Management Accounting Techniques for Organizational Financial Problems

This report provides a comprehensive analysis of management accounting systems and techniques used by organizations to address financial problems. It begins by explaining management accounting and its essential requirements, including cost accounting, inventory management, job costing, and price optimization systems. The report then discusses various management accounting reporting methods such as budgeting, cost and sales, divisional, and investment appraisal reports. It highlights the benefits of management accounting systems in strategic planning, organizing, controlling, and decision-making, using the case of Waitrose as an example. Furthermore, it applies absorption costing and marginal costing techniques to prepare income statements. The report also explains planning tools for budgetary control, and compares how organizations adapt to respond to financial problems. The document is available on Desklib, a platform offering a wealth of study resources including past papers and solved assignments.

Management Accounting
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Contents
Introduction.................................................................................................................................................3
LO1: Demonstrate an understanding of management accounting systems..................................................4
(P1) Explain management accounting and give the essential requirements of different types of
management accounting systems.............................................................................................................4
(P2) Explain different methods for management accounting reporting....................................................6
(M1) Benefits of management accounting systems and their application within an organisational
context.....................................................................................................................................................7
LO2: Apply a range of management accounting techniques......................................................................11
(P3) Calculate cost using appropriate techniques to prepare income statement.....................................11
LO3: Explain the use of planning tools used in management accounting..................................................14
(P4) Explain the advantages and disadvantages of different types of planning tools that can be used for
budgetary control for the chosen scenario.............................................................................................14
(M3) Advise to the CEO of M&S..........................................................................................................16
LO4: Compare ways in which organizations could use management accounting to respond to financial
problems....................................................................................................................................................17
(P5) Compare how organizations are adapting to respond to financial problems..................................17
Conclusion:...............................................................................................................................................18
References:................................................................................................................................................19
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Introduction
Management accounting is a type of reporting that is created solely for the management use. The
management accounting provides the manager with the insight about the present situation of
organization and way of improving it. The management accounting also provides comparison
between the expected and actual outcome of production. This function of management
accounting is referred to as budgetary control Management accounting is prepared for the short
term decision making of company. Management accounting estimates production cost in
different ways that is beneficial for the company strategy. Now a day’s management accounting
is integrated with environmental and social factors. This integration can reduce the financial
problems of companies (Huang, et al, 2010). Management accounting is an important concept in
the business operation and the management accountant performs the duty of this activities.
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LO1: Demonstrate an understanding of management accounting systems
(P1) Explain management accounting and give the essential requirements of different types
of management accounting systems
Management accounting can be defined as the critical component of operational function of
management in which various types of information are extracted and reported in an appropriate
report format which contains data that can be used by management for performing their decision
making function. The function of management accounting involves identifying, interpreting,
presenting and analyzing the data presented in the reports of management accounting (Bromwich
& Scapens, 2016).
Management accounting
system
Explanation Essentials
Cost accounting system The cost accounting system can
be seen as the function in which
various types and elements of
costs are recognized and
presented in an appropriate
format to the management of an
enterprise (Botes, et. al., 2017).
It must be ensured that there
exist an effective integration
between the financial accounting
and cost accounting system of
the enterprise.
The source and format of cost
data identified should be proper
and accurate.
Inventory management system The system of this type is
concerned with obtaining an
optimum level of inventory in
the production system of the
company. The inventory control
system helps in cost reduction
activities.
The factors which affect the
inventory levels should be given
more consideration.
The system should assist in
achieving the economies of scale
and appropriate inventory level
in the supply chain management
of company (Botes, et. al., 2017).
Job costing system The type of costing system is The different types of costs
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implemented in those companies
which are having a decentralized
working systems and processes.
The various costs and revenues
are identified separately for each
job or process.
associated with various jobs
should be identified separately
and the same should result in
appropriate classifications.
The allocation of indirect
overheads should be reasonable
and based on correct principles
(Hemmer & Libra, 2016).
Price optimizations system The accounting system helps in
determining the level of sales
and revenues to be achieved at a
particular point of sales price of
the product or service.
The price optimizations cost
model should be developed
appropriately and according to
various factors kept in mind.
The competitive analysis should
be taken into consideration while
deter mining the appropriate
price level of product or service
(Bromwich &Scapens, 2016).
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(P2) Explain different methods for management accounting reporting
The various types of reporting methods which can be used by the management of Waitrose are as
under:
Budgeting reports – As the company is in the phase of development and initial stage of
executing new plans there is need to develop a budgeting plan for future course of action for the
company. The plans developed for the strategic direction of the company Waitrose will be
reported in budgeting reports appropriately (Hemmer & Libra, 2016).
Cost and sales reports – The type of reports will be used by the company Waitrose in order to
record and maintain the data about the various types of costs and sales revenues obtained during
the period. The same will help in analyzing the current financial position of company in respect
of market and other industry factors.
Divisional and segmental reports – The Company has decentralized system of performing the
operations and managing its business affairs and therefore there is a need to develop a proper
reporting system separately for each and every department of the company which will include all
its items related to costs and revenues of the company.
Investment appraisal reports – The type of reports are concerned with taking long term
decisions for the company and the various proposals for investment to be made by the company
are critically evaluated and analyzed through this type of reporting. The various results obtained
by applying the investment appraisal techniques like NPV, IRR etc. will be identified and the
results obtained will be reported as per the norms by the company (Granlund & Lukka, 2017).
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(M1) Benefits of management accounting systems and their application within an
organisational context
It can be observed form the above case study that the company Waitrose is currently facing a
financial crunch and the customers are not satisfied with the services of the company. Also the
company has been operating in highly competitive environment which requires innovation and
sound business practices. The various benefits in context of Waitrose are describes as below:
 Strategic planning – The company is in the phase where it is introducing various exciting
offers for attracting its customers in order to increase the revenue of the company. The
management accounting function will provide strategic direction to the company for
making suitable action plans to be executed in the company (Granlund & Lukka, 2017).
 Organizing – It can be observed that there is required a proper security system and
supervision system in Waitrose to check whether the customer has purchased the item
before taking the delivery of coffee and the function of management accounting will
provide adequate options for managing and organizing these affairs in the company.
 Controlling – The Company needs to control its costs and expenditures in order to
achieve the highest profitability and growth in future and therefore the costing techniques
like standard costing, responsibility accounting will assist the company in planning and
executing the cost control and cost reduction activities in company.
 Decision making – The function of management accounting will help significantly the
management of Waitrose to take critical business decision efficiently and effectively. The
use of various management accounting tools and techniques will assure that proper
decisions are taken at appropriate time (Botes, et. al., 2017).
Management accounting systems and reporting is integration with organisational
processes.
In Waitrose the management accounting system will play a crucial role in achieving the
organization objectives and goals. However there is a need to achieve integration with
organizational processes that can be achieved as following:
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System and reporting Integration with Waitrose processes
Cost and sales accounting system The integration in Waitrose can be achieved by
appropriately recognizing each and every
activity associated with revenue recognition of
company and the same should be correctly
recorded.
Inventory management system The integration will be achieved by achieving
the optimum level of inventory that will result in
maximum profitability and the processes of the
organizations are operated in a way to achieve
this inventory level (Bromwich &Scapens,
2016).
Job costing system The integration with this system can be achieved
only by effectively communicating the separate
cost items and revenues related with each and
every organizational process and jobs of the
company to the concerned management
(Anderson, et. al., 2015).
Budgeting system and reporting The proper integration between Waitrose
organization process and this system can be
achieved by first identifying the objectives and
goals of the department and process and then
setting the budgeting standards for that
concerned department and process (Hemmer
&Labro, 2016).
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1. Budget report
Budget report is the internal report that is used for the comparing the estimated and actual
performance in a certain time period (Leach-Lopez, et al, 2011). The estimated budget is
prepared on the previous year performance. The area of comparison here is the revenue and
expenses. This report helps the accountant to meet the future demand. This is done is either by
increasing the revenue of production or by decreasing the cost of the production.
2. Account receivable aging report
Account receivable aging report is prepared for the management of cash flow. It is a difficult tool
as this deal with extending credit. This report differentiates customers on the amount and time
owed to company. The report differentiates the payable of customer on 30 day, 60 day, 90 day or
more. This helps the management accountant to find the problem in the collection process.
3. Job cost report
Job cost reports prepares report on the estimated benefit and expenses of a particular project.
Through this the company can evaluate the job’s profitability. This helps management to keep
focus on the profitable projects of company (Parker, L.D., 2012). This reduces the waste of time
and money on the low profit projects.
4. Contribution format income statement
Contribution format income statement prepares report on the income statement that is used by
the management for the decision making. Here the manager breaks down the cost in fixed and
variable cost. The income statement is prepared using two methods. One is marginal costing and
the other is absorption costing. Marginal costing includes only variable cost in the production
cost. Absorption costing, on the other hand, includes both variable and fixed cost for the
production costing. The income statement preparation is given below.
Format of marginal costing income statement
Sales
Less: variable expenses
XXX
XXX
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Variable manufacturing expense
Variable selling and administrative expense
Other variable expenses
Contribution margin
Less: fixed expenses
Fixed manufacturing expense
Fixed selling and administrative expense
Other fixed expenses
Net operating profit/ (loss)
XXX
XXX
XXX
XXX
XXX
XXX
XXX
Format of absorption costing income statement
Sales
Less: cost of goods sold
Gross profit
Less: non production expense
Net operating income
XXX
XXX
XXX
XXX
XXX
5. Inventory report
Inventory report is prepared on the inventory waste, hourly labour cost or per unit labour costs.
This is beneficial for the companies that have physical inventory to consider.
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LO2: Apply a range of management accounting techniques
(P3) Calculate cost using appropriate techniques to prepare income statement
Absorption costing:
Under marginal costing –
Income statement as per Marginal costing method
Particular May (In €) June (In €)
Sales 15000 25000
Les
s Variable expenses:
Variable production cost 8000 6080
Variable sales commission 750 1250
Margin contribution 6250 17670
Les
s Fixed expenses
Fixed production overhead 4000 4000
Fixed Selling and administrative expenses 6000 6000
10000 10000
Net operating Income -3750 7670
Working Note:
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Unit Product cost
Particular Amount (in €)
Direct material 8
Direct labor 5
Variable manufacturing
overhead 3
Unit Product Cost 16
Under absorption costing –
Income statement as per Absorption costing
Particular
May (in
€)
June (in
€)
Sales 15000 25000
Les
s Cost of Goods sold 7800 13000
Gross margin 7200 12000
Les
s Selling and administrative expenses
Variable selling and administrative expenses 750 1250
Fixed selling and administrative expenses 6000 6000
Net operating Income 450 4750
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