Management Accounting System and its Applications for Morrison

This report delves into the intricacies of management accounting systems, examining their essential requirements and diverse applications within a business context. The report focuses on Morrison, a grocery store, and Nero Limited, a small business, as case studies to illustrate the practical i...Read More

Management Accounting
System and its applications

Table of Contents
INTRODUCTION...........................................................................................................................1
Section A..........................................................................................................................................1
P1 Explain management accounting and essential requirement of various accounting system..1
P2 Use of various methods in management accounting reporting..............................................3
P3 Calculation of cost by formulating income statement...........................................................4
Section B..........................................................................................................................................8
P4 Advantages and disadvantages of different type of planning tools in a business..................8
P5 Adapting management accounting system while responding to various financial problems
.....................................................................................................................................................9
CONCLUSION..............................................................................................................................11

INTRODUCTION
Management accounting is a provision of financial data and it provides advice to an
organisation for using it for further development and growth (Burritt, Schaltegger and Zvezdov,
2011). This document is prepared on basis of short term and regular activities of a business
through which proper modification according to time get done. This assignment is based on
Morrison which is a grocery store and they require to implement this system in business for
making their operations effective and appropriate. Along with this, Nero limited is another small
business entity which used to evaluate this report more properly. This report will be covering
essential requirement for implementing management accounting system with diverse methods
which are used in management accounting reporting. Moreover, on the basis of cost an income
statement will get prepared for marginal and absorption costing. There are various budgetary
planning tools are identify with several advantages and disadvantage which also get evaluated.
There are several financial problems are also identify for the business on which management
have to actively respond.
Section A
P1 Explain management accounting and essential requirement of various accounting system
Management accounting is a process which enable an entity to prepare their reports on
the basis of regular and day to day operations of a business (Dillard, 2014). Thus, every firm
have to prepare their financial statement in such a manner through which all things get ascertain
properly. This concept is usually used by many small sized organisation as they are operating at
low level. Hence, they can easily maintain their reports and reduce uncertainty and risk from
business organisation.
Management accounting system is completely different from the financial accounting
system in which reports frame on the basis of long period of time. Financial accounting provides
strength to such business operations which are taking place in long term context where as on the
other hand management accounting is distinct from this purpose. This support in reformulating
business strategies according to deviations which are taking place in short time duration.
Financial accounting must be filled on annual basis where as managerial accounting is not.
Managerial accounting process does not rely on past performance of business but based
on current and future trends. Management accounting relies heavily on taking decision for
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fluctuating environment of business and work on market trends according to present scenario of
time. These are for the internal stakeholders of a business which are related to regular operation
of a business. Morrison is one of a grocery store in UK, whose major aim is just to provide high
quality products at standard price to target users. Thus, they can use this concept in business for
making operations more effective and appropriate in nature. By applying this technique in an
organisation, Morrison become able to remove deviations from their business and work in an
adequate manner.
Diverse number of management accounting system are identify by managers of a
company whom have to utilise at grocery store in making their task more effective and
appropriate in nature (DRURY, 2013). They all are helpful in providing strength to a business
which is an essential factor. Various managerial accounting system for Morrison are describe as
below: Cost accounting: Product value plays an effective role at the time of selling it at market.
Cost accounting support an entity to control the cost of production as well as purchasing
through which product get deliver at minimum cost level. Managers have to cut down
unnecessary value from the product. This will aid in delivering of product at more
effective and efficient manner. Morrison have to use this process in business through
which organisation can easily deal out with many problems and adopt such technique
which easily minimise the cost of waste material (Elbashir, Collier and Sutton, 2011). Inventory management: One of a major aspect for business is about stock and inventory.
It is a duty of managers to regularly check all details of their stock and purchase
according to that. Inventory management is essential thing in grocery store which support
to Morrison in increasing satisfaction level of their customers. Job order costing: This system is used when range of products are identically differ from
each other. It is used for the projects which are taking place in an organisation. Hence,
when goods get vary according to time then job order costing method will apply on
business. Morrison is dealing in wide number of products and they can adapt this
technique into business.
 Price optimising: One of a essential factor which have to take in account by every
business firm is analysis. Through analysis proper identification about an individual
perspective get determine. Price optimising is a process which support in measuring
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response of different customers on product range. Morrison have to identify this thing
and adopt shortest path in rendering goods to end user of it.
P2 Use of various methods in management accounting reporting
Reports are a brief detail of every pro and con of business which are taking place during
an accounting year in a business context. Management accounting and financial accounting
reports are a crucial part of business in relation to getting a clear view of long and short term
activities (Flamholtz, 2012). A holistic view of business finance on monthly, weekly and
quarterly basis is essential thing which get only done through managerial accounting concept.
Thus, this concept is helpful in rearranging the strategies of business according to course of time
or market trends. Moreover, forecasting become easy to done for short things but for long facts it
is hard.
Managers have to inspect books in an adequate manner to maintain proper health of a
business. Managerial accounting reports are highly based on attainment of goals and targets of a
business which have to ascertain in an adequate time frame. Deviations or unnecessary wastage
also get reduce by applying this methodology into business.
Morrison can have to evaluate their reports properly in relation for framing strategies,
goals and targets. In case if they find out any risk over in business by investigating statement
then a quick respond on that get done. Moreover, for evaluating business performance, it is
termed as beneficial technique. Leaders and managers of reference company have to measure
their reports properly and frame strategies according to goals and targets as well. It is must for
improving services and range of products as well when any sot of difference get determine in
sales and less attainment of goals and targets. There are diverse number of management
accounting report are identify and they have a direct or indirect relation with the managerial
accounting system as well (Granlund, 2011). Hence, on the basis of this thing, there are three
major accounting reporting system are described whom have a relation with management
accounting system:
 Budget report: Plan is consider as helpful measure which enable in performing all task
in an adequate manner. Managers have to align their work with senior authority and then
prepare a plan which support them in executing task properly. Budget is an essential
thing which have to prepare by managers of a company and then show in front of
management. Necessary modifications have to done by authority for success of a project.
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Budget reports are not like financial report in which depth towards the performance of a
company get done. By using budget report, an organisation can determine the
performance of each department in relation to utilisation of fund properly. It only
signifies the inflow and outflow of cash and spending over on project and its cash
availability (What Is the Difference Between a Financial Report & a Budget Report?,
2017). Morrison have to allocate adequate fund to their departments and identify that
which division performing task effectively. This reporting is related with the cost
accounting system through which proper division of fund get done according to working
pattern of departments.
 Account receivable aging report: It is a type of report in which appropriate detail about
all unpaid customer invoices and unused credit date memos are listed (Accounts
Receivable Aging Reports and Factoring, 2017). It helps in tighten the policies of
collection and collect money on time. Hence, it is a duty of managers to keep their
accounting system up to date for identifying unpaid amount in business or by the entity.
Thus, management have to provide loan only to such client which paid money on time or
before the time. Morrison have to use account receivable aging report properly and take
strict actions against such customers who failed in meeting their obligations.
 Inventory and manufacturing report: Every entity which have a regular operating in
physical product have to maintain proper inventory report. Moreover, companies whom
manufacturing are self related have to identify the stock of their own in warehouses.
Inventory and manufacturing management aid in maintain proper stock of the company
and enable them in reducing unnecessary wastage of goods. Morrison have to prepare
regular report of their stock and align it in an adequate manner. This reporting system is
related with the inventory management system through which proper manufacturing of
goods and services get done properly.
P3 Calculation of cost by formulating income statement
Value determination is an essential thing for every goods manufacturing company. It is
helpful in ascertain proper profit level which an organisation want to ascertain. Thus, with
manufacturing of product several cost get incur. Managers have to enlisted them and settle down
the prices according to such production cost (Jaber, 2016). By every bulk production, managers
have to utilise managerial accounting system and then analyse the price which is associated with
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product. This is quite hard manner but enable a firm to sale out products at appropriate price.
Moreover, by applying this tool, wastage also get decline which is not appropriate for the
business consent.
Morrison have to identify overhead cost and make adequate strategies to deal with them.
There are mainly 5 sort of cost are related with product manufacturing and procuring it from
others which are: Fixed cost: Several things on this planet are constant and do not get changes or vary
according to time. Same procedure has been followed by the fixed cost which has a
stability in nature and do not vary with more and more manufacturing of products and
services (Koh and Tan, 2011). Variable cost: With every production unit of goods and services, a cost which get
fluctuate is variable cost. It is not appropriate for business and management have to
determine it properly. This will lead to increase the price of product. Direct cost: On manufacturing of product, a cost which is essential to incur on that is its
direct cost. It is already in estimation of managers and leaders and made a vast impact on
manufacturing of goods and services. Indirect cost:Management have to control their indirect cost which arise due to wastage
of resources or delay in production. It is in control of managers and operational
department.
 Operating cost: Operational cost is consider as such sort of values which incur on
product due to manufacturing and change in production unit.
There are mainly two sort of management accounting costing are used which are helpful in
determine the profit of business which are: Absorption costing and Marginal costing. Both these
methods are helpful in concluding that what net profit or loss is suffering by an entity. On the
basis of this, adequate strategies get frame which are helpful in deriving a best outcome. Hence,
Morrison managers have prepare their income statement which states about net profit or net loss
of the business (Laudon and Laudon, 2016). These statement are helpful in interpreting the result
and take appropriate decisions for them.
The method for calculating the cost under both of these methods are different from each
other. Managers have to adopt one of them in relation to take beneficial decision for business. A
brief description about marginal costing and absorption costing with suitable calculation is
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below. Thus, on the basis of these income statement, authority become able to take decision
which are beneficial for an organisation.
Absorption costing: It is a method through which proper calculation or full product of the cost
get determine with a proportion of one overhead production cost (What is absorption costing?,
2017). This type of method are usually used to create an inventory valuation which is stated in
organisation balance sheet. It does not include so much absolute information like marginal
costing but enable in identify the overall value of product. Hence, absorption costing is a end
value of the product or goods that will include fixed overhead, variable overhead, direct material,
direct labour etc. As this simplifies that absorption costing is a full costing method or technique.
Absorption costing for Quarter 1:
Particulars Amount (in £)
Sales 6600
Less: Cost of sales
Opening inventory
production cost (78000*0.85) 66300
Closing stock (12000*0.85) 10200
7650
Gross profit -10500
Less: Fixed & selling expenses 520
Net profit -1570
Absorption costing for Quarter 2:
Particulars
Sales 7400
Less: Cost of sales
Opening inventory (12000*0.85) 10200
production cost (66000*0.85) 56100
Closing stock (4000*0.85) 3400
6970
Gross profit -430
Less: Fixed & selling expenses -520
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Net profit -950
As per this income statement which get calculated under absorption method signifies that
the Morrison is suffering loss from their activities in their both quarters. As management have to
formulate some essential strategies to overcome from these things. Hence, the inventory level is
declining due to which company have to suffer from loss.
Marginal costing: For every decision making process, a critical focus is essential. Marginal
costing is described as the principle costing technique which used in decision making process of
a company. It enable managers to take the variances in account and then work on them properly.
Hence, management have to keep their focus on such changes which are taking place due to their
decision consideration (Liao, Chu and Hsiao, 2012). It is also define as the variable cost of goods
and services because marginal costing get vary according to production of products.
Marginal costing for Quarter 1:
Quarter-1
Particulars Amount (in £)
Sales 66000
Less: Cost of sales
Opening inventory 0
production cost (78000*0.65) 50700
Closing stock (12000*0.85) 10200
60900
Gross profit 5100
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit -16100
Marginal costing for Quarter 2:
Quarter- 2
Particulars Amount (in £)
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Sales 74000
Less: Cost of sales
Opening inventory (12000*0.85) 10200
production cost (66000*0.65) 42900
Closing stock (4000*0.85) 3400
56500
Gross profit 17500
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit -3700
According to the above statement which signifies the met loss by marginal costing
costing method define that variations are more in number with every production unit. The
inventory level is increasing day per day which means that company incur loss. Hence,
appropriate action plan have to frame by senior authority in an adequate manner.
Both these methods are helpful in identifying the profit and loss of business which is
essential for long term purpose. Management have to work in an appropriate manner for
attaining more and more profit rate in near future.
Section B
P4 Advantages and disadvantages of different type of planning tools in a business
Planning is an essential tool which have to take in account by management so that
adequate framework can be formulate. Budgetary control is a process in which managers have to
compare their actual performance with estimated performance and monitor each and everything
in an proper manner (Petty and et. al., 2015). This will support them in reframe action plan of an
entity and work against them.
Nero limited managers have to take this thing in account and their supervisors have to
measure difference in their performance. Along with this, they also have to analyse that all
resources are using properly or not with allocation of fund. Thus, in such relation, management
can use various budgetary control which are as follow:
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1. Cash budget
2. Capital expenditure budget
3. Target cost pricing
Budget is an essential tool which have to frame by every firm for making operations effective
and efficient in nature (Roy and et. al., 2011). By preparing a budget, it will enable a firm to deal
with various risk and uncertainty so that activities get done properly. Budget process have
several number of control process which have to take in account by managers and leaders.
Budget enable a firm to dealing all things properly which are described as follow:
 Enable managers to utilise all resources in an appropriate manner through which wastage
get reduce and adequate outcome get ascertain.
 Reflect a clear picture of an organisation goals which are associated with their near
future.
 Provide a platform through which proper difference between actual performance and
estimated get done.
Nero limited have to adopt either of the concept of budgetary control in their business through
which they can maintain their working in an appropriate manner. By this they can easily allocate
funds and use them in a proper manner. Hence, a major differentiation between each of them are
define as follow:
Planning tools Advantages Disadvantages
Cash budget Provide proper overview about
cash availability of firm so that
everything get managed
according to that. Thus, a
proper limitation for
expenditure get maintain.
Based on initial to next year
which signifies the high
manipulation into it.
Manage every unnecessary
expense of a company
properly so that proper
maintenance of cash get done.
The budget is highly based on
cash which signifies that non
financial factor affect it so
badly.
Capital expenditure budget Maintain a clear path for the Capital expenditure budget is
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future investment in large and
big projects.
highly based on future things
and it can not easily reverse.
Thus, this is a one of a major
limitation of this budget
process.
Support in measuring the risk
factor for the project so that
proper investment get done in
an adequate manner by a
company.
All things get ascertain in
advance which affect working
pattern. One wrong decision
will directly affect business
growth of 5 -10 years.
P5 Adapting management accounting system while responding to various financial problems
Every business have several number of problems which affect its operations very badly.
Out of these, a major issues which arise is financial issues which affect operations of an entity in
a worst manner. Thus, a business organisation will not become able to attain their targets in an
adequate manner and affect business performance as well (Stair and et. al., 2011).
Management have to adapt proper tools and techniques through which these financial
problems get resolve. It is very essential for business to deal with them and manage everything
properly. Finance is a backbone of business and company have to maintain proper fund through
which whole operations get done properly. Several financial problems which signifies the
inability of business in attain all of their performance and targets effectively are termed as
follow: Profit level: A major financial problem arise due to decline in profit level of business. If
management have low profit level then they have to suffer heavy loss. For increasing the
profitability of business, authority have to concise several major steps which enable them
in dealing with problems effectively (Wagner, Moll and Newell, 2011). Nero limited
have to prepare a plan and frame budget through which proper allocation of money get
done as well as their products also get met with proper quality standard.
 Productivity level: Another major reason behind financial problem is productivity level.
Nero limited have to produce according to demand not more than that and not less than
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that. If they supply low then the market demand then their productivity level get decline
or vice versa.
For dealing with these financial problems in an appropriate manner, management have to adapt
some methods. These techniques are helpful in resolving all issues properly and in minimum
time period as well. Hence, some of them are:
I. Key performance indicator
II. Budget targeting
By using either of the tool, management become able to deal with all problems in an adequate
manner and gain sustainable success as well. Management have to measure all the things
properly and the strict actions have top recommend against them. Budgeting targeting support in
set targets in budget and make points of work. According to such points, whole work have to
done properly.
Thus, a proper action plan for dealing with various financial problems are described as
below. Nero limited have to consider all points properly and then work in such a relation so that
all problems get resolve properly.
1. They have lack of investors which further create problem of lack of fund.
2. Prepare a report and then arrange fund through shareholders of a company.
3. Describe KPI and prepare budget which align with expenses and investment.
4. Frame objectives and work on them.
5. Implement the tool in responding to financial problems properly.
CONCLUSION
It get concluding from the report that management accounting is a systematic process in
which reports get frame on the basis of weekly, monthly and quarterly basis. As this is helpful
method to deal with various problems which are taking place in an organisation. There are
various number of management accounting system are helpful for removing deviations from
business. Along with this, managerial accounting system have to integrate with reporting method
so that proper management get done. Marginal costing and absorption costing are helpful context
through which net profit and net loss of business get determine. Moreover, by using proper
techniques, management have to use suitable tools through which financial problems get resolve
in minimum time frame.
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