Management Accounting Systems & Techniques: Nisa Case Study Report

This report provides a comprehensive analysis of management accounting systems and techniques, with a specific focus on their application within the Nisa retail chain. The report begins by defining management accounting and outlining different types of accounting systems, including single and double-entry systems, manual and computerized systems, and cost accounting systems. It then explores various management accounting reports, such as budget reports, accounts receivable aging reports, and job cost reports, highlighting their importance in providing information, aiding in decision-making, and facilitating control. The report also delves into the benefits of accounting systems, such as increased accuracy, automation, and compatibility, while also evaluating the critical aspects of management accounting systems and reporting within Nisa. Furthermore, the report examines absorption costing and marginal costing methods, including the preparation of income statements, and the applicability of the break-even formula. Planning tools for budgetary control are also discussed, including their advantages, disadvantages, and application in preparing, forecasting, and analyzing budgets. Finally, the report analyzes management accounting systems in response to financial problems and evaluates planning tools to solve financial problems, concluding with an overview of management accounting's key aspects.

Management Accounting
Systems & Techniques

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A. Management accounting and different types of accounting systems................................1
B. Different types of management accounting reports and its importance............................2
C. Benefits of Accounting System.........................................................................................3
D. Critical evaluation of management accounting systems and management accounting
reporting that are integrated in Nisa.......................................................................................5
TASK 2 ...........................................................................................................................................6
A.1. Absorption Costing and Marginal Costing Methods......................................................6
A.2. Production of income statement.....................................................................................7
B. Applicability of formula of break even..............................................................................9
C & D. .................................................................................................................................10
TASK 3..........................................................................................................................................10
A. Advantages and Disadvantages of planning tools for budgetary control........................10
B. Application of the planning tools for preparing, forecasting and analysing budgets......12
C. Management accounting systems to respond to financial problems................................13
D. Analysing management accounting techniques that could respond financial problems. 14
E. Evaluation of planning tools to solve financial problems................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18

INTRODUCTION
Management Accounting is the process of preparing accounts and management reports
that provide company with timely and accurate information which is required by managers to
make day to day and short term decisions. In the presented report, research and study is being
conducted on the basis of Nisa, a retail chain in UK in retail industry. This assignment contains,
management accounting systems, reports, their benefits and needs, planning tools with their pros
and cons of budgetary control. Practical aspect of the project is fulfilled by income statement,
which was made on the basis of two methods of costing; adsorption and marginal. Further,
break-even point analysis is also done accompanied by application of cash budget with their
interpretation and suggestions. Moreover, this project also contains, comparison between Nisa
and Vectair holdings on the basis of using different financial systems to respond financial
problems. This project is concluded with the brief understanding of management accounting.
TASK 1
A. Management accounting and different types of accounting systems
According to IMA: Management accounting is a type of profession in which it involves,
devising planning, partnering in management decision making and performance management
systems (Schaltegger and Burritt, 2017). Following are different types of management
accounting systems:
 Single Entry System: This is the most basic type of accounting system which is
commonly used in small businesses which have simple and few operations. In this there
are no journal entries made to balance accounts so there are high chances of errors.
 Double Entry System: This system is more accurate as well as complicated too. This
system guides that each credit entry must be accompanied by an equal debit entry and
vice versa. This make error more visible and accounting process more accurate.
 Manual System: This system has no involvement of computer in the whole accounting
process. It is the responsibility of accountant to record all journal entries in all kinds of
journals as well to record their corresponding adjustments and entries. The accountant
must file tax forms, make all calculations, prepare financial statements, etc.
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 Computerized System: It is a use of a computer program to accomplish accounting
functions. This type of accounting with such system can only be done with an accountant
having specialisation in that software.
 Cost Accounting System: It is an internal part of an entrepreneur's information system
and refers to the tracking of cost and costs and expenditure are tracked with the help of
allocation system.
 Job Costing System: It involves the process of accumulating information about the costs
which is associated with a specific production or job service.
 Price Optimisation: To determine response of customers to different prices for its
products and services companies take use of mathematical analysis through different
mediums (Adesina, Ikhu–Omoregbe and Aboaba, 2015). In simple words it is the process
of searching sweet spot of pricing or maximising price against customer's willingness to
pay.
 Inventory System: Inventory in every company is the most valuable asset of that
company. These are of two types; perpetual and periodic. In periodic inventory system,
inventory is updated on a monthly or annual basis. Whereas, in perpetual inventory
system inventory is update alternative to a periodic system.
Examples of accounting systems: Manufacturers, Retailers, Distributors, Construction,
Non-profits, etc. Above mentioned accounting systems are used by Nisa to evaluate accounting
transactions.
B. Different types of management accounting reports and its importance
Types of accounting reports are as follows which are used by Nisa in recording their day
to day transactions:
 Budget Report: This type of report help Nisa to analyse business performance and
enables managers to analyse their own department's control costs and performance.
Actual expensed from prior years is basically the base on which budget report of the year
is estimated. This reports can further be used by owners and managers in order to provide
employees with incentives.
 Accounts Receivable Ageing: It is a tool which is used to manage cash flow in case if
credit to customers in business are expanded. Customers balances are break down with
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the help of this report. Separate columns for invoices such as; 30 days late, 60 days late
and 90 days late or more are included in most of these ageing reports.
 Job Cost Reports: The expenses for a specific report which is financed by Nisa are
shown in this kind of reports. Job's profitability could be evaluated by matching these
reports with estimated revenue (Agu, Nweze and Enekwe, 2016). Nisa was also assisted
in identifying higher earning areas of the business so more emphasis could be given by
company to focus additional efforts where they are needed instead of wasting time and
money on jobs with low profit margins.
 Inventory and Manufacturing: Nisa can use managerial accounting reports if it
maintains a physical inventory or produces products.
Importance of Managerial Accounting Reports:
1. Provides Information: It is important as different levels of management are provided
with information.
2. Helps in Selection: It helps in bringing out many alternatives out one profitable
alternative is to be chosen by management.
3. Role in Control System: A management can take over control over organization with
help of this tool.
C. Benefits of Accounting System
Following are some benefits of management accounting system that Nisa experienced
after its implementation:
 Accuracy: Nisa experienced that these accounting systems have increased their
efficiency as people make errors and a computerised accounting system minimises those
errors of people. These accounting systems reduces calculation errors, simplify the data
process and accurately account the required information such as general ledger, profit and
loss, balance sheet and tax.
 Automation and Productivity: A computerised system eliminate unmanageable and
increases the productivity of Nisa. It is less time consuming as compared to manual
accounting (Ismail, Isa and Mia, 2018). As it was analysed that most of the times
accounting software are more reliable and have better task performance. It is also noticed
that by multiple number of authorised parties information regarding business accounts
could be independently entered into an automated system.
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 Compatibility: By implementing computerised accounting system Nisa enabled itself to
share financial information more easily. It is also facilitated that one person can speak to
other if both companies are using same computerised accounting system.
Nisa was benefited by above mentioned all points which reduces the burden of
manual accounting and made it easier to be more connected and share information.
Cost accounting
Advantages Disadvantages
 By fixing standard for everything, it
eliminates wastes.
 Cost reduction could be achieved by
following new and improved methods
of production.
 For price fixation of product, total price
which is available in costing records is
very useful. (Advantages and
Disadvantages of Cost Accounting,
2018).
 Company could utilize past
performances which are available in
records but decision is taken on the
basis of future.
 Cost is not same every year.
 Problems related to work, study, time
and motion are not possible to solve in
costing system.
Job costing
Advantages Disadvantages
 Job costing gives separate identity to
earned profit from each job.
 Estimation could be taken on the basis
of past records of cost of job in job
costing. (Advantages and
Disadvantages of Job Costing, 2018).
 In job costing the is no standardization
of job.
 There are fewer chances of controlling
costs since only after incurring the
expenses in job costing the controlling
steps are taken.
Inventory system
Advantages Disadvantages
 Reduction in Costs: Software can also  Price: A lot of small and medium sized
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help in avoiding lost sales as companies
have materials need on time.
 High Efficiency: By using this system
business efficiency could be increased
and can lead to maximum productivity.
businesses are not able afford these
systems.
 Complexity: Inventory management
software simplifies daily business
operations and make work easier, but it
is a quite a complicated tool.
Price optimization system
Advantages Disadvantages
 Due to automation there is possibility
of large scale unemployment in
different market sectors. (The
advantages and disadvantages of the
price system, 2018).
 Both good and bad products could be
sold side by side.
 It enables consumers to decide what
they want to buy.
 It allocates resources efficiency.
D. Critical evaluation of management accounting systems and management accounting reporting
that are integrated in Nisa
Management Accounting Reporting plays vital role in Nisa as it helps in supporting,
controlling, decision making and planning. Management accounting systems and reporting
integrates in each and every level of management in Nisa as all the information which are related
to the company whether they are financial or not, they are related to internal environment of Nisa
or external environment of it. Management Accounting System helps Nisa in tracking cost and
expenditure that involves in manufacturing processes and product sale, it also assists firm in
accumulating information about the costs which is associated with a specific production or job
service (Khan, 2015). These accounting systems have made it easier for Nisa to conduct day to
day business activities in effective manner.
Management Accounting Reports enabled Nisa to analyse business performance and to
estimate yearly budgets. It has also helped Nisa to evaluate job profitability and in identifying
higher earning areas of the business. By implementing accounting reports Nisa was able to make
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manufacturing processes more efficient and saved time and money from jobs with low profit
margins. Management Accounting Reports helped Nisa in providing information to various
levels of management, helped in bringing out many alternatives out of which management could
choose one which is most profitable and assist in taking control over management.
However, there are some criticism on management accounting system as both financial
and cost accounting information are used in the management accounting system. The accuracy is
dependent on the accuracy of financial and cost record and these records determine weaknesses
and strengths of management accounting. So, it would require by Nisa to maintain accuracy of
these records in order to maintain management accounting systems. Personal prejudices and bias
of an individual can also affect the objectivity and effectiveness of the conclusions and
recommendations. These systems will only be providing Nisa with data to solve the problem
before the management.
TASK 2
A.1. Absorption Costing and Marginal Costing Methods
Absorption Costing
Absorption Costing is a method of cost accounting in which all cost associated with
manufacturing a particular product is expended and is significantly required for all GAAP to
create an inventory valuation that are stated in balance sheet of Nisa.
Components of absorption costing Direct Materials: These are those materials which are enclosed within finished product. Direct Labour: Manufacturing a product needs costs for labour, these are those labour
costs. Variable manufacturing overhead: Costs which may vary with change in production
volume of operating manufacturing facility. Fixed manufacturing overhead: Costs which do not vary with change in production
volume of operating manufacturing facility.
Absorption Costing Steps1. Assigning costs to cost pools: This step consists of cost pools that includes standard set
of accounts which are changed rarely.
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2. Calculate Usage: To measure usage of assign overhead costs amount of usage in
determined in this step (Law, 2016).3. Assign Costs: To determine allocation rate per unit of activity usage measure is divided
into the total costs in cost pools and overhead cost are assigned to produce goods which
are based on this usage rate.
Marginal Costing
Marginal costing is also known as variable cost where it is charged to units of cost while
the fixed cost for the period is written off against the distribution. In simple words marginal cost
of an item is its variable cost.
Characteristics of Marginal Costing
 Classification into fixed and variable cost: On the basis of variability into fixed cost
and variable cost, costs are divided
 Valuation of Stock: Only variable cost is taken into account at the time of valuation of
finished goods and work in progress.
 Determination of Price: On the basis of marginal cost and marginal contribution prices
are determined.
 Profitability: Product's profitability is based on the contribution margin.
Contribution concept
Contribution could be calculated as follows:
Contribution= Sales price- Variable costs
Idea of profit is not particularly useful one as it depends on the number of unit sold, because of
this contribution concept is frequently employed by management accountants (Li and Jiang,
2016).
A.2. Production of income statement
Marginal costing
Particulars Amount Amount
Sales 33000 33000
Direct material 5600
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Direct labour 4800
Variable production overhead 1600
Variable sales overhead 800 12800
Less: Ending inventory
Direct material expense 1400
Direct labour expenses 1200
Variable production overhead 400
Variable sales overhead 200 3200
Cost of production (per unit) 9600
23400
Less: Fixed cost
Overheads (Production) 3200
Fixed administration
expenditure 1200
Fixed selling expenditure 1500
5900
Net income 17500
Absorption costing
Particulars Amount Amount
Revenue 33000 33000
Material 5600
Labour 4800
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Variable production overhead 1600
Variable selling overhead 800 12800
Less: Closing stock
Material expense 1400
Labour expense 1200
Variable sales overhead 200
Less: Variable sales overhead 600 3400
Less: Absorption of Overheads
(Fixed)
COGS 9400
Contribution
(per unit) 23600
Less: fixed cost
Overheads (production) 3200
Fixed administrative
expenditure 1200
Fixed selling expense 1500 5900
Net Income 17700
B. Applicability of formula of break even
Break-Even analysis
Particulars Formula Figures
SPU (Selling price per unit) 40
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Variable cost (per unit) 13
Contribution (per unit) SPU - variable cost per unit 27
Fixed cost 6000
BEP (in units) Fixed cost / CPU 222
BEP (in value or monetary terms) BEP in units * SPU 8888.89
Units need to sell for attaining desired profit margin
Particulars Formula Figures
Fixed expenses 6000
Desired profit 10000
CPU 27
Number of units required to sell
(Fixed cost + desired profit
margin) / CPU
592.59259
25926
Margin of safety
Actual sales – Break-even point
/ Actual sales
0.72
C & D.
To,
Management Team, Nisa.
Date: 20/09/2018
Subject: Analysing reports on the basis of absorption costing and marginal costing
methods.
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