Management Accounting: System Adaptation to Financial Issues for Firms

This report provides a comprehensive overview of management accounting, starting with its definition and essential requirements for different systems. It explores management accounting reporting methods, cost analysis techniques for income statement preparation using marginal and absorption costing, and planning tools for budgetary control, including their advantages and disadvantages. Furthermore, the report examines how companies adapt their management accounting systems to respond to financial issues, using Capital Joinery Ltd as a case study. The analysis covers cost accounting, inventory management, and price optimization systems, alongside key management accounting principles like return on investment utilization and resource optimization. The report concludes by highlighting the importance of management accounting in informed decision-making and financial stability.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P.1. Explain management accounting and describe what are the essential requirements
of different types of management accounting system?.....................................................3
P.2. Describe the methods used to do management accounting reporting?....................6
TASK 2............................................................................................................................................7
P.3 With the help of appropriate techniques of cost analysis calculation of costing is done
for the purpose of preparing income statement by using marginal & absorption costing?
................................................................................................................................................7
TASK 3..........................................................................................................................................11
P.4. Planning tools used for budgetary control with their advantages & disadvantages?
..............................................................................................................................................11
TASK 4..........................................................................................................................................13
P.5. Company how the firm or concern respond to financial issues by adapting the
system of management accounting?..................................................................................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management Accounting is the accounting in which information is given to managers for
the specific purpose. It shows the updated financial standing of business to outsiders like
shareholders, merchant bankers, Guarantors, debenture holders etc. There is no particular format
to perform management accounting. In the organisation when there is need to take short and long
term decisions it is mandatory to consider the activity of Management Accounting. Its best
practices reflect important information related to leadership and control (Brierley, 2017). Capital
Joinery Ltd is the manufacturing company that gives huge variety in doors, stairs, windows with
different designs. It was established in London. The project covers the topic like definition of
management accounting and the essential need of various kinds of management accounting
system, management accounting reporting methods, ascertainment of cost by using techniques to
prepare an income statement by taking absorption and marginal cost. Definition of budget and
budgetary control is explained in this assignment along with describing types of tools of planning
used for budgetary control with their advantages and disadvantages. How the company adapt this
system to respond financial issues are also explained with the help of comparison in the project.
TASK 1
P.1. Concept of Management accounting and describe the essential requirements of
different types of management accounting system?
By joining two words management and accounting this new term is created. It is
concerned with the presentation of abilities and professional knowledge so that information
related to accounting can easily be reveal which supports the management team at the time when
they formulate policies and perform planning as well as controlling in respect of undertaking. It
links management with accounting because to take managerial decision there is need for
accounting information as it’s a subject matter of management accounting (Dierkes and
Siepelmeyer, 2019).
Management accounting and financial accounting difference.

Basis Financial accounting Management accounting
Regulation According to standard it is
prepare
By any law it is not regulate
Audit Their audit is mandatory It is not subject to audit
Contents It covers only that information
which are related to money.
It include both non monetary
as well as monetary
information
Users Regulators, merchant bankers,
shareholders are their users
Internal team of management
are the users.
Mandatory Preparation & presentation is
compulsory
It not require presentation.
Purpose For the purpose of external
reporting it is prepare.
For internal purpose it is use
Different examples of management accounting system are explained in details as follows
Cost accounting system: It provide costing related information when the activity of
production is carried out in the organisation. Most of the manufacturing concern adopt this
system to calculate products costing. Profit can be determined only if know about the cost. This
system is useful when the value of finished product, semi-finished item and raw material is
determined. This also helps at the time of preparation of financial statement (Pleis, 2019).
Their essential requirements are:
 It gives cost related information.
 It is adopted by manufacturing companies.
 Cost helps in calculating the profits.
 Beneficial to take decisions regarding machines and labours (Petratos and Faccia,
2019).
System of inventory management:

To take the records of inventory the respective system which is totally computer based.
At the time of preparation of documents related to work order, bills of material it support the
most. It helps to analyse the economic order quantity which give information regarding the
quantity that is given so that under-stocking and overstocking problems can eliminate (Clubb,
2005)
Essential requirement:
 It is a computer based management accounting system.
 It provides information about the quantity as it analyses economic order quantity.
 It eliminates the over stocking and under stocking problems.
Price optimisation system: It is the practice in which data is used from audience &
market to find the most suitable price point for your services and product that maximise
profitability as well as sales. It is that point where organisation can meet their targets in the best
way. Whether it is regards to client’s growth, increased profit margin. In price optimisation
information of various things are included like psychographic & demographic data, operating
cost, inventories, historic sales data, machine learning outputs etc. (Halaoua, Hamdi and Mejri,
2017)
Essential requirements:
 It is a practice which finds out suitable price point for the service.
 Information relating to demographic and psychographic data, inventory, operating cost is
included.
 Perfect balance of value and profit is possible.
when different practice is to be performed in the organisation various management
accounting principles is to be follow some of examples of these principles are as follows:
Utilisation of return on investment: It can also be called as return on capital employed. By
making calculation of return on investment, business efficiency is analysed. To determine real
money value capital Joinery Ltd, make calculation of capital employed.
Designing and compiling: All the documents, notes to accounts, supportive documents, reports,
statements are compiled together so that it is easily available when it requires and it is placed in
the same location so that it is easily available. The organisation capital joinery limited easily
analyse the business financial performance by compiling the document as it also save the time
because all the important documents are placed at the same place (Mohr, 2017)

Integration: All the information related documents is integrated so that company capital joinery
collect maximum information at the same place and time so that the services of accounting is
provided at the minimum cost.
optimum utilisation of resources: The resources can be used in effective way so that wastage is
avoided as resources are precious for every organisation and some resources are limited and
some are unlimited. Therefore we can say that business success is depends on resources
availability also (Oppi, 2019)
P.2. Methods used to do management accounting reporting?
Management accounting refers to assessing of the financial statements which is very
useful for the investor and analyst for taking the decision for investment in the company or not
by using various techniques and approaches. Capital Joinery limited used this for managing their
accounts for the employee.
Different management accounting reporting methods
 Budget reports- This report is prepared for measuring the performance of the company
and the large companies prepare it department wise. By creating the budget, the
businesses can understand their general scheme. The estimate of budget is based on the
previous experience and caters always to unforeseen situations.
 Inventory report: In this deep description of different varieties of inventory are
mentioned. It includes carrying cost information, economic order quantity details, and
ordering cost of inventory information. By using the method of last in first out (LIFO),
highest in first out(HIFO), first in first out ( FIFO), weighted average, the inventory can
be provided to customers. The records of stock can easily maintain by Capital Joinery Ltd
with the help of inventory report.
 Performance report: it is made to review the performance of the company as complete
and the employees. The large companies also create the departmental performance
reports. This report provides deep insight about the working of the company and is
necessary for adopting the strategy of performance management. Capital joinery can
prepare the report to analyse the performance of their workforce and if it varies than
reason of such deviation and the way to solve the variation must be identified.
 Accounts receivable aging report: If the company totally depends on credit sales than it
is necessary to maintain reports of debtors. Details of average collection period is also

cover this ass in this report. If many there are large number of debtors are present in
capital joinery limited than tight policies can be prepare by them. By analysing debtors
report information regarding credit sales and their value, also the date of transaction can
easily be observed by the managers of organisation.
 Cost managerial accounting report- It computes the cost of the articles which are
manufactured by the company. The cost relating to material, labour, overhead, etc. are
atken into consideration. Through this report, the managers are offered the capacity to
realise cost price verses the selling price. With the help of this report, the profit margin is
estimated and also monitored so that a clear picture is taken out of all the cost.
TASK 2
P.3 With the help of appropriate techniques of cost analysis calculation of costing is done
for the purpose of preparing income statement by using marginal & absorption
costing?
Cost: It is the amount that was invest to produce and sale various products & services to
the end customers. Analysing total cost supports the Capital Joinery Ltd management in fixing
up the prices for the product they offer in the market to their customers after adding profit
margin on the cost (Jones, 1985)
Absorption costing: In is another method to calculate cost in this both variable and fixed
cost is consider due this actual amount of profitability can be reflected under financial statement.
It is beneficial for such companies who try to retain their shareholders by showing them the
current financial position in the market (Stockenstrand and Nilsson, 2017)
Marginal costing: It is also known as effective method to calculate cost. It includes only
variable cost and avoids the fixed cost. It is beneficial for those companies that find problem in
getting attentions from investors. With the help of this higher profit amount can easily be
reflected. As this is beneficial for Capital Joinery Ltd because they are operate their business in
medium scale market ( Larrinaga, Luque-Vilchez and Fernández, 2018).

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TASK 3

P.4. Advantages & disadvantages of the Planning tools used for budgetary control.
Budget: It reflects all the information related estimated revenue and expenses for
particular time period. In this time to time alteration is done. Preparation of budget is done for
individuals, business, group of people etc. Every organisation should prepare budget as it helps
to take decision regarding investment also (Kaya and Yazan, 2019).
Budgetary control: It is the process in which future budget are prepare and after this
actual figures is compare with standard and find the difference and also the reason of such
difference. And to solve this problem ,without any delay corrective measures can be taken.
Budgetory control is to be done by using different tools of planning along with their
advantage and disadvantage.
Flexible Budget: It is also called variable budget. This type of budget is adjusted as per
volume changes. As static budget it is mostly used.
Advantages Disadvantages
 To calculate profit , cost and sales at
different level of operating capacity , it
help the organisation capital joinery ltd.
 It provide help to organisation
management to analyse production
capacity.
 It is very difficult to record the
transaction. As talented employees is
required by capital joinery ltd for
recording. So for this purpose they pay
large amount to their workforce.
 It is very difficult for management team
to make control because it is totally
depends on factors of production.
Master budget: It is the combination of various type of budget because it includes many
different budgets in it. Example of some of these budgets are explain as follows.
Production budget: it includes all the details of manufacturing in the context of raw
material, finished products, semi finished items and also covers the details of inventory cost and
value.
Sales related budget: On the basis of credit sale and cash revenue from operations it is
prepare. It includes the details of date of transaction, quantity of goods sold and details of
average collection period. It is prepare for every year in the company ( Ferramosca and Ghio,
2018)

Cash budget: It covers all the information related to cash. It was represented in values
thus it include all the cash transactions. It helps to show the actual position of cash in values in
this. On the basis of cash flow it is prepare as it it is a part of it. It also include details of receipts
& payments for the whole year.
Master Budget advantages Disadvantages of master budget.
 Give motivation to their workforce. It
can be use as tool of motivation. With
the help of this Capital joinery Ltd
make comparison between the actual
and standard performance of
employees. It also provide job
satisfaction to the workforce of the
organisation.
 Helpful in fulfilling the objectives: to
achieve the long term target it helps the
organisation most. For business growth
and profit maximisation purpose all the
resource of the company properly
channelised.
 Interdependence: Master budget
include many budgets and these are
interdependent and interlinked with
each other. It creates problem to capital
Joinery Ltd because mistake in one
budget makes negative impact on
another budget also.
 Difficult to update: As it is a
complicated budget because it includes
various different budgets also. So it its
not easy for capital Joinery Ltd to make
alteration daily because the budgets that
prepare under it is interlinked with each
other. Therefore it needs time to make
alteration.
TASK 4
P.5. Company how the firm or concern respond to financial issues by adapting the system
of management accounting?
Financial problems are the monetary problems that were faced by government,
individual, firms . To overcome with this issue, time to time corrective measures must be taken
by the company.
The ways in which company can use the management accounting in order to respond the
financial problems are discussed below-