Analysis of Management Accounting Systems: Semester 1

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MANAGEMENT ACCOUNTING
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Table of Contents
Activity 1.........................................................................................................................................3
Introduction..................................................................................................................................3
Part A...........................................................................................................................................3
Part B...........................................................................................................................................6
Conclusion.................................................................................................................................13
Activity 2.......................................................................................................................................14
Introduction................................................................................................................................14
Part A.........................................................................................................................................14
Part B.........................................................................................................................................16
Conclusion.................................................................................................................................17
Bibliography..................................................................................................................................18
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Activity 1
Introduction
Management accounting is a process through which the organisations record their managerial
works and check whether the employees are performing well or not. This system also ensures the
entities to prepare the budgets that forecast the income and expense of the future. The
management accounting use has also made the work of the employees easier as they follow
specific method to complete the whole process. This portion of the report will provide a thorough
examination of management accounting along with the requirements of diverse systems of
management accounting. This will also explain the repayment of the system of management
accounting and the reporting. The costing systems will also be provided to show how this
process is performed by the entities.
Company Overview
The company that is selected for the assignment is Clarks. They are into production and selling
of shoes in the United Kingdom. Their headquarters are situated in Somerset, England. They
were founded in the year of 1825 and are operated in all parts of the world. The report will be
performed based on this company.
Part A
“Discuss management accounting by explaining the essential requirements of different
types of management accounting system.”
Management accounting is a process through which the performance of the employees can be
ascertained and the goals are set. This process also helps the organisation in forecasting the
future so that they can follow the budget as their guide and get the desired result.
The requirements for the systems of management accounting will be provided below:
“Inventory Management System”
One of the requirements of Clarks is to prepare the inventory management. This will help them
to keep a record of all the stocks that are hand (Chenhall and Moers, 2015). The process also
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ensures them to make changes in the sales by increasing or reducing the volume in the process of
Last in First Out or First in First Out method. These are calculated with the help of activity based
costing method of inventory management. They will get to know every detail of the finished
goods that are present in hand and the goods that are in work-in-progress.
“Job Costing System”
This method will give Clarks the assurance to calculate all the jobs that are required to complete
the system of manufacture and selling of the shoes in the international market. This helps to
calculate all the costs that are incurred.
“Cost Accounting System”
This method helps Clarks to calculate and record all the past costs that can be used as a reference
to calculate the budgeted cost of the future. This also gives them the assurance to decrease the
cost of any product depending on the market condition and the necessity of the company.
“Explain different methods used for management accounting reporting”
Diverse methods of reporting of management accounting are present that helps the companies
like Clarks to report their activities. These will be provided below:
“Production Report”
The production report helps Clarks to keep a track of the units of production of the shoes to
calculate the production cost. This report will always provide details about the production of the
company and allows them to check the change from the budgeted report to the actual production.
“Performance Appraisal Report”
This report helps Clarks to verify the performance of the workforce working under them. There
are 15380 employees working under them and it is not possible for the management to visit
employees and ask for their performance (Christ and Burritt, 2017). For this, the report is
produced to get a view of the presentation of all the employees in the form of a report and record
them for future use. This helps them to take necessary actions on the employees.
“Sales Report”
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This report ensures Clarks to record all the transactions related to the sales. This will give them
all the expenses that are incurred to perform the activities of sales that include the advertisement
expenses as well. These are recorded to ensure the variance between the actual sales and the
budgeted report.
“Evaluate the benefits of management accounting systems and their application within an
organisational context.”
A number of benefits are provided to Clarks for performing the systems of management
accounting and their reporting. These benefits will be elucidated below:
“Planning”
This will help Clarks to plan for the activities that will help them in having a good future for the
organisation. Planning also helps them in setting a goal for them that they need to attain in the
future. This is the beginning of performing any activity.
“Organising”
This benefit will help Clarks to organise the activities that are planned by them, which needs to
be performed. Organising all the activities helps them to perform the work in an easier way.
“Controlling”
The activities that are organised needs to be implemented in the organisation and before that a
control system needs to be set up that will help them in controlling the excess amount of cost and
the performance of the company. These will help Clarks to work in a good manner to attain
success internally.
“Decision Making”
The management of Clarks can make proper decisions for the company during any kind of
situation. These are done through different techniques like price optimisation system. This also
helps the company to set the exact price of the shoes.
“Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes.”
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According to Ax and Greve (2017), Clarks need to use management accounting in a thorough
way in their operations as they provide proper system to run the company to attain maximum
profit. This also helps Clarks in controlling the expenses and maximising the profits for their
business. As opined by Bromwich and Scapens (2016), by applying the management accounting
system, it increases the cost of the shoes that reduces their profit, which needs to be controlled.
Part B
“Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs.”
Question 2
“Cost analysis under 1st quarter”
“Table 1: Cost calculation in 1st quarter”
(Source: Created by the learner)
“Income statement in 1st quarter under marginal costing”
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“Table 2: Income statement under marginal costing”
(Source: Created by the learner)
“Income statement in 1st quarter under absorption costing”
“Table 3: Income statement under absorption costing”
(Source: Created by the learner)
“Cost analysis under 2nd quarter”
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“Table 4: Cost analysis under 2nd quarter”
(Source: Created by the learner)
“Income statement under marginal costing”
“Table 5: Income statement of 2nd quarter under marginal costing”
(Source: Created by the learner)
“Income statement under absorption costing”
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“Table 6: Income statement under absorption costing”
(Source: Created by the learner)
Two types of costing systems are provided in the report that shows how the system takes place. It
needs to be checked that Y2 Ltd should use the costing system that is fruitful for their business.
Marginal and absorption costing are the two processes that are being performed. It can be
observed that marginal costing gives the best result for Y2 Ltd. Thus, it can be commented that
using this process will be fruitful for their business to check the future income of the business.
There are different reasons present for the answers to be different which will be explained below
in the form of a table.
“Absorption Costing” “Marginal Costing”
Any kind of costs are considered in the
computation of net profit for absorption
costing.
Only the variable cost is measured in the
calculation of net profit and contribution writes
of the fixed cost.
This costing provides a lesser value of profit
for Y2 Ltd.
This process of costing has provided a higher
value for Y2 Ltd
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“Table 7: Tabular Representation of the difference between absorption and marginal
costing”
(Source: Created by the Learner)
“Apply a range of management accounting techniques and produce appropriate financial
reporting documents.”
Question No. 8
“a. State whether, and why, absorption or marginal costing would show a higher company
profit for the period, and calculate the difference in profit depending upon which method is
used.”
“Costing of two products under absorption costing”
“Table 8: Costing of two products under absorption costing”
(Source: Created by the learner)
“Costing of two products under marginal costing”
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“Table 9: Costing of two products under marginal costing”
(Source: Created by the learner)
“Profitability analysis”
“Profit under absorption costing”
“Table 10: Calculation of profit under absorption costing”
(Source: Created by the learner)
“Profit under marginal costing”
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“Table 11: Profitability under marginal costing”
(Source: Created by the learner)
The calculation provides a view of the two type of products named A and B for a company. It
can be observed that the computation of marginal and absorption costing are calculated to check
the difference in the profits in the two processes as well. It is also observed that in marginal
costing Product A gives the maximum profit and for Product B absorption, costing provides the
maximum profit. Thus, it is necessary for the company to fix the product that they want to
produce, which will allow the company to fix the method of costing as well.
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