Management Accounting System and Financial Problem Analysis for KEF

This report provides a detailed analysis of management accounting systems and their application within KEF. It begins by defining management accounting and exploring various systems like inventory, job costing, cost accounting, and price optimization. The report then presents different management accounting reporting methods, including budget reports, job reports, and inventory reports. It evaluates the benefits and drawbacks of each system, followed by a critical assessment of integrating these systems into organizational processes. Task 2 focuses on calculations using absorption and marginal costing techniques. Task 3 analyzes planning tools for budgetary control, including their advantages, disadvantages, and applications in budget preparation and forecasting. Finally, the report examines how KEF adapts management accounting to address financial problems, demonstrating how these systems contribute to sustainable growth and evaluating the planning tools used in this process.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Explaining the meaning of management accounting system and its essential requirement...3
Different methods of management accounting reporting.......................................................4
Evaluating the benefits of the management accounting systems and its application in the
organisation............................................................................................................................5
Critical evaluation of integration management accounting system and reporting in
organizational processes.........................................................................................................6
TASK 2............................................................................................................................................6
Calculations as per absorption and marginal costing techniques...........................................6
TASK 3............................................................................................................................................9
Presenting the advantages and disadvantages of the different types of planing tools in
budgetary control....................................................................................................................9
Analysis of the use of different planning tools and their application in preparing and
forecasting of budgets...........................................................................................................10
TASK 4..........................................................................................................................................11
Comparison of how organisations are adapting the management accounting systems to
respond to financial problems by KEF.................................................................................11
Presenting an explanation that dealing with financial problem through management
accounting system leads KEF to sustainable growth...........................................................12
Evaluation of the planning tools to be used to respond to financial problem......................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is an analytical tool that is used by the business organization as
an application of the knowledge and skill in the preparation of accounting information in a
specific manner to assist the management of the business in formulating policies and controlling
and panning the operations of the business. The scope of management accounting is vast and its
assist the business in the decision-making process through use of financial as well as statistical
information. In the present report the management of KEF is presented with the meanings and
use of the various types of management accounting system and their pros and cons. With this
management accounting reporting are also explained For the new product launched calculations
are presented on the basis of absorption and marginal costing techniques. KEF is presented with
application of planning tools to respond to the financial problems and can lead to substantial
development.
TASK 1
Explaining the meaning of management accounting system and its essential requirement.
Management accounting:
As per the definition given by the cost and management accountants of London,
management accounting means the application of the professional knowledge and skill for
preparation of the accounting information in such way which assist the business management in
taking business decision and make policies, plan and control the operations of the business. This
includes the concepts and the methods which are essential for effective planning for selecting the
best alternative business action and controlling through evaluating and interpreting the business
performance (What Is a Management Accounting System, 2019). The management accounting
system and reports are integral part of the management accounting and it looks in to the events
while happens in and around the organisation along with considering the requirements of the
business. The data are elevated and gives estimated figures over which decisions can be based.
The different types of management accounting systems are:
Inventory management systems:
The inventory management system can be defined as the system for managing the
current system. This system looks at maintaining the optimal level of inventory with the business
and evaluate the requirement of stocks for procurement of the required production of the units to
reach the optimal and budgeted level of sales. In manages an effective control over the inventory

flow of KEF in for reduction in the total cost of inventory of the business (Kaplan and Atkinson,
2017). With the effective and efficient inventory management system KEF minimizes its
investment in the inventory and ensures higher profitability as this system assist the management
in keeping the optimal level of stock within the business.
Job costing systems:
The job costing system under management accounting refers to the recording of the cost
that is involved in the production of the good and commodities of the business. With the use of
this system cost and expenses incurred on each job ad activity is determined and a track of each
cost for particular job is kept. This is done to identifying the actual cost incurred on each activity
involved in production of the products of organization KEF. This system provides accurate
information which gives correct estimation of the cost incurred by the company for each of the
job and activity.
Cost accounting system:
The cost accounting system is that system under management accounting that allocate
the resources and cost to each of the activity within an organisation. KEF uses this framework to
estimate the cost of their goods and products for profitability analysis, valuation of the inventory
and controlling the cost. With determination of the cost of each of the commodity manufactured
by KEF, it can determine the sales price after adding the profit margin, the funds and quotative
required to produce a batch or each unit of product.
Price optimization systems:
The price optimization system under management accounting can be referred as that
system under which is used by KEF to set the price of the product which are affordable to the
consumers (Maas, chaltegger and Crutzen, 2016). This system assist the management of KEF in
creation of sales model and cost model which assist in determining the demand of the product.
This aid In evaluating the expenses incurred and sales target which are required to meet the profit
margin of the business.
Different methods of management accounting reporting
Budget reports:
The budget report is the basic report which is prepared for overall business of KEF. This
assist managers and owners of the business in understanding the cost and expenses which is
distributed throughout the organisation to each of the activity of the business. The identification

of cost is in the context of each of the department and each job of KEF. The expenses of the
previous years are evaluated and then it makes the estimated budgets for the nest coming years.
Job reports:
The job costing report are preshared to identify the cost and expenses of each of he job
within KEF. This gives detailed view of the total cost incurred on a job and defines cost
bifurcation for each part of the job (Types of Managerial Accounting Reports, 2019). The reports
assist the management of KEF in evaluation of the profitability of each specific job and aid them
in optimizing the cost and expenses in the limit of resource allocated to that specific job.
Inventory and manufacturing report:
KEF manufactures products and it is engaged production activities primarily. This type
of business have a low endurance regarding any shift in the inventory as this can result in major
losses and fall back in the productions. For this the inventory and manufacturing reports are of
high value (Quattrone, 2016). This also assist in centralising the data related with inventory cost,
labour and other overhead which are incurred in the production process with presenting a raw
data for optimizing the cost.
Evaluating the benefits of the management accounting systems and its application in the
organisation
Inventory management systems:
The advantage of the inventory management system includes keeping a track on the
supplies and presenting the information to the management of KEF. This system aids the
company in controlling inventory holding cost as identifies actual requirement of raw material
in stock and the produce the goods as per demand which increase the profitably and efficiency in
production. The disadvantage associated with this system is that it is complex and to determine
the actual demand is very tough as its fluctuate rapidly. The process is time consuming and
required skilled person to prepare the system.
Job costing systems:
The job costing system's benefits includes ascertainment of the cost and expenses related
with each of the activity of the KEF. This assist the business in determination of each specific
cost required to conduct various activities of business. This assist management of KEF in
allocation of resources effectively. The drawback of this system is that there is no standard set to

determine the cost and expenses estimations. There is more clerical work involved in this system
and maintenance of detailed information is also required.
Cost accounting system:
The pros related with this system is that cost related with activity is easily identifiable
and this gives management of KEF an opportunity to conduct comparison of spending on each
activity and take cost controlling measures accordingly (Messner, 2016). This cons related with
this system are that this system is time consuming and to determine the cost of each activity is
quite lengthy. A wrong detection of the cost can lead to misallocation of the resources and can
hamper the performance efficiency.
Price optimization systems:
The advantages associated with this system is that it allows the KEF to set such prices
which are dearer to consumers and they can afford the same. This system efficiently reduces the
manual resource engagement for determining the selling price of the business products. This
cons related with this system is that it s hard to determine the level of price that is affordable to
the consumer as their taste and preference changes frequently.
Critical evaluation of integration management accounting system and reporting in organizational
processes
The management accounting system are related with presenting a coherent system for
managing the activities of the business of KEF. That provide the management with the data and
figures over cost, spendings, resources and their allocation to each of the activity of the business.
The management accounting reports are prepared by the KEF to determine performance of the
business and its related activities. The integration can be shown as on the basis of the
management accounting systems the reports are prepared and both of falls under the scope of the
management accounting. Moreover, management accounting is related with stating system to
conduct the operation of the business of KEF and the other is related with detecting and
evaluation of the performance and each setting the goals for each of the activity of the business.
TASK 2
Calculations as per absorption and marginal costing techniques
Details given
Particular Amount in Pounds

Selling price per unit 60
Cost per unit of direct material 12
Variable overhead of production 8
Cost per unit of direct labour 20
Fixed manufacturing overhead 120000
Units sold 16000 units
Units produced 18000 units
Units in closing stock 2000 units
Calculation of per unit cost:
Marginal costing method:
Under the marginal costing method the unit cost and total cost calculation do not
consider the fixed manufacturing a part of its unit cost. The contribution margin under the
marginal method is research after deducting all the variable expenses from the sales revenues
only. No fixed cost is deducted from sales (van Heldenand and Uddin, 2016). The income
statement under the marginal tocsin method are prepared as deducting the variable cost to reach
the contribution from which fixed cost is deducted to reach the gross profits.
Particular Cost per unit
Material unit cost 12
Labour cost per unit 20
Variable manufacturing overhead 8
Per unit total cost 40
Absorption costing:
Calculation of cost per unit and profits under absorption costing is different from
marginal costing method. Under this method the fixed production on overhead cost is considered

to be part of the unit cost. Under this method the fixed manufacturing overhead are considered as
pert of the production cost and are allocated to the unit cost of goods. The profits under this
methods are always high when the production is more than then the sales units. The calculation
of profits under income statement is done deducting value closing stock from sales revenue and
to reach gross profits and then deducting the total cost of manufacture including variable and
fixed cost to reach the net operating profits of the production of goods and commodities.
Particular Cost per unit
Material unit cost 12
Labour cost per unit 20
Variable manufacturing overhead 8
Fixed manufacturing overhead => (120000/18000) 6.67
Per unit total cost 40
Budgeted income statement under Marginal costing method:
Revenue from sales 16000*60 960000
Value of cl st 2000*40 80000
Total VC 40*16000 640000
Contribution margin 400000
Total fixed cost 120000 120000
G/p 280000
Budgeted income statement under absorption costing method:
Particular Working note Amount
Revenues from sales 16000*60 960000
Closing stock 2000*46.67 93340
G/P
Total cost of manufacturing 18000*46.67 840060
Net Op profit 213280

Actual income statement under Marginal costing method:
Particular Working note Amount
Revenues from sales 16000*60 960000
add: cl stk 2000*40 80000
less: V/C 40*16000 640000
Contribution margin 400000
Less: Total F/C 120000 120000
GP 280000
Actual income statement under absorption costing method
Particular Working note Amount
Revenues from sales 16000*60 960000
add: cl stk 3000*46.67 140010
G/P
less: cost of production 19000*46.67 886730
Net Op profit 213280
TASK 3
Budget preparation and its purpose:
The budgets are of various types and such as sales, operating, cash and others and each of
them is prepared by the organisation KEF with a view to determine the cost and spendings on
different activities of the business. This budget forecast the incomes and expenditure of the
business and by that the profitability of the business is evaluated. The main purpose of the
budget preparation is to present the estimated cost to the business where the activities to be
undertaken within allocated resources and funds.
Presenting the advantages and disadvantages of the different types of planing tools in budgetary
control
Zero based budget:

The benefits of preparation of this budget s that all the expenses are estimated freshly
with a zero base and all are justified as well. The KEF is ensured with this budget over spending
of each penny of the business (Malmi, 2016). The disadvantage of the business is that it take lot
of time to prepare the budget and it rewards short term thinking where the resources are shifted
to those area which give more profits.
Operating budget:
The pros of this budget is that KEF an keep a track of all the activities of the business.
This identifies the revenues earned and spending done by the business which let the business
know all actual profits earned and difference between income and expenditure. The cons of this
budget is that it is not flexible in nature and does not allow any changes in the estimated figures
during the year.
Cash budget:
Analysis of the use of different planning tools and their application in preparing and forecasting
of budgets
Zero based budget:
The Zero based budget is that budget which is prepared by the KEF from zero base for
each budgeting period which s generally a year. Under this budget reference from old budget is
taken ad all the expenses are estimated on fresh basis as per the prevailing conditions of business
operations such as production level, cost of raw material and others. The expenses estimated
under this budgets are required to be justifies as what are the basis for reaching the cost and
spendings for each of the activity of KEF.
Cash budget:
The cash budgets are the budget which is related with each expenditure of the business
exclusively. This budget defines cash spending that will be done by KEF in a budgeting periods
This budget take references form past budgets and prepare a new budget for each budgeting
period (Anessi-Pessina and et.al., 2016). The expenses and cost are estimated on the cash basis
that will incurred no each activity or production of the business. Preparation of cash budget is
beneficial for the company because it enables the organization in assessing the pattern of its cash
inflows and cash outflows. This aids the managers of KEF Ltd., in formulating more effective

strategies for enhancing the cash inflows and keeping a check on the activities which are
consuming the financial resources and the benefits they are generating for the business entity.
Further, it helps the management of the bushiness enterprise in dealing with the financial
situations by making the realistic predictions and forecasting. Moreover, it facilitates the
company in its seasonal planning. Cash Budgets aids the managers in getting prepared for the
seasonal fluctuations in sales and expenses. For instance, this budget helps in setting aside a
particular amount of money for dealing with the seasonal peaks and recession. The drawback of
this budget is it requires trained professionals and experts which is a challenge for company to
find such personnel and retain. Further, it consumes too much of company resources in terms of
time and money.
Operating budge:
The operating budgets for KEF are prepared with a view to determine the projected
revenues and the expenses associated for the forthcoming period within the organization. It is
presented on the formate of income statement and the Management goes through the process of
compiling the budget before the start of each year. In this budget all the cost incurred within an
organisation are included such as variable, fixed, semi variable and operating cost.
TASK 4
Comparison of how organisations are adapting the management accounting systems to respond
to financial problems by KEF
The the management accounting system with KEF assist the management in decision
making process. The process of making decision includes the identification of choice presented
to the business under the system and selecting the appropriate one in accordance with the issues
and prevailing conditions as well. The process includes different stages and KEF make
thoughtful and deliberated decisions by organisation of the information and defining the
alternative solution to a give issue or task.
Issues/Problem Alternative 1 Alternative 2 Conclusion
There is decline in the
sales revenue of KEF
organisation and the
company is under a
The first solution is to
adopt the absorption
costing method
whether company can
Under the second
alternative of
marginal costing the
organization KEF is
This is suggested to
the KEF that the
decision of buying the
product is more

dilemma regarding
manufacturing of some
of its product and it is
required to decided
whether to continue
the production or to
outsource the
manufacturing of the
product and selling it
under its brand name.
absorb its fixed
manufacturing cost
under its unit cost.
This option will render
the company more
profits and for this the
buy decision can let
the company more
profits and allows it to
save more money on
investments in the
fixed assets and costly
machines.
required to set its
focus on variable cost
and not on the fixed
cost. The fixed cost
will not be charged to
unit cost, so with
controlling the
variable cost the
company can earn
higher profits. With
the make decision is
more suitable to the
company as it can
control its operating
cost and reduce the
production time as
well.
favourable to KEF as
the profits are always
higher in absorption
method as compared
to the marginal costing
method.
The organisation KEF
is experiencing a
problem of over
expenses as compared
to its budgeted
expenses.
The first alternative is
to prepare zero based
budget where all the
expenses will be
justified for each
budgeting person and
this will allow the
business to know the
cost and funds
acquirement for each
of the activity of the
business.
The second alternative
available to the
business is
preparation of the
operating budget.
Under this budget all
the incomes and
expenses of the
business will be
estimated. With this
budget the KEF will
have a cleare picture
over the revenues that
will be earned and the
For this issue zero
based budgeting is
more suitable for the
business KEF as this
will assist the business
in estimating the cost
incurred on each
activity and the
business can apply the
cost control measure
for each activity
accordingly to control
the expense.

expenses that will be
incurred.
Presenting an explanation that dealing with financial problem through management accounting
system leads KEF to sustainable growth
Form the above table it can be seen that the business KEF is presented with different
solution for various business issues and problems. All these alternative solutions are presented
under the management accounting and its systems. The business KEF can respond to the
financial issues in accordance to the tools and techniques of management accounting. With
dealing with the problems in time and by use effective tools, KEF can address the issue
efficiently and cope with the uncertain situation before the time (Van der Stede, 2015). This
assist the organisation in identification of the problems before their occurrence and assist the
organization in coping and avoiding those situation by providing effective tools and measures.
This ensured smooth running of organisation, thus ensures it long term survival and sustainable
success.
Evaluation of the planning tools to be used to respond to financial problem
The various planning tools for the budgetary control prepared by KEF are the different
budgets. All his budget directly assist the business in cost control and identification of the
spending on each activity and over production of the business. This means that management of
KEF is presented with estimated cost and spending before actual increment and this let it know
that for each job how much funds and resources are required to be allocated. Here the
organisation can allocate the available and scared resources accordingly. Also with comarision of
actual and budgeted expenses KEF can identify the variance and can determine the reason for the
same. All this allow the business to have effective control over its expenses and cost and lead to
avoid the short term and long term financial problems.
CONCLUSION
From the above project report, it can be concluded that managerial accounting plays a
great role in the sustainable success of the KEF Ltd. This branch of accounting possesses the
power of recording and analysing the cost and other financial information in such a way that
crucially helps the business organisations in their decision making processes. In the report,
different kinds of management accounting were studied such as cost accounting system,

inventory management accounting system, price optimization etc., which have their own
essential requirements and benefits. For example, cost accounting system enables the
management of the company in ascertaining the costs of each product separately which renders
as a tool for cost control. Further, it was summarized that different tools of budgetary control
such as operating budget, zero base budgeting, operational budgets helps the company in coping
up with their financial problems by helping the managers in forecasting and predicting the
income and expenses for an upcoming accounting period.