Management Accounting Systems and Techniques: A Comprehensive Analysis

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Surein Rheeder
HNC Business (Cohort)
Unit nr + Unit Name

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Table of Contents
Introduction.........................................................................................................................................3
Task 1...................................................................................................................................................4
Task 2...................................................................................................................................................9
Task 3.................................................................................................................................................10
Task 4.................................................................................................................................................12
Conclusion..........................................................................................................................................13
References..........................................................................................................................................14
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Introduction
The modern business world has increased the requirement of management accounting within
the business. The management accounting is now considered as an effective tool to help the
managers in the planning process. The current report will provide a detailed analysis of
management accounting. The report will also provide a discussion related to management
accounting systems and techniques. Apart from this, the report will showcase the use of
planning tools and management accounting in solving financial issues.
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Task 1
P1 Definition of management accounting
The management accounting is a special branch of accounting which mainly deals with the
representation and analysis of various financial statements of the company (Ward, 2012). In
other words, the management accounting can be defined as the process of preparing various
management accounts and reports which provides timely and accurate statistical and financial
information required by the tom management as well as the managers. The management
accounting enables the internal managers to make important decisions on time.
Essential requirements of various kinds of management accounting systems
Cost accounting system- The cost accounting system is required within the business to
identify the costs of different products as well as to control the costs of production (DRURY,
2013). Further, the system is mainly required by the company for the fixation of price and for
checking the accuracy of different financial accounts.
Job order costing system- The job order costing system is required by the business to assign
the costs related to direct material, overheads, and direct labour costs. The system is mainly
required from estimating the costs of identical jobs in the future.
Price optimization system- The price optimization system is required by the business to
develop the pricing strategy as per the demand of customers at different price levels (Ward,
2012). Also, this system is mainly required from managing all the elements which impact the
profitability of the organization.
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Inventory management system- The inventory management system is required by the
business to control the two main functions of the company which are shipping and receiving.
This system is mainly required for maintaining the accurate inventory level.
M1 Advantages of different management accounting systems
Job order costing system- The job costing system helps the managers to allocate the
manufacturing costs to each specific job. This system enables the managers to monitor their
expenses of the products which are identical in nature (Parker, 2012). Further, it provides the
benefit to determine the profitability associated with each job. The system also helps the
organization to analyze the cost material and job costs in detail.
Cost accounting system- The cost accounting system is utilized by the managers for
estimating the costs of different products. The cost accounting system helps to identify the
profitability and ensure control over the business operations (Wickramasinghe and
Alawattage, 2012). The cost accounting system is beneficial for the organization as it helps in
determining the selling prices of the product. It also helps to meet competition, analyze
profitability, bidding contracts.
Price optimization system- The price optimization system is mainly used within the
organization to ensure control over the prices of different resources of the company. This
system can be utilized to decide the prices of their multiple products (Parker, 2012). The
price optimization system will provide the benefit of framing initial pricing, discount pricing
and promotional pricing strategies.
Inventory management system- The inventory management is a system which is used by
the organization to exercise control over the flow of inventory within the organization. The
inventory management system helps to reduce the wastage and increase the productivity of
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the business. The inventory management system provides benefit to improve the bottom line
of the company as well as the accuracy (Wickramasinghe and Alawattage, 2012). Apart from
this, it is beneficial for improving the workflow of the organization.
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P2 Different types of management accounting reporting
Job cost reports- The job cost reports deals with the identification of expenses, costs, and
profitability attached to each specific job (Hilton and Platt, 2013). The job cost reports
provide the evaluation of the cost associated with each project.
Accounts receivable aging reports- The accounts receivable aging reports enable the
organization to maintain the balances of their customers. These reports provide the scope to
engage the customers by selling them goods on credit (Hilton and Platt, 2013). Further, the
report provides useful information which is beneficial to reduce and maintain the liquidity of
the company.
Budget reports- The budget reports are mainly prepared to develop the future plan as well as
for the evaluation of performances. The reports are also used by the organizations to forecast
future budgets.
Manufacturing and inventory reports- These reports are mainly prepared by companies
who are engaged in the manufacturing processes (Otley and Emmanuel, 2013). These reports
contain information about overheads, labor cost, and wastages. These reports also help in
improving the opportunities of the business.
D1 Critical evaluation of management accounting system and reporting integration
The integration of job cost reports and job costing system within the organization will direct
the workers and managers towards achieving cost objectives. The integration of job costing
system and reports will enable the company to develop pricing strategies and reduce the
overall cost of the business operations. The integration of inventory management system will
help to generate inventory and manufacturing reports (Otley and Emmanuel, 2013). The
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integration of this system and reports will help the company to manage the inventory levels in
a better manner. Also, the integration of this system will help the organization to estimate the
required level purchases inventory. Apart from this, the integration of cost accounting system
within the organization will enable the management to ensure the control over the costs of
raw materials. Further, the integration of budgeting reports will help the company to forecast
and prepare future budgets. The integration of these reports will ensure accuracy and
flexibility within the business from time to time.
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Task 2
LO2 application of the range of various management accounting techniques
Absorption costing- The absorption costing technique of management accoutni9ng involves
both variable and fixed costs in the product cost (DRURY, 2013). The value of closing costs
as high as some of the factory overheads are involves product cost.
Marginal costing- The marginal costing technique of management accounting consider
variable costs as the manufacturing costs. The fixed manufacturing overheads are considered
as a period cost. The value of the closing stock is low which includes only variable cost.
Break-even analysis- The break-even analysis technique of management accounting helps
the manager to predict future losses and profits (Banerjee, 2012). Also, this technique is used
to predict the results and helps in calculating the profitability of a product.
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Task 3
P4 benefits and limitation of different planning tools
Standard costing- The standard costing enables the managers to substitute an expected cost
with an actual cost. The standard costing tool helps in improving the cost control as well as to
make easier inventory measurements (Wyatt, 2012). On the other hand, the standard costing
tool can result in delayed decision-making and losing the morale of workers.
Time series analysis- The time series analysis has been identified as a statistical planning
tool as it mainly deals with trend analysis or time series data. The time series analysis
provides the advantage of determining patterns and trends of the future by using graphs and
other related tools (Aalto, 2012). On the other hand, the time series analysis may not be
useful when the business situation is fluctuating in nature.
Variance analysis- The variance analysis is the tool which consists of planning on the basis
of the quantitative investigation. The main advantage of this tool is that it helps to identify the
difference between planned and actual behaviour. On the other side, the variance analysis is
mainly based on past performance instead of future.
Activity-based budgeting- The activity-based budgeting is the method which helps to
prepare the budgets by considering the overhead costs (Aalto, 2012). The main advantage of
the activity-based costing is that it helps in evaluation as well as in achieving a competitive
advantage. On the other hand, activity-based costing required detailed understanding and
involves consumption of resource and cost.
M3 Use of different planning tools in forecasting and planning budgets
The planning tools help to forecast and plan a fixed budget. The fixed budget is the budget
which does not change according to the operation and hence remains fixed. The planning
tools like variance analysis, activity-based costing, and another budgeting tool will help to
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forecast and prepare a flexible budget (Lalli, 2012). The flexible budget is the budget which
changes according to the volume of output. Apart from this, the planning tool helps to
prepare capital budgets. The capital budgets help the company to plan the finance for the
long-term like equipment and facilities.
D3 evaluation and role of planning tools in solving the financial problems
The planning tools are a useful way to set and frame out the planned activities. The planning
tools help in the preparation of the budgets which enables the organization to avoid financial
problems and attain long-term sustainability (Lalli, 2012). The planning tools also provide the
scope to allocate the limited resources efficiently in the right direction due to which the
managers can reduce the chances of wastage and can achieve their financial goals.
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