Analysis of Management Accounting Systems and Planning Tools

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Management Accounting
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Contents
Activity 1.....................................................................................................................................................3
Part A..........................................................................................................................................................3
Management accounting..........................................................................................................................3
Types of management accounting...........................................................................................................3
Methods of management accounting reporting........................................................................................5
Benefits and applications of management accounting.............................................................................6
Managerial accounting and managerial accounting reporting integration in Hochtief Construction
Limited....................................................................................................................................................8
Part B.........................................................................................................................................................10
Appendix 1............................................................................................................................................10
Appendix 2............................................................................................................................................13
Activity 2...................................................................................................................................................15
Part A........................................................................................................................................................15
Compare and contrast three planning tools used in management accounting........................................15
Explanation of the advantages and disadvantages of different types of planning tools used for
budgetary control leading to an analysis of the use of different planning tools and their application for
preparing and forecasting budgets.........................................................................................................16
Part B.........................................................................................................................................................20
A comparison of how organizations are adapting management accounting systems to respond to
financial problems.................................................................................................................................20
An analysis of how in responding to financial problems, management accounting can lead an
organization to sustainable success........................................................................................................21
An evaluation of how planning tools for accounting help to solve problems and support organizations
with sustainable success........................................................................................................................21
References:................................................................................................................................................23
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Activity 1
Part A
Introduction: In the company, Hochtief construction limited in the UK leading to a big
engineering company. Here some ways will be suggested to calculate costs by efficient
technique. Here we will be discussing some of the ways for improving the better understanding
of different departments in an organization. We will have a better understanding of management
accounting between different departments in an organization. It will include all the explanations
of management accounting and all details of various types of management accounting, their
benefits and applications of management accounting. Various types of management accounting
techniques will be discussed which could be beneficial for an organization.
Management accounting
The process of arranging,organizing, reordering of the information related to the financial sectors
of an organization and arranging according to the economic factors for taking effective decisions
in any organization (Malina, 2018).
Management accounting has various systems which will take to efficient and effective systems:
 Cost accounting Systems
 Profit organizations
Management accounting is not governed by any law and they consist of monetary and
nonmonetary information’s. Management accounting collects financial data from financial
accounting and hence helps the management in the better management of their functions such as
planning and controlling activities of the firm. It helps in collecting the information’s which
could be helpful in any organization for the process of decision making. It helps in providing
quickinformation which could help the managers in taking quick decisions which could be very
effective for an organization.
Types of management accounting
There are of different types with the variation in their use. Based on the use of different types of
management accounting are explained. They are of basically four types:
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COST ACCOUNTING SYSTEMS
Estimating the accurate cost of that product or the branch is sometimes beneficial for the
organization. It is helpful for an organization in many ways such as estimating the future expense
which may occur later (Bromwich and Scapens, 2016).The organization should know which
products will lead to high profits. Cost accounting is generally studied from the manufacturer
point of view. They are further may be classified into two types:
Job order costing: It is a type of accounting systems in which it gathers the cost of every
product and at last find out the cost of the specified job. It is basically the process of estimation
of the price for each product in each type of jobs.
Process costing: This is another type of cost accounting systems in which it gathers the
manufacturing costs separately for different processes. This is most suitable for those products in
which the whole process consist of different departments and in which costs interlinked one
department with another one (Bromwich and Scapens, 2016).
INVENTORY MANAGEMENT SYSTEMS
Inventory management systems use most of the retail applications but it is also used in various
fields such as in utilities, education and health facilities to the manufacturers. This type of
management systems ensures the availability of inventory at the right time with no compromise
in quality that is the best quality. This management system basically deals with the high level of
technology that is it uses both the hardware as well as software and also maintains the products
which are stocked. This management system leads to better organization and a slight reduction in
the costs involved.
JOB COSTING SYSTEMS
These systems are used for assigning the costs of a specific job separately. It is anurge to use in
the situations where we have the varied type of products and each product is specified to
different costs. As there are variations in each product so the costs linked to each product will be
different(Malina, 2018). In the modification of the trucks for the designing of buildings and for
the machine tooling etc, job costing systems plays an essential role. For example: In any
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engineering company, for the different parts of the invention like motor, other extra parts etc,
there should be a specific job for evaluating the costs.
PRICE OPTIMIZATION SYSTEMS
For improving profits, some mathematical programs are required for estimating the best price of
that product for various costs. A pricing strategy should be formed of that product and an
optimized price should be set at which both the buyer and seller are satisfied and the strategies
for maximizing the return on profit always (Laudon, 2016). This system helps out in analyzing
the Initial pricing, and the pricing at the time of discount, pricing during the promotional activity
perfect management accounting system requires the right manager for Hochtief construction
limited company in the UK. These systems help in leading the optimized price of the product
that could be possible.
Methods of management accounting reporting
The ways by which an accounting report is made in terms of management that is management
accounting report can be formed in three ways such as:
Budget Report:
Budget is a document which will helps in estimating the cost in future and future predictions of
the cost in Hochtief Construction Company Ltd. Budgets are very much important to be
evaluated so that we can make a report based on how much products we are able to sell and
produce and in which quantity it should be produced and consumed in future. When we will
compare the results of budgeted information with the actual information we will be able to see a
noticeable change in the pricing and controlling of goods and products.
Cost Schedules report:
In the above section we have generalized about the budget, now we will be calculating the exact
price of the product for producing an individual unit. While estimating the total costs incurred,
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we will also include the cost which is not included in production like advertisements,
promotional activities etc. For declaring the price of a product we must require the costing details
so that Hochtief Construction Company Ltd acquires the maximum profits. With the particular
formula, we can calculate all of the estimated costs incurred and hence can decide the better
price for the betterment of our company.
Variance analysis report:
Variance analysis can be defined as the comparison of budgeted statements and costs with actual
and then finding reasons for the difference and then taking proper actions. Budgeted statements
include sales production, net profit. For example, the actual time taken can be greater than
budgeted in producing a unit of production (Laudon, 2016). The management accounting will
then find the necessary changes and apply to them to bring down the time to what it was
expected. If the actual time is less than the budgeted, then the accountant will tell the reason and
will suggest implementing the same procedures to ensure that in future, unit production time will
be reduced.
Benefits and applications of management accounting
Some of the advantages of management accounting within an organization are as follows:
Future management
It is advantageous in the planning for the future. More detailed reports are developed in
managerial accounting rather than financial accountants. It contains information about market
reach, specific products, and regional information. Managers set their objectives which are
totally based on these reports. After setting the objectives, the manager set the eyes on the goal
and determines the strategy on how that goal can be achieved (Hyndman, et. al., 2014).
Controlling
The manager can now have control over an organization’s success. As we know the information
provided in managerial accounting report are only for the internal use, they are not accepted as
accounting principles. Managers are the one who only decides and sees which area of the
company requires extra investigation and which areas to be covered later. The quantitative and
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qualitative feedbacks are to be checked from managerial accounting and surplus decisions are
made during the face of control(Otley, 2016).
Formulations of Decision making
A manager's behaviour in Hochtief Construction Limited is affected by management accounting.
All the long terms decisions which a manager formulates have a lasting impact. All the plans are
developed and convey information with the aim of refining management decisions. Financial
accounting does not consider budgets as they focus on historical data. They are an important
aspect of managerial accounting. As a result of which, a more detailed analysis is provided.
Problem handling
Actual performance if reflected back in managerial accounting rather than in financial managing.
It compares the actual performance to its future vision and goals. Managerial accounting is
important in an organization as it really helps in solving the problems. It provides an option of
requesting additional information with a short duration of time constraints. The information
received helps in discovering the issues and provides alternatives for them (Juras, 2014).
Target achieving
The main advantage of management accounting is that it helps in setting the goal by making the
numbers unclouded. Managers in Hochtief Construction Limited can analyze the performance
and rank them while setting the goal. They can make adjustments if they want to. Managers play
an important role in motivating the employees so that they can achieve the target and can work
hard for it.
Estimating rate of return
Management accounting is responsible to answer all the questions like what are the cash flows
likely to be. The company examines the expected rate of return before signing a project which
might need heavy investments.
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Management accounting report
Management accounting report provides information about what is going in the organization. It
provides the necessary information which can be proved beneficial for the operation performed
by the organization. The Hochtief construction Limited can lower the cost, can invest in the
products which are profitable for the company with the help of reports. Reports are generated or
made daily, weekly, quarterly, depending on the time gap. Reports are very essential for an
organization and should be generated from time to time (Otley, 2016).
The need for management accounting report
Management account report is necessary as it provides a way for the managers to run the
business effectively and profitably. It helps managers to make correct and right decisions for the
organization so that the business can go on smoothly. With the report, issues can be identified
easily and resolved faster. It has also improved the efficiency of the delivery of the resources.
Reports proved themselves as a boon for the organization as it has contributed a lot in improving
the effectiveness of the organization.
Managerial accounting and managerial accounting reporting integration in Hochtief
Construction Limited
The reporting system is effective when it generates effective reports. Reports should be
generated in a correct format and in time.
Reports help in making decision making in managerial accounting. It provides useful
information.it can tell the current status of the organization (Juras, 2014). So helpful for the
managers to make the right decision and take the correct step to earn a profit for the company.
For an organization, accuracy is a must. Reports that are generated should be accurate.
Management accounting needs high accuracy.
The reporting system is considered useful only when it generates a report. Reports must be
generated on time. They should be available when needed and must be updated with new
information. If the reports are not generated on time, then there is no use of planning future for
the organization as the managers will not be able to set the operations needed for the welfare of
the company. Management accounting demands report on time as it helps to take decision faster.
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Reports help in controlling the system. It contains information about all the employees. It helps
managers to achieve all their goals and targets.repors should be consistent in nature and must be
relevant (Hyndman, et. al., 2014).
The reporting system should produce a report which should contain information about the cost of
each element, sales, credit collection period, and selling and distributing expenses so that
company could get an idea and can set their costs and other policies and program for the future
period.
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Part B
Appendix 1
Calculation of Cost per Unit Under marginal costing
Particular
Units Units Per Unit Cost
TotalDining table Chairs
Tabl
e Chair
Period
1
Period
2
Period
1
Period
2
Sales 4,350
1,7
00
16,0
00 19,100 590
9
0
6,
728,500
Variable Cost
Direct material 4,350
1,7
00
16,0
00 19,100 215
2
0
2,
002,750
Direct labour 4,350
1,7
00
16,0
00 19,100 90
3
0
1,
597,500
Production Overhead 4,350
1,7
00
16,0
00 19,100 25 5 326,750
Contributions
2,
801,500
Fixed Cost 4,350
1,7
00
16,0
00 19,100 68
2
5 892,000
Total Cost of
production / Cost of
Sales 4,350
1,7
00
16,0
00 19,100
4,
819,000
Profit 4,350
1,7
00
16,0
00 19,100
1,
909,500
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Calculation of Cost per Unit Under Absorption costing
Particular Units Units Per Unit price Total
Diningtable Chairs
Tabl
e Chair
Period 1
P
Period 2 Period 1
Period
2
A. Sales 4,350
1,
700
1
6,000
19
,100 590 90
6,7
28,500
Direct material 5,000
5,
200
2
0,000
22
,000 215 20
3,0
33,000
Direct labour 5,000
5,
200
2
0,000
22
,000 90 30
2,1
78,000
Direct labour
(Fixed ) 5,000
5,
200
2
0,000
22
,000 40 11
8
92,000
Prime Cost 5,000
5,
200
2
0,000
22
,000 345 61
6,1
03,000
Add :- Factory
overhead 5,000
5,
200
2
0,000
22
,000 25 5
4
65,000
Total Cost of
production 5,000
5,
200
2
0,000
22
,000 370 66
6,5
68,000
Less :- Closing
Inventory 650
3,
500 4,000
2
,900 370 66
1,9
94,999
Cost of Sales 4,350
1,
700
1
6,000
19
,100 370 66
4,5
73,001
Profit 4,350
1,
700
1
6,000
19
,100 220 24
2,1
55,499
Statement of Reconciliations
Particular Amount
Profit as per marginal Costing 1,909,500
Add : Closing Inventory under valuation (Fixed Cost)* 245,999
Profit as Per absorption costing 2,155,499
* Fixed Cost in Closing Inventory
Particular Unit
Overall production
Units
Fixed cost on closing
inventory
profit on
stock
Table
4
,150 10,200 410000
166,81
4
Chairs
6
,900 42,000 482000
79,18
6
Total
245,99
9
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Closing inventory is undervalued for the difference between the fixed cost charges on the goods
sold during the year. This is the main reason which arises the difference between absorption
costing and marginal costing. Marginal costing includes overall fixed cost on the sold goods but
some of the parts of fixed cost also bearded by closing inventory which is discussed in
absorption costing.
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