Management Accounting: Systems, Methods, and Analysis

This report provides a comprehensive overview of management accounting, exploring various systems such as cost accounting, inventory management, job costing, and price optimization. It delves into the definition of management accounting reporting, outlining different methods and the benefits each offers to businesses. The report examines cost calculation techniques, including marginal costing and absorption costing. It evaluates the advantages and disadvantages of planning tools like budgetary control, and their application in forecasting and budget preparation. Furthermore, the report analyses how management accounting systems can be used to resolve financial problems, comparing different organizational approaches to achieve sustainable growth. The report also includes critical evaluations of MA systems and MA reporting. The report uses Hilti GB as a case study and also includes annexures for additional information.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
ACTIVITY 1....................................................................................................................................1
P 1. Types of management Acc. Systems...................................................................................1
P 2. Defining methods for management accounting reporting...................................................4
P 3. Calculation of cost using various MA techniques...............................................................5
ANNEXURE A ...............................................................................................................................6
ANNEXURE B..............................................................................................................................13
LO3 ...............................................................................................................................................14
P4 Advantages and disadvantages of planning tools using budgetary control.........................14
M3 The use of planning tools and their applications for forecasting and preparing the budget.
...................................................................................................................................................18
D3 Planning tools for accounting and solving the financial problems to lead the organization
for sustainable success..............................................................................................................18
ACTIVITY 2..................................................................................................................................18
P5. Using management accounting system for resolving financial problems being faced.......18
ANNEXURE C..............................................................................................................................20
M4. Analysing aspects which assist management accounting in achieving sustainable success.
...................................................................................................................................................21
CONCLUSION..............................................................................................................................23
REFERENCES..............................................................................................................................24

INTRODUCTION
Management accounting is an effective framework which helps in preparing timely
financial reports and mathematical data to internal stakeholders of the organization which helps
in taking day to day strategic decision for higher operational efficiency and growth of the
business. Managerial accounting helps in effective planning, controlling and organising the
activities of the organization in order to reach greater heights. The study will highlight, systems
of MA and the various methods of MA reporting. Present study will also examine costs by
appropriately using various cost analysis techniques. This study will also evaluate the benefits
and limitations of different budgetary tools in order to respond to various financial problems.
This study will also compare different organization to solve various financial problems and lead
business to higher sustainable growth. Hilti GB is a multinational manufacturing and engineering
company in UK which was established in the year 1941 and mainly deals in power tools,
diamond drills, laser products fire stops and anchors.
ACTIVITY 1
Part A
P 1. Types of management Acc. Systems
Management Accounting
Management accounting (MA) is a crucial process of analysing, identifying, measuring,
interpreting, evaluating and communicating the same with the internal managerial of the
organization. This study helps management of the organization in taking strategic decision in
order to provide higher operational efficiency for smooth functioning of the business. This study
helps in controlling cost of the Hilti Gb company by critically evaluating the cost attached with
each activities (Hoitash and Hoitash, 2017). MA helps in analysing profit and forecasting the
future in order to analyse the future to predict the cost for long term sustainable growth. MA
helps in valuation of stock, capital budgeting analysis and variance analysis for smooth
functioning of the business.
Management Accounting System
Management accounting system helps in measuring and evaluating the various financial
results and reports which leads to effective decision making and operational efficiency. This
study helps management in forecasting the future needs of the customers. It helps in predicting
the future needs and determining the operational efficiency of the business. It also helps in
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controlling the performance the company and also interpreting the financial data and
communicating the same to the internal stakeholders of the Hilti Gb company. This helps in
motivating employees and making strategic plan to solve various financial problems and reach
greater heights with utmost accuracy and efficiency.
Cost accounting system: This system is also referred to as product cost system. This is an
effective framework which helps in determining the cost of various different activities and also
evaluate the cost of the products manufactured and services rendered by the Hilti Gb company.
This helps in analysing the profits from the particular manufacturing process
(Schalteggerand Burritt,2017). It also effectively evaluates the inventory cost which are very
crucial for the profitable operations of the business. It also helps in assessment of cost, correct
recording, determination of selling price, reduction of cost and break even analysis which leads
to higher operational standards and efficiency.
Inventory management system: This system determines the level of inventory and also
helps in tracking various orders, sale and delivery. This tool helps in forecasting and planning the
future needs of the company by determining the resources necessary for the production and
manufacturing process.
This system of MA helps in improvising quality and increase productivity and profitability. It
also helps in avoiding excess inventory and stocks out by optimally utilizing the resources and
balancing demand and supply. This can be estimated through LIFO method, FIFO method and
weighted average method.
Job costing system: This system is an effective process of accumulating information
related with the cost associated with specific job of the Hilti Gb company. This system helps in
tracking the cost of the particular job which mainly includes raw material, labour and overhead
cost (Maas, Schaltegger and Crutzen, 2016).
This tool is useful in determining the most profitable units of job in the company. This
system is useful in estimating the cost of the each job and determine the most profitable job for
higher operational standards and efficiency.
Price optimization system: It is an effective tool in determining the reaction and
behaviour of the customers with the change in the price of the company. This system helps in
accurately determining the price of the various products and services rendered by the company
for higher operational growth and productivity.
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This system helps management in determining the accurate prices which helps Hilti Gb
company in generating higher profitability. This tool helps in determining the change in the
variation of demand and supply due to change in different price levels (Otley, 2016). This tool
helps management in determining the price to enhance revenue and improve profit.
Benefits of Management accounting systems
Cost accounting system: This tool helps in recording, classifying and allocation and
determination of current and future cost for controlling cost that eventually leads to higher
operational standards and efficiency (Chenhall and Moers, 2015). This is very crucial for the
estimation of manufacturing and selling process for smooth functioning of the business. It is an
effective process which helps in controlling and reducing cost and also optimum utilization of
the resources for higher operational standards and accuracy.
Inventory management system: This tool helps in simplifying the inventory management
process by giving proper details about the level of inventory which leads to higher operational
efficiency and performance in an accurate and viable manner (Haldand Thrane, 2016) . It helps
management in keeping detailed reports of the inventory and avoids over and under stocking of
the inventory. This system helps in managing the inventory effectively and reducing various
complexities in the process by streamlining the entire manufacturing and selling process.
Job costing system: This system helps in comparing actual cost with estimated budgeted
plan in order to evaluate the variance and take necessary action to resolve the issue on time. This
method is useful in facilitating price of each job (Hiebl, 2018). This system is beneficial in
determining the defective and spoilage area in each job for higher operational standards and
accuracy. It also helps management in trend analysis to evaluate the performance of the job over
the historical periods.
Price optimization system: This tool helps in evaluating the accurate price for the
particular product and services on a real time basis. This helps in effectively determining the
prices in order to continuously improve the productivity and operational efficacy of the Hilti Gb
company (WHAT IS PRICE OPTIMISATION?, 2017). This system coordinates the decision and
preference of manufacturer consumer and supplier for higher operational standards. This system
is beneficial in minimizing the risk and optimal utilization of the resources and also helps in
maximizing the value of business.
Critical evaluation of MA systems and MA reporting
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Systems of MA helps Hilti Gb company in evaluating the most profitable unit of the
organization. It also helps in determining the cost attached with each manufacturing unit which
leads to higher sustainable growth and development. This system helps in evaluating and
measuring the cost of the units and also eliminate unnecessary cost for higher operational
standards. Integration of MA system helps in tracking internal cost of the business in relation to
operation, production and investment in the market. On the contrary, (Fleischman and Parker,
2017) argued that, MA system may lead to manipulation of data and personal biasses which
eventually result in ineffective decision making and also looses accuracy, objectivity and
validity.
MA reporting is very beneficial to Hilti Gb company to analyse the performance of the
company and compare it with other competitors to analyse and evaluate the competitive position
of the company in the market. This tool is useful in evaluating the performance and functioning
of each particular department. (Haldand Thrane, 2016) argued that, MA reporting takes into
consideration only financial data which leads to intuitive decision making. This does not always
give accurate results because it does not take into consideration qualitative data. This is a costly
affair and it takes time to prepare reports.
P 2. Defining methods for management accounting reporting.
Management accounting reporting has been defined as a process of preparing internal
managerial report related to all the statistical as well as financial information of the company.
This report assist in the effective decision making process of the management of Hilti Gb.
Following are the types of report that can benefit Hilti Gb:
1. Budget Report – With the help of budget report, Hilti Gb can make comparison of actual
result with the estimation made for a particular accounting period, for determining
variance if any. By preparing a budget target, it helps in forecasting cost expenses amount
associated with carrying on future business production and revenue income to be received
from it (Boiral, 2016). Also, it soothes the management in making proper and effective
allocation of the available and limited business as well as financial resources of the
company maong different business department as per their requirements.
2. Performance Report – A report which provides a deep insight about the performance
and success journey of both the company as well as its employees. By monitoring or
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reviewing the performance of individual employee and department, it can easily helps in
evaluating the working and activities as undertaken by them for attaining the set defined
business goals. From reviewing this performance measures, Hilti Gb can compare
whether all the strategies and plans as formulated in line with business objectives are
properly followed or not. Thus, if required on the basis of performance review changes in
business policies can be made for the betterment of the company as a whole (Böcking,
Gros and Worret, 2015).
3. Account Receivable Aging Report – This report helps in evaluating the time period as
well as amount which is due or remaining balance on part of clients, customers to whom
credit sales has been made. Such report is best suitable for companies which relies
heavily on providing credit services for its business operations. It can help Hilti Gb in
identifying issues and problems which is hampering the process of money collection of
the company. Also, it helps in assessing all the defaulters on behalf of company which
can result in business loss due to non payment of default risk made by them. For
overcoming issues related to collection process and defaulters, Hilti Gb is required to
have strict credit related polices.
4. Cost Managerial Accounting Report – One of the most important business report with
the help of which Hilti Gb can easily evaluates all the cost associated with business
operations and processes. This report offers a brief summary related to the cost incurred
in relation with acquisition of raw material, overhead, labour etc. Further, the
management of company can easily evaluates the cost as well as selling prices of the
product produced (Hoitash and Hoitash, 2017). By this report, Hilti Gb can have proper
understanding of cost amount associated with unproductive business departments and opt
for better allocation of such resources.
Part B
P 3. Calculation of cost using various MA techniques.
Marginal costing: This is an effective cost accounting technique which helps in
determining the change in the total cost when one additional unit is produced. This costing
method only takes into consideration those costs which have been incurred at the time of
production. The variable costing is charged and it dopes not takes into consideration fixed cost
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which leads to change in the total cost of the particular production period. This tool is very
simple to operate and understand.
Absorption costing: This is an effective accounting technique which is also referred to as
full costing. This method takes into consideration both fixed and variable cost (Fleischman and
Parker, 2017). This tool helps in evaluating all the cost attached to manufacture the particular
unit of product of the company. This method takes into consideration cost attached with raw
material, labour, overhead and utility cost. This method gives accurate estimation of the cost
attached to manufacture the particular unit of good because it takes into consideration all the cost
i.e., direct cost, variable cost and fixed cost.
ANNEXURE A
Assessment of profit under marginal and absorption costing pertaining to ‘Table’
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Period 2
Particulars Amount (in £) Amount (in £) Net Amount (in £)
Sales (1700*590) 1003000
Cost of sales:
Opening inventory (650*330) 214500
Material (5200*215) 1118000
Labour (5200*90) 468000
Variable o/h (5200*25) 130000
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1930500
-Closing inventory (4150*330) -1369500
-561000
442000
Contribution 442000
-Fixed costs -361500
Actual Net profit/(Net
Loss) 80500
Under Absorption Costing
Particulars Cost per unit: in £ (Period 1
Direct Material 215)
Direct Labour 90
Variable O/H 25
Fixed o/h 61.5
Total absorption cost per unit 391.5
Period 1
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Period 2
Cost per unit for Period 2
Direst Material 215
Direst Labour 90
Variable O/H 25
Fixed o/h 69.52
Total absorption cost per unit 399.52
Assessment of profit under marginal and absorption costing pertaining to ‘Chair’
Under marginal costing (Chair): Cost per unit
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