Management Accounting Systems and Techniques Report

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MANAGEMENT ACCOUNTING SYSTEMS
& TECHNIQUES

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INTRODUCTION
Management accounting is being understood as a key role within an organization. The
managers of the organizations need to understand how the information should be generated
and used. With the increasing complexity of the business environment, the organizations are
required to track their performance. For this reason, they are required to adopt good
management accounting techniques which can range from costing, breakeven analysis and
budgetary control amongst others. All these tools would also be beneficial for management in
the decision-making process.
This report is being prepared as a trainee management accountant of a manufacturing
organization with the objective of providing the information crucial for the decision-making
process. The report aims at understanding of the systems and functions. The report would also
highlight the importance of the presentation of the information to the internal stakeholders of
the management. In addition to this, through this report, the importance of the planning tools
for resolution of the financial problems would also be analyzed.

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LO1
MANAGEMENT ACCOUNTING
Management accounting comprises up of the numerous concepts and methods which are
required for the effective planning activities which would guide the organizations in choosing
the best amongst the alternative business actions (Kaplan and Atkinson, 2015). Management
accounting is also beneficial in exercising control by evaluating and interpreting the
information.
MANAGEMENT ACCOUNTING SYSTEMS
These systems are beneficial for the organizations in the preparation of the various reports
which can be used by the management in their decision-making process. The various reports
which can be made by the use of these systems are the breakeven charts, budgets and trend
charts amongst others (Jermias et al., 2018). The various types of systems are as follows:
COST ACCOUNTING SYSTEMS
The actual production activities which are being undertaken by the organizations are being
recorded by use of these systems. For implementing the cost accounting system, the perpetual
inventory system is being adopted. In addition to this, this system also facilitates the tracking of
inventory at all the levels of activity within the organization.
JOB COSTING SYSTEMS
Under this system of management accounting, the costs incurred by the organizations are being
allocated to specific activities. This system is beneficial in determining the costs when the
company is working on different projects simultaneously (Jermias et al., 2018).
INVENTORY MANAGEMENT SYSTEMS
The organizations use this system for keeping a track record of all the goods and inventory held
by them within their warehouses. This system also helps in the coordination of production

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activities and the stocking of the inventory by the organization (Rieckhof et al., 2015). These
systems should be implemented by the organizations at various levels for ensuring the best
results.
PRICE-OPTIMIZATION SYSTEMS
These systems are being used by the organizations for determining the best price at which the
products could be offered by the organization to its customers. These systems help in ensuring
that the products manufactured by the company are being sold to its customers at the right
prices (Rikhardsson, 2017). This also helps the company in maintaining decent profit margins.
METHODS OF REPORTING
The management accounting is being used majorly with the objective of undertaking the
planning of the business activities and also for indulging in the decision-making activities. With
this objective, the management accountant is dependent on several kinds of financial
statements which range from an income statement, balance sheet, cash flow statement along
with other instruments such as budgets and cost reports amongst others (Jermias et al., 2018).
The various methods which are being used for the reporting are as follows:
Cost reports
In the cost reports, the managers are capable of seeing the prices of the goods along with their
actual selling costs. This report is being prepared by taking into consideration the cost of labor,
overheads and the prices of the product (Maskell et al., 2017). These reports are very beneficial
for the organization in planning and managing the income limits.
Budgets
The management accounting is also required to make substantial use of the budget reports for
analyzing the performance of the business. The departments are also benefitted from the
budget reports in analyzing their performance and controlling the costs incurred by them. The
budget estimates are being prepared by using the data pertaining to the actual expenses from

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the previous years. The budgets are also used by the management with the objective of
providing incentives and bonus to the employees.
Execution reports
The management accountants make use of numerous kinds of reports with the objective of
ensuring that the organizational activities are being planned appropriately. The organizations
majorly make use of the order information reports which are being used for associating the
orders which are placed with those of the orders received (Rieckhof et al., 2015). The reports
could also comprise up of the job costing reports, accounts receivable aging reports and also
the inventory and manufacturing reports.
BENEFITS
When the organizations implement the management accounting systems, they gain numerous
benefits from its implementation. This can comprise up of the following:
 Controlling- the management of the organization is capable of implementing control
over the actions of the departments when it finds deviations amongst the budgeted
figures and the actual outcomes. The efficient utilization of the standard costing and the
budgetary control systems can be highly beneficial for the management in exercising
control over its activities (Jermias et al., 2018).
 Planning- the planning and execution of the various activities could be ensured by
adopting the management accounting systems. The accounting information is being
assigned to the different departments and the individual activities are being prepared
for the same (Rikhardsson, 2017).
 Organizing- the implementation of the systems is useful in assigning the responsibilities
of the workers and also defining the scope of their activities.
 Improving efficiency- the implementation of these systems is beneficial for the
organizations in eliminating the wastages and also removing the defective products.
 Co-ordination – with the objective of fulfilling the overall organizational objectives, it is
very essential for the organization to ensure that the activities of all the departments

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are linked with each other. The organizations should have their focus on coordinating
the activities of the finance, production and sales departments amongst others.
 Profit maximization- obtaining profits is an objective of any business. Therefore, the
organizations should make huge efforts for determining the deviances from the ordinary
performance, which could have an contrary impact on the profits of the organization
(Rikhardsson, 2017). The management accounting systems would guide in profit
maximization.
 Communication- two ways communication process should be adopted by the
organizations where the employees would be communicated their roles and
responsibilities and the top management is being provided with the information which
would be useful in the decision-making process (Jermias et al., 2018).

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LO2
This section of the report is being aimed at calculation and the preparation of the income
statement for Oshodi Plc. by using both the absorption costing method and the marginal
costing methods. The Oshodi Plc. is a manufacturing organization which is engaged in
producing the JOJO fruit juices, which are being served for people of all the age groups. Thus,
the following is the income statement of Oshodi Plc. by use of both the marginal costing and
the absorption costing techniques:
INCOME STATEMENT USING MARGINAL COSTING
Marginal costing is a type of costing where the variable costs are being charged to per unit of
costs. In addition to this, under this method, the fixed costs of production are also being written
off against the contributions (Hague, 2018).
Nov Dec
Particulars Amount (£)
Amount
(£)
sales revenue 500000 600000
The marginal cost of sales
material cost 216000 180000
Labor cost 48000 40000
Variable production overhead 36000 300000 30000 250000
Contribution 200000 350000
Fixed costs
Fixed production overhead 99,000 99,000
Fixed selling overhead 14,000 14,000
Fixed administration overhead 26,000 139000 26,000 139000

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Net Profit 61000 211000
INCOME STATEMENT USING ABSORPTION COSTING
The organizations are required to be calculated by the organizations with the objective of
fulfilling the mandates of external reporting and also reporting for income tax. The absorption
costing focuses on the assignment of the overall absorption costs to the total number of units
produced (Geiszler et al., 2017). Therefore, in the case of Oshodi Plc., the total costs of the JOJO
juice would comprise of the cost of direct materials, labor and also all the fixed and variable
overheads.
Nov Dec
Particulars Amount (£) Amount (£)
Sales revenue 500000 600000
The marginal cost of sales
Material cost
216000 180000
Labor cost
48000 40000
Administration cost 26,000 26,000
Selling and distribution costs 14,000 304000 14,000 260000
Gross Profit 196000 340000
Variable production overhead 36000 30000
Variable selling overhead (working note
1) 50000 86000
60000 90000
Net Profit 110000 250000
From the scenario of Oshodi Plc., it can be seen that in situations when the production level is
higher than the sales level, the profits are high under the absorption costing as compared to the

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marginal costing. In contrast to this, when the volume of sales is higher than the production
levels, the profits under the marginal costing techniques are higher (Narasimhan, 2017).
OVER/UNDER ABSORPTION OF FIXED PRODUCTION OVERHEADS OF OSHODI PLC
In situations, when the organizations make use of the standard costing techniques, the
standard cost of the overheads which is required to be borne by the company during a
particular accounting period is being calculated, which are being further applied to the cost
objects. In situations when the actual overheads are different than the standard overheads,
then the overheads can be either over absorbed or under absorbed (Bentley, 2018).
A] CALCULATION OF BUDGETED FIXED PRODUCTION OVERHEAD
Particulars Amount (£)
Budgeted overhead £ 99,000
Budgeted Units 11000
Fixed production overhead / Unit £ 9
B] CALCULATION OF OVER/UNDER ABSORPTION FOR NOVEMBER
Particulars Amount (£)
Absorbed overhead
[Actual units x FOAR]
=12000 * 9
108000
Actual Fixed production overhead 99,000
Over Absorbed overhead 9000
The overheads are said to be over absorbed when the actual overheads which have been
incurred are less than the standard overhead costs. This also means that the expenses which
are being recognized within the current period are being reduced, thereby, leading to an overall
increase in the profits for the company.

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C] CALCULATION OF OVER/UNDER ABSORPTION FOR DECEMBER
Particulars Amount (£)
Absorbed overhead
[Actual units x FOAR]
=10000 * 9
90000
Actual Fixed production overhead 99,000
Under Absorbed overhead (9000)
For the month of December, the overheads are under absorbed. This means that the company
had been incurring higher overheads in actual as compared to the expected overheads. In such
situations, the difference within the amounts is being charged to the expenses account as
incurred in real (Bentley, 2018).

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LO3
PLANNING TOOLS
The budgetary control could be defined as a process of arranging the budgets for a future date
and comparing the same with the actual results of the organization. This would be helpful in
calculating the variances. The comparison of the actual results with the budgets aids the
management of the organization in determining the variances and further taking the corrective
actions (Palermo, 2018). The major objectives of the budgetary control are the definition of the
organizational objectives, preparing plans for the achievement of the established objectives, co-
coordinating the tasks of the various departments within the organization and centralizing the
overall management system. In addition to this, the budgetary control is also beneficial in
operating the various centers of costs and departments in an economical manner, by focusing
on fixing of the responsibilities of different employees within the company (Gooneratne and
Hoque, 2016).
The following are the planning tools utilized for undertaking the budgeting activities:
SALES BUDGET
This aims at forecasting the sales which could be generated by the organization over a certain
future time period. This is highly beneficial in planning production activities. In addition to this,
the preparation of this budget is also beneficial for the management in making forecasts about
the stocking of inventory (Lopez-Valeiras et al., 2016).
PRODUCTION BUDGET
The manufacturing groups should prepare production budgets for managing the production
activities of the business. In addition to this, the management of the organization focuses on
the preparation of both the sales budget and the inventory budget (Argenti, 2018). The budgets
should be aimed at enhancing the overall profitability of the business and to ensure that
activities of the business are in harmony with the budgets prepared.