Management Accounting: Systems, Cost Analysis & Financial Reporting

This report provides a comprehensive overview of management accounting systems and their application within Iceland Manufacturing Ltd. It begins by discussing various management accounting systems, including inventory administration, cost accounting, and job costing, highlighting their essential requirements and advantages. The report then delves into different methods used for management accounting reporting, such as performance reports, budget reports, inventory and manufacturing reports, and accounts receivable reports. Furthermore, it includes a cost analysis using marginal and absorption costing techniques to prepare an income statement. The report also examines the advantages and disadvantages of different budgetary planning tools and analyzes how companies adopt management accounting systems to address financial problems, ultimately leading to sustainable success. This document is available on Desklib, a platform offering AI-based study tools and a wide range of solved assignments for students.

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Table of Contents
INTRODUCTION.......................................................................................................................................3
PART 1.......................................................................................................................................................3
TASK 1.......................................................................................................................................................3
P1) Discuss management accounting along with the essential requirements of different methods of
management accounting system..............................................................................................................3
P2) Methods used for management accounting reporting........................................................................5
M1) Discuss advantages and applications of different management accounting system.........................7
TASK 2.......................................................................................................................................................8
P3) Calculate cost with appropriate techniques of cost analysis and also prepare an income statement
by using marginal and absorption costing................................................................................................8
M2) Apply different techniques of management accounting also produce appropriate financial
reporting document................................................................................................................................10
PART 2......................................................................................................................................................11
TASK 3.....................................................................................................................................................11
P4) Discuss advantages and disadvantages for different types of tools used for budgetary planning....11
M3) Analyze different tools along with their application for making budgets.......................................12
TASK 4.....................................................................................................................................................13
P5)Compare how company adopts management accounting systems to offer response related to
financial problems.................................................................................................................................13
M4) Discuss the way in which dealing with financial problems using management accounting can lead
organization towards sustainable success..............................................................................................15
CONCLUSION.........................................................................................................................................16
REFERNCES............................................................................................................................................17
REFERNCES............................................................................................................................................20

INTRODUCTION
Management accounting is a process by which financial information of organization is
communicated to managers so that they can take effective business decisions in order to achieve
predefined goals. Under this, reports related to business operations are prepared so that managers
can take effective short terms as well as long term decisions. By this, a business entity is able to
achieve its predefined goals by analyzing, interpreting as well as communicating necessary
information to managers (Quattrone, 2016). It is analyzed that management accounting is helpful
in business forecast, and taking make or buy decisions for enhancing business growth and
success in an efficient manner. The present report is based on Iceland manufacturing ltd which is
a well known retailer of UK. It is a part of Iceland Food Group and works in food production.
The report includes various system of management accounting which are used by company for
running business efficiently. Apart from this, different methods which can be used for reporting
purpose in the field of management accounting have also included in the present report along
with appropriate technique of cost analysis which are used to prepare a detailed income
statement. It also includes merits and drawbacks of different budgetary planning tools along with
the way in which management accounting system is used by organization for dealing with
financial problems.
PART 1
TASK 1
P1) Discuss management accounting along with the essentials of requirements of different
methods of management accounting system
Management Accounting:
It is a method which is often used in accounting in order to prepare reports so that
managers are able to take appropriate business decisions in significant manner (Maas,
Schaltegger and Crutzen, 2016). Main aim of management accounting is to present the fact in
such a manner that managers can easily take appropriate short term as well as long term decision
for business success. Management accounting is used for making forecast about future

requirements and availability of liquidity within company. It helps to take decisions for
maximizing wealth of organization for the benefit of company and its stakeholders.
Management Accounting System:
Management accounting is a crucial activity of managing finance within organization.
Here, a lot of accounting system are used in management accounting for meeting with different
purpose. In context of Iceland manufacturing ltd, these systems are described as under:
Inventory administration system: This system is related to track the availability of
inventory and maintain a predefined level of inventory in order to maintain consistency in
production process. It is vital for an organization to have sufficient stock of raw material and
other resources so that production process can be undertake in consistent manner. Here, a
particular level has been determined by manager which known as the reorder level. If, the
inventory is at reorder level then they place an order for getting required inventory. In this, main
aim of organization is to meet with market requirements in significant manner (Alsharari and
Youssef, 2017). In context of respective organization, managers use appropriate techniques for
tracking the level of inventory on regular basis for determining needs to inventory in future
period of time. This system is really crucial in terms of fulfilling the market demand in timely
manner. By this way, company can also avoid the situation of deficit and surplus of stock which
is essential for controlling the cost effectively. There are some approaches used to keep control
over stock which are mentioned as under:
LIFO: According to this, the units which are entered in stock last need to used first during
production process.
FIFO: It is based on the concept of first in and first out under which units which are first
included in stock need to use on priority during production.
Cost accounting system: It assists in keeping proper control over cots which incur during
production of product and services. While producing goods, there are ample of direct as well as
indirect expenses incurred. Here, direct expenses are directly related with production. On other
side, indirect expenses do not have direct association with manufacturing process but play a
crucial role in production of product and services (Collis and Hussey, 2017). It is stated that

managers need to keep proper control over cost so that company can earn sufficient amount of
profit margin. In reference of Iceland manufacturing, they adopt cost accounting system for
maintaining and keeping proper control over cost so that organization can extract adequate
profitability.
Job Costing system: It is a system which is often used for determining cost of a particular
job or work. This method is considered more suitable while there is a requirement of separate
contracts and jobs for completion of a specific task. Under this, the cost of each job is ascertain
separately which further helps in identifying profit and loss for each particular job. It also
provides an estimation if the similar kind of job is performed in future period of time. This
method is vital in making optimum use of available resources and also assists managers in
making anticipations about future requirements. In references of selected company, managers
will prepare separated cost estimation for each and every job with an aim to trace the profit and
loss generated by each & every job in an efficient manner.
P2) Methods used for management accounting reporting
In business, it is imperative to prepare reports on regular basis in order to assist managers
in decision making process. Management accounting reports are used for planning, regulation as
well as measuring the performance (Pelz, 2019). These reports are prepared throughout the
accounting period as per requirement of business. Here, reports are prepared by management
team who are competent and efficient in preparing such reports. In regards of Iceland
manufacturing, they adopt certain management accounting report system which is described as
under:
Performance Report: In organizations, there are a lot of people work together so it is
vital to monitor their performance in timely manner. For this purpose, performance report is
maintained in order to keep a track over performance of employees. By this report, it is easy to
make comparison between desired performance and actual performance which further help in
preparing appropriate strategies for further improvement. In reference of respective organization,
they can evaluate performance of subordinated by preparing required reports. It will prove
helpful in terms of arranging necessary training & development programs for employees.

Budget Report: It is considered as one the crucial report under which financial analysis is
done for a particular accounting period. In this, managers first anticipate about future expenses
and then identify source of income. On the basis of this information, an appropriate budget is
prepared for making optimum use of funds available within company. In context of Iceland
manufacturing ltd, they can prepare a proper budget with estimation for meeting with different
business requirements in an efficient manner (Järvinen, 2016).
Inventory and manufacturing report: This report is prepared with an aim to keep proper
control over inventory so that manufacturing process can be undertake without any disruption. In
this, management team tracks the availability of inventory and prepares report accordingly. It is
helpful in maintaining records related to manufacturing and goods for meeting with market
demands in an efficient manner. It comprises to maintain necessary stock for meeting with
uncertainties effectively. By this way, organization is able to deal with deficiency and surplus of
inventory in best possible way. In reference of respective company, managers prepare an
appropriate record with the help of previous statements for meeting with increment in current
requirement. Main aim of this report is to make optimum use of available resources and
minimize wastage for future benefits.
Account receivable report: This report is maintained by organization which help to
anticipate about getting payment from different parities to whom the product and services have
been sold on credit. It is a periodic report which categorized the account receivable of company
according to time with which an invoice has been outstanding. This document also demonstrated
the financial health of customers of organization. It depicts the unpaid invoice balance along
with the date (Soderstrom, Soderstrom and Stewart, 2017). Account receivable is asses of
company but higher amount of accounts receivable depicts that organization is unable to recover
money from debts. For this purpose, accounts receivable are prepared so that business entity can
get the idea about how much money they owe from customers. In this regard, respective
company prepare account receivable reports so that they can recover the necessary funds from
customers for minimizing the issue of bad debts within business.
M1) Discuss advantages and applications of different management accounting system
Accounting system Advantages

Inventory management system Benefit: This system is helpful in keeping proper control
over the level of inventory. It also assists company in terms
of maintaining carrying as well as ordering cost at lower
level.
Application: It is used across the business for tracking
goods within supply chain management of company so they
are able to meet with market demand in an efficient manner.
Cost accounting system Benefits: This system is vital for keeping control over cost
of production and other expenses so that organization can
manage to earn sufficient amount of profit margin.
Application: It is applied by organization to reduce cost and
find new ways with which production can be done with
fewer expenses.
Job order costing system Benefits: Under this system, separate cost is determined for
each and every activity so that company gets to know which
activity is profitable or which is not. It helps to keep
appropriate control over cots as well as profitability.
Application: This technique is used for identifying cost of
each product which is being manufactured by organization.
It is highly important when variety of goods are produced
which are different from each other.

TASK 2
P3) Calculate cost with appropriate techniques of cost analysis and also prepare an income
statement by using marginal and absorption costing
Marginal cost: It refers to the change in total cost which occurs due the overall quantity
of production is increased by one unit. In simple words, it shows the changes which come due to
production of one additional unit. It is change in total cost which include raw material, labor
expenses and so on. This method is used by management team for analysis of whole
manufacturing cost of commodity.
Income statement with marginal method

Absorption costing: It is a method which is used to assess the whole expenditure related
to manufacturing of particular product. It is also known as full costing as here all the expenses
which are associated with production of product are taken into consideration. In this, all kind of
expenses such as direct, indirect are accounted in an efficient manner with an aim to ascertain
appropriate cost of a specific product.
Income statement by Absorption cost

M2) Apply different techniques of management accounting also produce appropriate financial
reporting document
Management accounting tools and techniques are applied by accountant for executing as
well as managing records of financial information in an efficient manner. In business, it is
important to keep proper control over funds for future betterment. For this purpose, different
techniques such as marginal costing and absorption costing are used which assist financial
manager in order to prepare appropriate records (Kastberg and Siverbo, 2016). These records are
also used by other external parties such as stakeholders for analyzing business performance in
significant manner. Financial reporting is done through three crucial documents such as income
statement, balance sheet and cash flow statement. Here, income statement provides complete
details about income and expenditure within company. The other document which is balance
sheet demonstrates financial positioning of business. On other side, cash flow statement
represents inflow and outflow of cask within organization for a particular period of time.
PART 2
TASK 3
P4) Discuss advantages and disadvantages for different types of tools used for budgetary
planning
Budgetary control is a process which is used for taking out comparison between actual
and expected performance of company in order to meeting with gap and take necessary
corrective actions. Preparing budget is not an easy task as it required a lot of extensive research
with an aim to get necessary data. Budget is not related to a particular department thus there is
requirement of proper coordination between different departments such as production, research,
marketing and more (Fleischman and McLean, 2020). In this regard, different tools of budgetary
control which used by iceland manufacturing company is described as under:
Budgets: There are a lot of budgets are prepared by company in order to keep proper
control over resources and make efficient use of funds. Budgets are helpful in making future
estimations and make effective use of resources so that predefined objectives can be achieve. For
this purpose, different budgets are mentioned as under:

Cash Budget: It provides information about inflow and outflow of cash from
organization within a particular period of time. Main aim of this technique is to maintain
necessary liquidity in business so that company can meet with its daily expenditure in significant
manner. Without the availability of cash, sometimes organization needs to face difficulty in
performing daily operations. So, it helps manager of respective entity in preparation of
appropriate plan for future.
 Advantages: It is imperative in identifying requirement of cash in upcoming years and
also eliminates the risk of overhead expenses.
 Disadvantages: Due to excess availability of cash, there is probability of misuse of funds
which might put adverse impact on organization.
Operating budget: It is related with daily operations of company. In general, organizations
execute income as well as expenses on daily basis by business trade (Englund and Gerdin, 2018).
So, it is imperative to maintain operation budget for meeting with day to day requirements of
business.
 Advantage: With the help of this budget, organization can easily meet with its daily
expenses which is imperative for effective functioning of business. In absence of
operating budget, issues might arise in fulfilling operating requirements of business.
Apart from this, it also help financial manager in taking better decision by considering
maximum benefit of business.
 Disadvantages: Here, manager need to devote a lot of time in preparing such budget.
Any mistake in the budget will affect the overall company.
Master budget: It is integration of all budget such as sales, purchase, cash and other
budgets. It includes different information in terms of amount, statement which is crucial for
operations of company. By this budget, it is possible to get all the necessary information at a
single place.
 Advantages: The main advantage of this budget that it provides feasibility to provide
whole information through a single budget. It helps financial managers to track the
financial performance of whole organization in an efficient manner. With this, they can
take effective business decisions for future growth (Gogaev and et. al., 2019).

 Disadvantages: It is not easy to get necessary information from master budget as it is a
combination of different budgets so one needs to have detailed financial knowledge in
order to extract necessary information from master budget.
Variance analysis: It is a process under which variations are identified in income &
expenses of current year with budget values. Variance analysis is a crucial process of
budgetary control which helps in identifying the variance and make appropriate strategies in
order to make further improvement.
Advantages:
 With the help of this tool, managers are able to make detailed, efficient as well as
forward looking budgetary decision.
 It is also helpful in terms of improving future performance by identifying variance in
significant manner.
Disadvantages:
 Variances are identified through financial results which are releases at the end of
financial year so it might delay the whole process of budgetary control.
 Variance analysis is a lengthy as well as expensive process which needs a lot of
planning and organization for getting appropriate results.
M3) Analyze different tools along with their application for making budgets
It is stated that there are a lot of tools are used for budgetary planning such as cash
budgets, master budgets and more. Cash budget is used for maintaining liquidity within business
so that company can meet with its different requirements (Abernethy and Wallis, 2019). On other
side, master budget is used to prepare appropriate strategies for future growth of company.
Budgets are helpful in making anticipation about future expenditure and income of organization
so that company can prepare strategies accordingly. It also assists in preparing records fir future
benefit.