evaluate and control Synergy manufacturing Co. Ltd
performance by identifying objectives and measuring performance. BSC helps in bringing company's vision & mission to the centre of management focus so
that it does not deviate from it.
Disadvantages
 This is a vague approach of controlling company's success which does not set standards
or performance measures (Balanced Scorecard Basics, 2021).
 It considers organizational performance only from four perspective and does not focus on
other important areas as well.
Discussing ways in which MA can help organization to achieve sustainable success
 MA helps in examining the trends such as social and environmental changes prevailing in
market which have high impact on Synergy manufacturing Co. Ltd. Working.

 It provides guidelines in creating KPIs which helps in supporting goals and strategies and
achieving them effectively.
 This type of accounting also assists in preparing reports which consist of data that can
have sustainable impact on pricing decisions and investment appraisals.
 Further, it helps in developing strategy which unites sustainability problems so that all
relevant information regarding financial & non-financial data is disclosed.
 In addition to this, MA helps in linking sustainable challenges with company's strategy,
business models, etc.
 MA plays an important role in Synergy manufacturing Co. Ltd. By providing valid
information requited to make major decisions like make or buy decision, expansion
decisions, etc. (Di Fabio, 2017).
 Moreover, cost effective techniques are used by Synergy manufacturing Co. Ltd. Which
helps in reducing cost of products and enhance the profitability levels.
 MA also provides assistance in planning the project for coming years by forecasting the
requirements, costs and resources. Synergy manufacturing Co. Ltd. By creating capital
budgets, cost of bigger investment can be identified and necessary arrangements for
funds can be done.
 Management Accounting supports in tracking performance by examining the set
standards and evaluating the deviations, if any, so that all necessary measures can be
taken to rectify the errors.
 Furthermore, management accounting aids in projecting revenue with the help of sales
forecasts and projections. It also guides in projecting cash flows which are required to
estimate working capital needs.
Comparing the ways in which Unilever Plc is adapting management accounting to respond to
financial problems
Unilever Plc is British based company headquartered in London, UK and deals in
production of food products, beauty products and personal care. Company has adopted
management accounting for solving financial problems in the following manner:
 Unilever has adopted a complete budgeting system by applying various techniques, staffs
and long term goals. All the future needs are assessed in terms of expense, asset or
finance so that there is proper co-ordination at the time of forming budgets. Creating