Management Accounting Report: Systems, Costs, and Planning

This report provides a comprehensive overview of management accounting, focusing on its role in identifying, measuring, analyzing, and communicating financial data to aid managerial decision-making within ABC Limited, a medium-sized manufacturing sector. The report explores various management accounting systems, including cost accounting, inventory management, job costing, and price optimization, highlighting their importance in cost analysis, inventory control, and pricing strategies. It also details different methods used for management accounting reporting, such as cost reports, budgets, and performance reports, along with their integration within organizational processes. Furthermore, the report delves into cost calculation techniques like marginal and absorption costing, demonstrating their application through examples and profit and loss statements. Finally, it examines planning tools for budgetary control, comparing and contrasting how organizations adapt management accounting systems to address financial challenges, providing insights into strategic financial management.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................4
P1 Elaborate management accounting and requirement of various kind of management
accounting systems. ....................................................................................................................4
P2 Methods used for management accounting reporting............................................................6
TASK 2............................................................................................................................................8
P3 Calculate costs by using tools and techniques.......................................................................8
TASK 3..........................................................................................................................................11
P4 Explain advantages and disadvantages of various tools of planning for the purpose of
budgetary control......................................................................................................................11
TASK 4..........................................................................................................................................14
P5 Compare and contrast organisation adapting management accounting systems to respond
financial problems.....................................................................................................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting or managerial accounting or cost accounting, is the chain of
activities for identifying, measuring, analysing, interpreting and communicating data and
information to managers to achieve organisational goals and objectives in proper way.
Management accounting information helps to managers in an organisation to take decisions by
analysing each and every factor. This report is based on ABC limited which is an medium-sized
manufacturing sector. This report is based on management accounting and their various systems
that support to reach at desirable outcomes. It further elaborates various methods of management
accounting reporting and techniques for cost analysis by income statement. It also includes
advantages and disadvantages of kinds of planning tools that used in budgetary control by
comparing with other organisation by adapting management accounting systems to eliminate
financial problems.

TASK 1
P1 Elaborate management accounting and requirement of various kind of management
accounting systems.
Management accounting is an significant internal function of organisation and
organisation use it to record and report internal financial information (A. Hammad, Jusoh and
Ghozali, 2013..). The role and responsibility of management accountant is to coordinate various
events around the whole business by considering the needs and wants of business in proper way.
The major result of management accounting is to prepare periodic reports for the role of
companies department managers and CEO. In management accounting reports includes details of
cash in an organisation,sales revenue of an organisation with current payables and receivables of
an organisation that are important factors to evaluate financial position of an organisation
(AlMaryani and Sadik, 2012.). Various kind of information found in management accounting
that are differ from financial accounting in various contexts as financial accounting based on
historical data and information and management reports that are future oriented. Management
accounting reports are usually confidential in nature and proved useful for internal usage of an
organisation. Management accounting based and relied on accounting practices that are based on
management informational needs and wants.
An effective management accounting system reach up to all kinds of departments of a business
in which finance, information technology, Human resource and operations with sales.
Various kinds of management accounting systems:
Management accounting systems vary and majorly depends on their usage that depends
on organisation and their functions. Each and every systems is designed to provide information
that based on the needs of management that assist in decision making. There are various kinds of
management accounting systems that are as follows:
Cost accounting system:
Cost accounting system that also known as product costing system which is an kind of
framework that helps in estimating cost of products for the motive of analysis of their
profitability, valuation of inventory with controlling cost (Belfo and Trigo, 2013.). In cost
accounting system majorly two kind of cost consist in it that are job order costing and process
costing. Estimating the accurate cost of products and services is very much critical to obtain
profitable operations. A product is profitable or not can be ascertained after analysing the cost of

the product that is very much important role of it. In context of ABC Limited that introduce its
air dryers after analysing the cost and other attributes in right manner.
Inventory management system:
Inventory represents stocked goods or material and terms stock and inventory often used
interchangeably. An inventory management system amalgamate various systems and processes
in which desktop software, barcode printers, barcode scanners and various devices in which
mobile to streamline inventory of an organisation (Boučková, 2015.). The main function of
inventory control is to track majorly two main functions in which stock room by receiving and
shipping. The importance of inventory control that it helps in gathering current inventory level
to control both under stock and overstock situations. Effective tracking helps in get right
information about stocking locations that helps in taking effective decisions. In context of ABC
Limited that build their product after analysing needs and wants of consumers and demand in
proper way so that measurement of stock can be easily done.
Job costing system:
Job costing system used for assigning and accumulating cost of manufacturing for an
individual unit of output. It used when kinds of products should be produced that are sufficiently
differ from each other. It proved useful to submit the information of cost to a consumer under a
contract in which cost should be reimbursed. In job costing system majorly three kinds of
information consisted that are direct materials, direct labour and overhead costs. The another
function of job costing system is to tailored the requirements of consumers because some
consumers allow to charged certain costs on their jobs. In context of ABC limited they used it to
accumulate important knowledge and information to gather insights from various businesses in
proper way.
Price optimization system:
It is an mathematical program that helps in calculate factor that vary at various price
levels and after that combine data and information related to costs and level of inventory to select
best price that helps in enhance level of profit (Boyns and Edwards, 2013.). It used in three
pricing critical elements that are pricing strategy, value of products and services in perspective of
both buyer and sellers. Works and tactics that impacts on profitability level of an organisation. In
that context all management accounting systems are very much important to evaluate each and
every important attribute to evaluate cost, inventory level and many more factors that proved

beneficial for ABC Limited. It proved useful in long term and short term planning to take
important decisions also it proved beneficial to manage information at every level of
organisational hierarchy.
P2 Methods used for management accounting reporting.
Management accounting that also known as managerial accounting that concentrates on
data and information from financial accounting. It proved useful in particularly to take important
decisions, planning and controlling various activities. Management accountants rely on financial
statements that contains earning statements, cash flows and balance sheets that helps in analyse
the information of an organisation regarding budgets, performance and reports and cost of a
product and services. There are various kinds of methods use for management accounting
reporting that are as follows:
Cost reports:
Managerial accounting helps in determining the prices of various products and services.
That can be possible by taking or adopting fresh prices, overhead cost, labour and any other kind
of prices that come into consideration (Chiwamit, Modell and Yang, 2014.). In that aspect total
cost should be divided as totals of items created. In that report data and information that consist
in it should be brief and that final report helps managers to evaluate prices of goods and their
selling cost. It also helps to managers to plan and manage limits related to income. In context of
ABC Limited they builds various reports that evaluate prices, cost and factors that influence
these prices in effective manner.
Budget:
One of the principal factor of management accounting that plans and coordinate spending
plans and policies. Budgets should be made by accumulating and utilizing various kinds financial
plans and relate with it future projections in proper way (DRURY, 2013.). In an organisation's
spending list consist of various sources of expenses and income. In context of ABC Limited that
tries to accomplish their goals and objectives in remaining budgeted amounts. Managers and
other higher authority find or search new sellers to avail as providers from raw resources to get
cash out of it. Organisation search various kinds of approaches with motive of diminishes cost.
Execution reports:
Management accounting is one of the most important tool or technique that helps in
evaluate spending plans by contrasting genuine uses and income by planned sums. Budget is one

of most important factor that helps to bring changes by analyse the entire data and information
that amount listed on the performance of the report in better way ( Farouk, Cherian and Jacob,
2012.). In ABC Limited each and every year the performance reports are calculated in better
way some organisations calculate it on monthly or quarterly basis that helps to directors to get
for future demand in production and cost additions in better way. Various kinds of reports are
utilized and get arranges by managerial accountant and other information such as orders placed
to receive orders are very much important. If the lots of orders of any particular order were
placed in that case particular report helps to summarises. A business opportunity reports are
build that helps managers to get settle their choices in respect of present and future business
choices.
Benefits of management accounting:
There are various benefits of management accounting that are very much important that
are as follows:
It helps to coordinate and manage all activities in proper way and setting up various budgets,
their requirements and expected performance that an organisation anticipated.
It helps in operate various cost centres and departments with efficiency and economy.
Management accounting helps in eliminate wastage that helps in enhance profitability in better
way.
Integration of management accounting system and management accounting reporting:
Management reporting Integration with organisational process
Budget report For an organisation it is very much important to
build an effective budget that helps in
estimating income and expenditure to evaluate
the future works and procedures of an
organisation. In context of ABC Limited they
build an effective budget to evaluate various
factors in effective manner.
Performance report It is an important factor that helps in evaluate

performance of an individual by finding out
major strengths and weaknesses of an
individual that helps to evaluate their
contribution in organisational growth and
enhancement (Gond and et.al ., 2012.).
Inventory and manufacturing report In that aspect inventory is very much important
to evaluate the production as per the needs and
wants of consumers so that organisation can
build products accordingly. So there are close
relationship in both these factors.
TASK 2
P3 Calculate costs by using tools and techniques.
Marginal cost:
Marginal cost is the change in the total cost which appears at time of quantity produced is
incremental in nature by one unit. That is cost of producing one extra unit of a good.
Absorption cost:
Absorption costing is an method of accounting costing that entails full cost of produce or
providing various kinds of services. In it not only includes cost of materials and manpower but
includes overheads related to manufacturing.
Calculation by using various costing method
Production cost per unit
Amoun
t Details
DM 10
DL 20
VOH 5
Total fixed production overhead cost = £100000
Use standard volume of 20000 units to absorb the
fixed production overhead cost
Selling price = £50
Absorption cost = £40

Absorption Costing = £40/unit {10+20+5+100000/20000=40}
Total production cost:
Budget: Absorption Costing
technique
Production Cost
Per Unit Total
£ £
DM 10 18000x10 180000
DL 20 18000x20 360000
VOH 5 18000x5 90000
FOH 5 90000
40 18000x40 720000
Cost of sales:
BUDGETED COST OF SALES : Amount
£
Cost of production w1 720000
Opening Inventory 0
Closing inventory -80000
COST OF SALES 640000
2: Preparation of profit and loss statement by using techniques
ABSORPTION COSTING: BUDGETED PROFIT
OR LOSS STATEMENT
PER
UNIT TOTAL
£ £ £ £
SALES 50 800000
COST OF PRODUCTION
DM 10 180000
DL 20 360000
VOH 5 90000
FOH 5 90000
40 720000
OPENING INVENTORY 0
CLOSING INVENTORY -80000
COST OF SALES -640000
STANDARD PROFIT 160000
ADJ. FOR UNDERABSORPTION -10000
BUDGETED PROFIT 150000
MARGINAL COSTING: BUDGETED PROFIT

OR LOSS STATEMENT
PER
UNIT TOTAL
£ £ £ £
SALES 50 800000
COST OF PRODUCTION
DM 10 180000
DL 20 360000
VOH 5 90000
FOH 35 630000
OPENING INVENTORY 0
CLOSING INVENTORY -70000
COST OF SALES 35 560000
CONTRIBUTION 15 240000
FOH PRODUCTION -100000
BUDGETED PROFIT 140000
3: Preparation of final account after September
Actual cost by using absorption costing methods:
ABSORPTION COSTING: ACTUAL PROFIT
OR LOSS STATEMENT
PER
UNIT TOTAL
£ £ £ £
SALES 50 800000
COST OF PRODUCTION
DM 10 190000
DL 20 380000
VOH 5 95000
FOH 5 95000
40 760000
OPENING INVENTORY 0
CLOSING INVENTORY -120000
COST OF SALES 40 -640000
STANDARD PROFIT 10 160000
ADJ. FOR UNDERABSORPTION -5000
BUDGETED PROFIT 155000
Difference among budgeted and actual cost:
PARTICULAR BUDGET ACTUAL
£ £

FOH CHARGED TO PRODUCTION COST 90000 95000
under FOH charged to Profit or Loss account 10000 5000
FOH CHARGED IN THE MONTH 100000 100000
FOH TRANSFERRED THROUGH CLOSING
INVENTORY TO NEXT MONTH OCT 2018 10000 15000
FOH CHARGED 90000 85000
From the above data and information it has been summarised that financial planning, balance
sheet and other various measures proved beneficial for organisation to reach at desirable goals
and objectives in proper way.
TASK 3
P4 Explain advantages and disadvantages of various tools of planning for the purpose of
budgetary control.
There are various kinds of planning tools that helps to organisation to control various
activities that proved beneficial to lead in market that are as follows:
Flexible Budget:
Flexible Budget may be defined a financial plan which is based on revenues and expenses
of current amount and output. With the help of revenues and expenses in the current production
taking as a base, future revenues and expenses can be estimated (Huang, Teoh and Zhang,
2013.).
Advantages:
 Easy Differentiation: Flexible budget helps in differentiating between actual
performance with standard performance.
 Flexible: Flexible budget can easily be modified according to the dynamic environment
in the market.
Disadvantages:
 Confusing: Flexible Budgets are quite confusing as it require more planning to adjust
expenses of different periods and this may lead the user in confusion to understand the
data.
Zero-based Budget:

Zero-based budgeting is refer as management accounting which helps in preparing
budget from starting. Cash flow statement should be evaluated again and all the expenses must
be justified that is incurred in the department (Lavia López and Hiebl, 2014.).
Zero-based budget record the expenses of new period which are calculated on the basis of
actual expenses.
Advantages:
 Efficiency: Zero-based budgeting helps in efficient allocation of department-wise
resources and it focus more on actual numbers rather than historical numbers.
 Co-ordination and communication: Zero-based budgeting helps in co-ordinating and
communicating within the department and involves employees in decision making to
share their views and ideas which helps them to keep them motivated.
Disadvantages of Zero-based budgeting:
 Lack of expertise: Zero-based budgeting lack in expertise as it becomes difficult to
explain every line and cost and for this training of managers is required.
 High-manpower requirement: As zero-based budget need to be started from the base, it
requires large number of employees due to which department lack in time and human
resources.
Activity-based Budgeting:
Activity-based Budgeting may be defined as budget which is prepared after considering
the overhead cost (Lee, 2012.). In other words, it is a management accounting tool which is not
concerned with the past year budget but analyse and research the cost incurred and based on that
allocate resources to an activity in ABC Limited.
Advantages:
 Evaluation: Activity based budgeting helps in evaluation of cost driver and takes into
consideration involved in the activity. It eliminates the irrelevant activities and focus only
on necessary activities.
 Elimination of gridlock: Activity based budget are prepared after analysis and reseach
which helps in eliminating unnecessary activities through which business function are
carried smoothly.
Disadvantages: