Evaluating Management Accounting Systems and Their Impact on Profit

This report provides a detailed analysis of management and financial accounting, emphasizing various costing and management techniques for organizational growth. It explores the importance of planning tools and budgetary controls in evaluating business performance, highlighting the role of management accounting in regulating business activities using Management Information Systems (MIS). The report examines costing techniques like marginal and absorption costing in financial decision-making, offering recommendations and analyses through budgetary planning to address financial problems and managerial issues. It also covers the benefits and impacts of costing techniques on company performance, using Zylla Company as a case study. Furthermore, the report compares different management accounting systems, including costing, fund flow, and inventory control, and discusses the use of planning tools for solving financial problems and achieving sustainable success, particularly in the context of Nero Ltd.

Management Accounting

Contents
Introduction:...............................................................................................................................3
Section 1: (includes LO1 & LO2)..............................................................................................4
1. Importance of management accounting in the decision-making process:.........................4
2. Three Types of management accounting and their integration:.........................................6
3. Critically evaluation of the benefit of management accounting systems and reporting:. 10
4. Presentation of two different profit and loss income statements based on absorption and
variable costing technique:...................................................................................................11
Section 2...................................................................................................................................16
Part A Report:..........................................................................................................................16
a) Compare and contrast of different management accounting systems:.............................16
b) Use of planning tools to help the organization in solving the financial problems and
achieving the sustainable success:.......................................................................................18
Part B)......................................................................................................................................19
Conclusion:..............................................................................................................................21
References:...............................................................................................................................22

Introduction:
The major aim of this study is to provide an effective acknowledgement of management and
financial accounting. This report will also dictate about various coasting and management
techniques and their application in the organisation for sustainable growth and achievements.
Readers will feel the acknowledged understanding importance of planning tools and
assessment of financial and management budgetary tools to evaluate business performance of
the company. It will also include major efforts, role and functions of management accounting
in order to regulate and operate large business activities as well as wide range of techniques
going to be utilised with the help of MIS. A proper examination and evaluation are to be done
with costing technique such as marginal and absorption technique in the financial decision-
making process. A proper recommendation and analysis will be done through budgetary
planning tools to resolve the financial problems and responding managerial issues.

Section 1: (includes LO1 & LO2)
Report:
Introduction:
Preparation of this report is essential in order to learn the essential use of management
accounting as a profession and define various tactics to operate business activities
successfully. This reading will describe also essential points regarding benefits, application
and impacts of costing techniques in order to make proper improvement in company’s
performance. To make proper analysis Zylla Company will be considered as the example to
understand the usage of management accounting.
1. Importance of management accounting in the decision-making process:
Management accounting: Management accounting is the concept of collecting, observing,
classifying and maintaining financial performance in an organisation. Management
accounting is a behaviour of observing decision-making process related to cost-based
analysis, cost-effectiveness and sales revenues relation. Management information systems
and planning tools are the major components of management and financial accounting. MIS
provides proper knowledge and information related to financial data and facts through
effective planning, organising and controlling organisation activities.

(Source: Author, 2018).
Planning: It is a primary component of using MIS. Management accounting systems help to
establish suitable strategies related to production, sales and so on to get long-term benefits.
Organising: Management accounting systems such as cost, inventory systems are used to
organise and managing relevancy in management works such as: organising inventory
process, cost revenue relation etc. (White, 2015).
Controlling: Proper use of MIS will allow the company to control over additional cost
wastages of non-value projects. Management accounting systems are used to control
additional consumption to make effective decisions.
Importance of management accounting:
1. Forecasting decision: MIS is the major planning tool that provides effective information
and statistical facts in order to make forecasting decision relate to sales volume, balance sheet
changes, debt-equity behaviour and so on (Monetary matters, 2017).
2. Cost measurement: MIS is medium of collecting effective and accurate data to measure
cost behaviour and changes in funds.
CONTROLLING
ORGANISNG
PLANNING

3. Pricing determination: MIS is one of the major elements of management accounting
profession that allows the whole department such as sales unit, production and promotion to
set pricing strategies.
4. Production and profitability: MIS is useful in managing and interpreting whole
strategies in order to monitor all aspects regarding business activities. It allows the enhance
business profitability through increasing productivity (CGMA, 2013).

2. Three Types of management accounting and their integration:
(Source: Author, 2018).
1. Costing management systems: cost management systems are also known as cost
accounting systems that are based on cost-based analysis to measure cost-effectiveness.
Costing management systems basically used in overall units to evaluate and examine
requirements of cash and additional funds in business activities.
Integration:
 Proper evaluation of requirements of cost-effectiveness in new projects of the
company.
 Measuring relationship between estimated variables and actual outcomes of costing.
2. Pricing optimisation systems: pricing optimisation is the basic concept that relies on
products pricing strategies and customers’ reactions. It allows the Zillah Company to
determine prices of their products according to market reviews and customers’ demands
(Matambele, 2014).
Types of Management
Accounting Systems
iNVENTORY
MANAGMENT
SYSTEMS
PRICING
OPTIMISATION
SYSTEMS
COST
MANAGMENT
SYSTEMS

Integration:
 Pricing optimisation systems are utilised to helps sales and production department to
determine prices and making effective strategies to attract more customers.
 It allows the Zillah Company to configure and monitor changing habits of customers
to assess pricing goals.
 These systems are basically integrated with enhancement of sales volume and
profitability.
3. Inventory management systems: these systems are utilised by the top management to
know the actual level of stock of products in order to make the perfect comparison between
estimated level and actual results related to Inventory process (Matambele, 2014). At the
time is a utilisation of FIFO and LIFO method, Inventory management systems allow
managers to keep their business activities traced.
Integration:
 Usage of EOQ, JIT and MRP inventory systems are good option to understand
productivity level.
 Inventory systems allow the managers to put their inventory level on perfect track by
reducing additional cost and over-storage problems.
Importance of management accounting while making management reporting:
Management accounting systems are used to make the perfect decision related to sales,
purchases, and production and handling business activities perfectly. Inventory systems are
utilised to managing, carrying, handling decision-making process related inventory while
preparation of production reports, therefore, each system has different characteristics and
nature at the time of making management reports (Monetary matters, 2017).
1. Cost management systems:
 While making cost and production report these management systems are used to
measure the perfect relation between cost and revenue and shows actual references
regarding cost behaviour.
 It allows the company to make proper adjustments and proposals of funds while
making purchasing and capital report by allocation all cost resources perfectly.

2. Pricing optimising systems:
 This is the major system that allows the company make the perfect decision while
making sales and purchase report.
 It helps the company and various units to know market reviews and customers’
preferences to understand actual responses.
3. Inventory systems:
 This system is utilised to evaluate actual needs and storage capacity of the company
while making production report (Holt, 2014).
 This will allows the company to understand future threats and hurdle to avoid them on
time by doing the proper allocation of resources at the time of making inventory
reporting.

3. Critically evaluation of the benefit of management accounting systems and reporting:
Serial
no.
Management accounting
systems
Pros Cons
1 Cost management systems  Costing management
systems are beneficial to
review and measure
managerial risk to determine
efficiency.
 Managers are able to
resolve the costing solutions
through different values,
prices and set resources.
Critical costing
management required
lots of computation
and time in the end.
It becomes difficult to
measuring accuracy
and verifying
uncertainty to remove
risk (CGMA, 2013).
2 Pricing optimising systems  It is a concept of
verifying different demands
at different pricing level.
 It is based on the
cost-effective manner to
evaluate and enabling
optimum pricing tools (Holt,
2014).
If the company is not
able to handle and
measure optimum
usage of pricing,
operating profitability
will not be measured.
3 Inventory management
systems
 It is beneficial for
companies to regulate and
measure actual inventory
capacity.
A company will not be
able to exercise and
handle business tasks
if storage of stocks
would not be
monitored
appropriately.

4. Presentation of two different profit and loss income statements based on absorption
and variable costing technique:
a) Calculation of two different accounting techniques:
1. Absorption costing techniques:
1st quarter
2nd quarter
2. Variable costing:
1st quarter