Comprehensive Management Accounting Report: Methods and Analysis

This report delves into the core concepts of management accounting, exploring its various systems and essential requirements. It examines cost accounting, job order costing, process costing, and throughput accounting, highlighting their significance and application within a business context, specifically referencing the 'White Elephant Restaurant'. The report differentiates between marginal and absorption costing methods, providing insights into their profitability calculations. Furthermore, it analyzes different management accounting reporting methods, including job cost reports and sales/profit reports. It also discusses the use of data visualization software like Tableau for enhanced decision-making. The report concludes by addressing how firms utilize management accounting systems to address financial challenges, offering a comprehensive overview of the subject matter.

MANAGEMENT ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION............................................................................................................................................................................................................ 3
TASK 1.......................................................................................................................................................................................................................... 3
P1 Management accounting and essential requirements of different management accounting systems...............................................................3
P2 Identification of different methods that are used for management accounting reporting.................................................................................7
P3Profitability computation by using marginal and absorption costing method.....................................................................................................8
P4 Merits and demerits of varied tools in respect to budgeting............................................................................................................................11
P5 Way in which firms are using management accounting systems to respond to financial problems.................................................................13
CONCLUSION.............................................................................................................................................................................................................. 15
REFERENCES............................................................................................................................................................................................................... 16

INTRODUCTION
Management accounting is commonly used by the firms to deal with related transaction and to manage same at the workplace.
In the current report varied systems of management accounting are explained and there essential requirements are defined. Apart from
this, in middle section of the report, marginal and absorption costing methods are differentiated and relevant calculations are
performed. Different planning tools are define and discussed in detail. At end of the report, way in which management accounting
systems are used to respond to financial problems are also explained in the report.
TASK 1
P1 Management accounting and essential requirements of different management accounting systems
From: Budgeting officer
To General manager of White elephant restaurant
Subject: Management accounting system
Management accounting branch of accounting which deals with costs and expenditures that are made in the business.
Management accounting is used to do accounting related cost and expenses as well as it are used to keep track of expenses
that are made in the business. In this way effective control is made on expenses in firm. In discussed discipline there are
many approaches like variance analysis that can be used in the business (Sánchez-Rodríguez and Spraakman, 2012).
Under variance analysis method there are some of predetermined goals and objectives and against these objectives
comparison is made in order to identify performance of the business firm which may be positive or negative. If there is
good performance on some points then there is no problem but if it is identified that on some point performance is not

good then in that case action can be taken to work on the area where performance is not good and efficiency of the
business firm can be improved. Apart from variance analysis, there are many other methods that can be used to analyze
firm business performance. Many firms in order to get more better overview of profitability make use of marginal and
absorption costing method. There is difference between both methods as they give overview of the firm profitability but
there is difference in same. In case of other approach merely unstable expenditures are considered but in respect to other
approach all sort of expenditure are cosidered. Both methods compute firm profitability in different manner and it can be
said that management accounting reveal the profit if only variable expenses are taken in to account and when both sort of
expenses are considered (Busco and Scapens, 2011). Some of MA systems are explained below.
Cost accounting system: Cost accounting system have significance for the companies and it is used by White elephant
restaurant as under this cost of entire departments is done and on basis of same per unit cost is computed. It can be
observed that under this accounting system in White elephant restaurant at each department level expenses are recorded
and then summed up to identify entire cost that is incurred in the business. This is the one of the common accounting
system that is observed in case of all sort of firms whether it is small or big in nature. This is because while doing cost it is
necessary to take in to account entire cost of departments so that actual cost can be computed. Different department heads
need to collect data related to expenses that they are made in the business during entire month. These details need to be
submitted to the chief accountant of an organization.

Figure 1Cost accounting system
(Source: Vosselman, 2014)
It is the accountant that compiles entire records that are related to different departments and on this basis overall cost for
business is computed. In cost accounting systems not only different departments cost are added but same are also classified
in to different categories like fixed, variable and semi variable expenses. It must be noted that fixed expenses are those that
remain stationary and does not altered with change in situation. On other hand, variable expenses are those that keep on

changing consistently and never remain same (Vosselman, 2014). Fixed portion cannot be controlled but variable portion
can be changed. Thus, in cost accounting system all expenses are classified in to these categories. These information help
manager a lot in making decisions and it can be said that they easily identify that at what rate expenses are increasing in
the business and at which point they need to take steps to control expenses in company.
Job order costing: This approach is given due importance by the corporates due to its unique characteristics as for each
job costing is separately done. This is also used by White elephant restaurant as for each product or food item separate
costing is done. Usually, in the firms that produce customized products for different sort of orders costing is separately
done. This is because different raw materials are used in costing of products and due to this reason it becomes inevitable to
do costing of each batch individually. There are certain benefits of job order costing for the business firms. One of the
main advantages is that manager gets costing report individually for each batch and on analysis of same identifies that
which sort of expenses need to be controlled in the business so that cost of each batch can be controlled to maximum
possible extent (Talha, Raja and Seetharaman, 2010). This is the one of the major factor by considering which job costing
is used by the most of business firms that are operating in manufacturing department.
Process costing: It is another method that is commonly used by the firms at their workplace. Process costing refers to the
costing process under which entire steps that covered under process are analyzed and cost for them is computed
individually. In specific process there may be multiple steps and all of them need to be taken in to consideration to
determine overall cost of product. Usually, in this method for individual process costing is done separately and then same
are added to determine overall cost of the product in the business. This costing approach is used by most of the business
firms because in every sort of firm different process are performed whether it is related to production or service
department. It can be said that process costing is quite popular among business firms.
Throughput accounting: It is the one of the most important accounting system for the business firm and it can be said that

it is the one of the modern form of accounting system. This accounting system was designed by Israeli person and it
becomes very famous among business firms now a days. There are multiple aims and objectives behind using throughput
accounting system in the business and one of them is that cost must be controlled stiffly in the business so that maximum
profit can be earned in the business (Lukka and Vinnari, 2014). There are number of advantages of using throughput
costing system in the business and one of them is that approach of cost control and recording of records is unique in nature
and due to this reason mentioned cost accounting system is quite popular among business firms. It is very important for the
business firms to make efficient and effective use of cost in the business. With passage of time along with traditional
accounting systems throughput accounting approach is becoming quite popular and use by business firm’s at large scale. It
is very important for the firms to innovate their business operations time to time so that prudent decisions can be taken.
P2 Identification of different methods that are used for management accounting reporting
From: Budgeting officer
To General manager of White elephant restaurant
Subject: Management accounting reporting
Management accounting reporting refers to the ways in which reporting of records is done in the business. There are varied methods
of reporting that are used in the business. In these reporting’s managers receive a lots of information’s in respect to variables and on
basis of same make business decisions (Bodie, Kane and Marcus, 2014). Reporting may be related to job cost, budget, sales and
profit. These reports attract management attraction towards varied facts and according to requirement managers make business
decisions. Some of reporting methods are explained below.
Job cost report: It is the one of the most popular way of reporting as under this approach in respect to different jobs costing is done
separately. Under this reporting managers identify that in which trend costing of products is going on. Managers by viewing trends
identify direction in which cost is moving. If manger thinks that there is need to do work on specific front then initiatives is taken to
control cost in respect to job. Thus, it can be said mentioned approach have significant importance for the managers.

Sales and profit report: Sales and profit report is prepared by each and every type of business firm like Small White Elephant.
There may be different sections of the sales and profit report. Means that in section of sales classification can be done product wise
and quarter wise (Jinga and et.al., 2010). Such kind of classification ensured that managers will be able to identify that which
product line is most profitable and in which area there is need to work. Apart from this, managers can also identify sales trend that
get changed from one quarter to another. Thus, it can be said that through sales and profit report managers get a better overview of
sales that is observed in the business. Apart from this, on other hand, there is profit report which is widely used in the business. This
is because sales price remain constant but cost keeps on fluctuating at fast rate. Profit report help managers in determining whether
on quarter basis good amount of profit is earned in the business. Apart from this, profit report also helps managers in determining
whether in all products good amount of profit is earned in the business (Krishnan, Miller and Sedatole, 2011). It can be said that
there is huge significance of sales and profit report for the business firms. There are lots of facts that can be identified by using sales
and profit report in the business. Thus, it can be said that time to time sales and profit report must be prepared so that best decisions
can be taken in the business. There are many business firms that are using data visualization software in order to make business
decisions. Means that already there is reporting system in the business but it is visualization software that reflect and help managers
a lot of things in the business. In Tableau on daily basis plotting of sales and profit is done and by doing so it is identified that in
which direction firm is performing. If manager’s thing that performance is good then in that case there is no need to take any action.
However, in case if it is identified that to some extent firm failed to perform better in specific quarter or specific product line then
action must be taken immediately so that firm can be bring on track in order to achieve pre-determined targets.
Budget report: Budget report is also one of the most important methods that are used by the business firms for making decisions. In
these budget reports budgets are given and variance analysis is done which reflect whether cost remain in control in the business or
firm failed to do so. On basis of variance analysis managers come to know that in which area they need to work immediately in
order to control expenses in the business. Thus, it can be said that there is huge importance of budget report for the business firms
because it help managers in ensuring that cash is used effectively in the business and efficiently operations are performed in the
business.
P3Profitability computation by using marginal and absorption costing method
Absorption and marginal costing method is the one of the method that is used for computation of profit in the business. There
is difference between both sorts of methods as it can be seen that in case of AC method both stable and non-stable expenses
considered in the business. On other hand, there is marginal costing method and under this only variable expenses are considered by
the business firm. Hence, there is difference between both accounting approaches in respect to profitability. This is because fixed

expenses that are paid by the Small White elephant are paid out of revenue that is earned by it in its business. Hence, it can be said that
there is importance of absorption costing method because due to payment of fixed expenses profitability of business firm decline to
some extent (Kihn, 2010). Hence, it is important to include fixed expenses in computation of profit in the business. On other hand,
there is another approach of costing which is MC method and in this technique unstable expenditures are only considered by the
business firms. This approach can be considered right because every year it is not necessary that firm make fixed expenses in its
business on assets. Apart from this, fixed expenses made in the business do not have direct contribution to profitability of the business
firm. Hence, it will be better to make use of marginal costing method in the business. It depend on firm that which of method it used in
its business. However, companies can select any of the method or can use both approaches for computation of profit in the business
(Vasile and Man, 2012). By using marginal costing it can identify that after considering variable expenses what change comes in profit
and after considering both fixed and variable expenses what sort of change comes in profit off the business.

Table 1: Income statement under absorption costing

Table 2: Income statement under Marginal costing
Interpretation
It can be seen in case of above given table that in case of marginal costing method earned profit amounts at 7500 and same is
7800 in case of absorption costing method. It can be seen from table that there is more profitability in case of absorption costing
method because in it both fixed and variable expenses are taken in to account. On other hand, in case of marginal costing method only
variable expenses are taken in to account. Thus, it can be said that there is difference between both costing methods and it depend on
the firm that which of approach it used for computing profitability in the business (Albu and Albu, 2012). It will be better to use
marginal costing in the business because mainly while producing goods variable expenses are incurred in the business and due to this
reason use of marginal costing method for making business decision seem more justified then absorption costing method.

P4 Merits and demerits of varied tools in respect to budgeting
From: Management accounting officer
To: General Manager of Small White Elephant
This report is prepared on the underlying advantages and disadvantages of planning tools which help business to forecast
sales and other elements in advance.
Budgetary Control concept
There are varied sort of planning tools and all of them have some positive and negative sides. It is very important to select one of the
best alternatives and this can be done by identifying advantages and disadvantages that are associated with planning tools that are
used for budgetary control.
1. Variance analysis: Variance analysis is the one of the important method that is used for identifying whether Small White
Elephant have strict control on its expenses and measuring firm performance. Variance analysis is the approach that is used by all
sorts of firms irrespective of their size. Eg- Company can effectively prepare budget and match with actual results to assess variances
if any. Thus, improvement can be done.