Management Accounting Systems: Analysis and Applications

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Management Accounting
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Table of Contents
Introduction................................................................................................................................3
Activity 1....................................................................................................................................4
Part A.........................................................................................................................................4
Part B..........................................................................................................................................9
Activity 2..................................................................................................................................12
Part A.......................................................................................................................................12
Part B........................................................................................................................................14
Conclusion................................................................................................................................16
References................................................................................................................................17
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Introduction
Following assessment report deals with report prepared to provide deep understanding of
management accounting systems.Management accounting system deals with providing
information and operations. Monitoring of results arises from operations and to curtail the
cost associated with projects with a viewto increase profitability position. The following
report provides details about how management and accounting concepts deals with
integration of formulation and implementation of decisions with purpose of achievement of
overall targets for achievement of financial performance. In first task there is brief analysis of
management accounting systems, its types and benefits of each with organizational context.
Various income statementsare prepared using marginal and absorption costing and
consolidation is done also interpretation of financial statements. Ratio analysis provides each
and every detail in relations to company’s profitability and liquidity. In other tasks there are
discussion about financial problems in enterprises and resolves around various accounting
and managing tools and techniques.
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Activity 1
Introduction
Main aim of report prepared and activity performed is to make an understanding on
management accounting and its related concepts. It deals with highlighting of management
accounting fundamentals and at same time provides guidance to entity on how to operate in
such a complex business environment. It involves all inclusions such as monitoring, planning
decisions, management and at same time finance.
Part A
Understanding of management accounting systems
Management accounting system is considered to be important for every enterprise and in that
sense it can be said that it is important for its introduction in company for effective
management and help management in taking informed decisions. Management accounting
focuses, on preparation of reports to be presented to external users and parties to provide brief
about operations of company (Adongo and Jagongo, 2013).
Management and managerial accounting takes company financial information and reports to
be provided to managers for internal use of company. It can be said that effective
management accounting system in company incorporates this system reaches almost all areas
and departments of company whether finance, management, human resources operations in
sales and marketing and so on. With use of financial information management accounting
also includes non-financial information may be sales report, delivery time, inventory levels
and so on (Adongo and Jagongo, 2013). All of this information can be said to provide basis
for purpose of identifying of key performances and acts as indicators of various part of
business. Management accounting system therefore can be said it is an integration of
management practices of company and enterprises with its accounting practices also. It is
required in company for sake of improvement in financial performance of company and also
to curtail uncertainties relates to various practices of company.These concepts provide
guidance on forecasting of trends and analysis of future outcomes of current practices and at
same time to cater contingencies. It is also used for purpose of planning, controlling,
organising, supervising, budgeting and also estimation and anticipation of expenditures
administrative and general and their allocation among operations. For purpose of
achievement of enterprise management practices and accounting tools are used and
incorporated at large level (Adongo and Jagongo, 2013).
Following are different types of management accounting concepts that should be
implemented for improved decision making purposes.
 Inventory management system- Inventory management system is essential for every
enterprise for keeping updated records relating to level of inventory maintained in
entity. Inventory management is necessary to ensure availability of stock whether raw
material, semi-finished goods or finished goods at all time, at right place. This
ensures proper planning, monitoring of movement of inventory among different
department in organization itself (Adongo and Jagongo, 2013).Variations and
fluctuations in level of inventory are always there and also maintained to overcome
any situations that arise due to unavailability of stock. Also process and inflation in
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prices catering in market relating to different packages in respect of demand and
supply scenarios prevailing are measured and evaluated by inventory management
system.
 Price optimization system- In enterprise price optimization system are used for
purpose to maintain supply chain mechanism relating to fixing of prices of goods and
services being provided by company, in competitive environment. Environment in
which entity is working is complex and dynamic and changing so after analysis of
market it is important for fixation of prices. For sakes of finding balance between
inventory and cost management system is responsibility of price optimisation system
(Adongo and Jagongo, 2013).It is basically used for fixing of prices between similar
products and services accordingly customer preferences and their willingness and
level of competition in market.
 Cost accounting system- Cost accounting system is considered to be one of
important component of management accounting system. This system is also called
product costing system and is framework to be used by entity and organization for
estimation of cost of their products and services for sake of profitability analysis and
also inventory valuation and cost control. Estimation of costs and that to accurately is
important for evaluating of organization profitable operations (Arjaliès and Mundy,
2013).It is important for company to know which of its products are profitable and
which are not. Closing inventory is also measured accurately by this method as any
difference and deviation in values will have impact on profits of company. Various
kinds of financial statements are used to ascertain cost of products and also formulate
financial record of enterprise. Also evaluation and preparation of budgets and results
will cater in identification of deviation from actual results.
 Job costing System- Job costing system is also called job order costing system and it
includes process for accumulating of information relating to costs that are associated
with production of specific job or service. This cost may include relating to material,
labour and so on. Allocation of costs accordingly to specific jobs is responsibility of
job costing system. Mostly organisations engaged in manufacturing of different
products only use job costing system (Arjaliès and Mundy, 2013).This system is also
called as monitoring activity system. This costing system needs to be tailored
according to requirements of customer. The information obtained from job costing
system is necessary for determination of accuracy of company’s estimating system
which is required for quoting of prices to fined profitable profits. Mostly this system
is used to measure profitability scenarios resulting from expenditures and resources to
particular jobs.
Managerial Accounting Reports:
Whether business is small or large in order to keep eye on bottom and middle line operations
is necessary. Managerial accounting reports are considered to provide information needed to
trim or reduce costs or say reward, high performing employees and to offer best financial
return for business. Managerial accounting reports help and relates to different concepts of
entity. For purpose of knowing whether set objectives and targets of company are achieved
managerial accounting reports are used. Managerial accounting reports are used for planning,
controlling, regulating, decision making and measuring of performances (Arjaliès and
Mundy, 2013).They provide an insight of information received from financial accounting.
Various types of managerial accounting reports are continuously generated from bookkeeping
and accounting records of company depending on requirements. Because in organizations
various decisions are taken and accuracy and authenticity of these decisions are based on this
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reports. It is therefore necessary that these reports are crafted and created carefully with
proper research and analysis. Managers of entity make analysis of these reports and also
convert them into useful information for entity to pursue decision making.
1. Budget Reports
Budgets managerial reports are said to be very critical in measuring of company’s
performance whether financially or otherwise and are also generated as a whole form
small, department wise in small, medium or say large enterprises (Arjaliès and Mundy,
2013).However, it is known facts that each company prepares budget as a whole foe
entire company to have an understanding on grand scheme of business. Budgets
estimation is generally based on previous experiences of company, and also great budgets
always deal with unforeseen situations and circumstances of future. Though everything
cannot be planned in advance but estimations can be made. A company’s budgets cover
all sources of its earnings and expenditures.Managerial budgets therefore help to achieve
goals, targets and mission while staying among budgeted amount (Arjaliès and Mundy,
2013).
2. Performance Reports
Performance reports are vital reports prepared by each company and organization to have
review about performance of company as a whole and at same time to review
performances of each and every employee at end of a term (Barbole, et. al., 2013). When
organizations are operating at large level also departmental reports are prepared and
generated. These reports cater managers to make key strategic decisions about future of
organization. When such types of reports are prepared also based on this individual are
awarded for their excellence and commitment to organization and under performances are
generally laid off and dealt as required. Performance based reports also offers a deep
analysis and insight of working and operations of company. Performance reports
therefore can be said to be vital for company for keeping an accurate measure of their
mission efforts (Barbole, et. al., 2013).
3. Account Receivable Ageing Reports
When business of companies relies heavenlyon credits extending then account receivable
aging reports are necessary. When goods are generally offered at credit, breaking down
of balances of client accordingly time period allows manager and top authorities to
known about defaulters if any from whom payments are still pending. At time of
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collection period there arises many issue due to defaulters (Barbole, et. al., 2013). In case
there are many defaulters company may need transformation in order to create changes in
credit policies because these defaulters have impact on cash flow transactions and cash
flows are critical for operations of company.At such time company also faces situation of
bad debts and they are also written off (Barbole, et. al., 2013).
4. Cost managerial Accounting Reports
Cost Managerial or managerial accounting reports generally deals with computation
of costs of articles that are manufactured. All cost relating to it whether material,
labour, overhead are taken into consideration and totals are divided by products and
articles produced (Barbole, et. al., 2013).Cost reports are vita and offer a summary
and details about all this information. Managers with help of this reports realizes
about capacity of cost prices of items and their selling prices of articles to know
differences. Profitability that is profits are generally estimated from this reports by
comparison of reports and costs. This will initiate to have analysis of costs of
company that went into production or procurement of articles.
Other managerial Accounting Reports
Other than reports mention above there are also other managerial accounting reports such as
information reports, analysis reports, and project reports and also many other similar reports
that are considered to be vital for business (Chenhall and Moers, 2015).These reports cater
both financial and non-financial information of context of organization. These reports are
either generated internally or can be outsourced. Best course of action pertaining to entity
differs based on capabilities and requirements of firm. In order to attain best outcomes and
decisions managers need to access credible authentic managerial accounting reports.
Benefits of management Accounting Systems in organisational context
There are many benefits of management accounting systems and its relevance in organisation
context and they are discussed in detail below:
 Increases efficiency of company- companies adopting management accounting
systems gains efficiency in performing of their operations and at same time strives
for better performance by comparison and evaluation.Therefore, at individual and
company level they are beneficial (Chenhall and Moers, 2015).
 Increment in bar of profitability- In study of managerial accounting reports it can
be concluded that same provides easiness to cut and avoid any type of extra
expenditures and also only focus is on vital operations.
 Simplification of decision making- Managerial accounting reports and systems
mainly provides simplified financial statements with all explanations and
therefore they aid in decision making process. This helps managers in taking
informed decisions withinformation available and also all facts are available so
appropriate decisions are taken for betterment of company.
 Cost Transparency- In corporate sector whether small or large main cost is
generally information technology and therefore management accounting systems
actions ensures budgets and techniques to have cost control and transparency in
operations.
 Flexibility and freedom- generally management accounting systems are flexible
and easy modifications can be done (Chenhall and Moers, 2015). As reports are
prepared depending upon requirements and there is no compulsion so managers
prepare reports taking enough time.
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 Advanced techniques- In managerial accounting systems there are always
innovation in some or other forms. Its tools and techniques are advanced like
forecasting, predictions about future, marginal costing and so on (Chenhall and
Moers, 2015). Uses of techniques differ accordingly and also techniques makes
easier to make decisions.
 Assist in achievement of objectives-Reports prepared and presented b managerial
accounting assists in achieving targets and goals. As detailed information is
available it becomes easy to highlights strong and weak points of company.In
addition, helps to identify weaknessand ways to overcome them (Chenhall and
Moers, 2015).
 Marginal costing- It is important for company to fix prices of products and also
estimate contribution created. With availability of information resources and
material could be utilised and actions can be recommended based on actions and
other extra costs (Chenhall and Moers, 2015).
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Part B
Productio
n (units)
Perio
d 1
Perio
d 2
Dining
Table 5000 5200
Chairs 20000 22000
Sales
(units)
A 4350 1,700
B 16,00
0 19100
Financial Data:
TAB
LE
CHA
IR
Unit
selling
price £
590 90
Unit
variable
costs
Direct
material
s
215 20
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Direct
labour
(£10/hr.)
90 30
Variable
producti
on
overhea
ds
25 5
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Marginal Costing
Dining table Chair
Period 1 Period 2 Period 1 Period 2
Sales revenue 2566500 1,003,000 1440000 1719000
Variable cost
Direct materials 1075000 1118000 400000 440000
Direct labour 450000 468000 600000 660000
Variable overhead 125000 130000 100000 110000
1650000 1716000 1100000 1210000
Contribution 916500 -713,000 340000 509000
Fixed costs 410000 482000 410000 482000
Net profit 506500 -1,195,000 -70000 27000
Absorption Costing
Dining table Chair
Period 1 Period 2 Period 1 Period 2
Sales Revenue 2566500 1,003,000 1440000 1719000
variable cost
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Direct material 1075000 1118000 400000 440000
Direct Labour 450000 468000 600000 660000
variable cost 125000 130000 100000 110000
Fixed cost 410000 482000 410000 482000
2060000 2,198,000 1510000 1692000
gross profit 506500 -1,195,000 -70000 27000
Profits above are interpreted by two methods absorption costing and marginal costing. Profits
calculated are same and therefore only difference is of way of calculation and treatment of
items. In marginal costing all cost incurred in manufacturing of products are involved in
calculation whereas in absorption costing both variable and fixed cost are involved in
calculation. In marginal costing contribution per unit are calculated whereas in absorption
costing net profit is calculated based on per unit (Chenhall and Moers, 2015). Absorption
costing is considered to be precise for sake of reporting purposes as it considers both fixed
and variable and by way of reporting purposes it means both financial reporting and also tax
purpose. Profits are same by both methods.
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