Management Accounting Report: Systems, Methods, and Analysis

This report delves into the core concepts of management accounting, providing a comprehensive overview of various systems and methods used for financial analysis and reporting. The report begins by examining the requirements of different management accounting systems, including cost accounting, inventory management, job costing, and price optimization systems. It emphasizes the importance of data availability, system analysts, accountants, and developers, along with crucial elements like cost assignment, classification, and monitoring. The report then explores various methods for management accounting reporting, such as ratio analysis, comparative statements, marginal costing, and analysis of cost variances. Furthermore, the report highlights the application of these methods, including the use of absorption and marginal costing to determine profit, and discusses the advantages and disadvantages of different planning tools used for budgetary control. Finally, it addresses the role of management accounting systems in responding to financial problems, offering practical insights and solutions for business managers. The report provides a detailed analysis of the concepts and techniques employed in management accounting, including how businesses can analyze the cost of production and services to facilitate decision making.

MANAGEMENT ACCOUNTING

TABLE OF CONTENTS
MANAGEMENT ACCOUNTINGTABLE OF CONTENTS........................................................1
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1Management accounting and requirements of different type of management accounting
systems.........................................................................................................................................3
1.2Methods used for management accounting reporting.............................................................6
TASK 2............................................................................................................................................9
2.1Financial statements under varied costing methods...............................................................9
Income statement under the marginal costing method................................................................9
Difference between absorption and marginal costing method..................................................10
TASK 3..........................................................................................................................................12
3.1Advantages and disadvantages of different planning tools that can be used for budgetary
control........................................................................................................................................12
3.2Use of management accounting systems to respond to financial problems.........................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting is the important domain that help business managers in taking
business decisions. There are number of tools and methods of the management accounting that
are used by the managers to take cost related decisions. In the current report requirements of the
management accounting systems is discussed in detail. Along with this, in the report methods
that are used for management accounting reporting are also explained in detail. In middle part of
the report, by using absorption and marginal costing method profit amount is identified.
Moreover, difference that exist between both approaches is also explained briefly. At end of the
study, different planning tools in respect budgetary control are also discussed in detail.
TASK 1
1.1Management accounting and requirements of different type of management accounting
systems
Management accounting is the one of the most important domain that is used to analyze
the cost of production and service that is incurred by the business firm at the production place in
order to produce goods in facility. There are different management accounting systems that are
used by the business firms to collect different type of product and services like cost accounting
systems, inventory management systems, job costing system and price optimizing systems. There
are some requirements of these systems. Some of these requirements are given below.
 Availability of information: One of the most important feature of the management
accounting systems is that they generate reports that are used to perform management
accounting calculations (Schaltegger, Gibassier and Zvezdov, 2013). As huge amount of data
is generated in the business and it is very difficult to analyze same. Thus, management
accounting systems make available useful data that is used to make business decisions. In
order to ensure that management accounting system will provide correct information it is
very important to enter right information in to same. It can be said that availability of
information is the one of the important factor that decides that efficient and effective use of
the management accounting system will be done in the business.
 System analysts: There is a need of the system analysts in order to operate costing and other
management accounting systems in better way. System analyst is the individual that is
proficient in gathering and arranging the relevant data for generating reports from the
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relevant systems. If there will be an individual which have less experience in operating a
management accounting systems then wrong classification of cost will be done which will
lead to mistakes in calculation. Thus, it is very important for the Blue Mango restaurant to
ensure that its management accounting system is operated by qualified system analyst.
 System accountants: In order to operate management accounting system in better way there
is a need of the system accountant. System accountant is the entity that perform entire cost
related accounting operations on the software. Mentioned entity is primarily responsible for
entering values of all sort of expenditures in the system (van der Steen, 2011). Thus, it can be
said that system accountant play a prominent role in ensuring that accounting is done in right
way in the business firm. It became very important for the Blue Mango restaurant to hire
right candidate as system accountant in the business firm. System developers: Sometime firms according to their own requirements establish a contact
with the software company to develop a software for them. Firm needs to maintain contact
with the web developer consistently so that if any error is observed in the software at initial
stage then same can be removed as fast as possible. Thus, it can be assumed that system
developer is the requirement of the management accounting system.
 Cost assignment: Entering a data in the management accounting software is not sufficient. It
is very important to assign cost to the right thing. If cost that is related to the specific product
will be recorded as expenditure of the any other product then in that case costing of the
product will be done in wrong manner (Taipaleenmäki and Ikäheimo, 2013). This means that
wrong decisions will be made on the basis of results that are generated by the management
accounting system.
 Cost classification: Cost classification is the one of the most important requirement of the
management accounting system. There are varied sort of costs that are incurred by the firm in
its business like prime cost, fixed, variable and semi variable cost. All the expenses comes in
these categories (Kotas, 2014). If classification will not be done in proper manner then in that
case wrong amount of prime cost, fixed, variable and semi variable cost will be obtained and
incorrect values will be computed accounts. Thus, it is the basic requirement of the
management accounting system and it can be generate accurate results only when costs are
classified in proper manner.
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 Cost monitoring: Cost monitoring is required by the Blue Mango in order to ensure that
its expenditures are in control. Good management accounting system generate a real time
cost related data. On the basis of real time cost data management come to know about the
areas in which it needs to focus in order control cost and to improve business
performance (Albelda, 2011). Thus, it can be said that there are lots of requirements of
the management accounting system and it must be ensured that all requirements are
fulfilled in proper manner because only by doing so efficient use of management
accounting system can be done in the business.
 Cost accounting systems: Cost accounting systems are used by the firm’s at large scale.
This is because under this accounting systems according to nature of expenses all
expenditures that are made by the firm are grouped. For example in the cost accounting
system all expenses that are variable in nature will be grouped under head variable
expenses. Similarly, all expenses that are fixed in nature are grouped under head fixed
expenses. In the mentioned accounting system from starting all expenses are classified in
to different categories. Expenses of these subcategories are summed up to identify overall
expenditure that are made in the business.
 Job costing systems: Job order costing system is one under which all expenses that are
incurred in respect to products are identified by individual units or batches. Means that
firm received order for manufacturing specific sort of products as per customer
specification. Then in that case expenses for all these different jobs or batches are
accounted separately in order to access cost of each product. It is the one of the costing
system that is used by the most of business firms. This is because those firms that operate
in business to business category often receive orders from the customers with different
specification. Hence, it become very important to do costing of the each product line
separately.
 Process costing systems: Process costing system is one under which first of all cost of
each and every process or stage of production is done. Thereafter, costs that are incurred
at different stage of production are summed up to identify overall cost of production. It
can be said that there is very high importance of the process costing for the business
firms. This is because by using process costing step by step costing of each and every
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stage of production is done. Thus, mentioned costing system is used at wide level by the
managers.
 Inventory management systems: Inventory management system is one under which
expenses that are incurred on inventory are taken in to account. It must be noted that
inventory is stored in the warehouse and its storage cost is bear by the firm. For each sort
of inventory costing is done separately in order to identify the product line where heavy
amount of expenses are made by the business firm. Inventory management system is the
one of the important system that is used by the business firm to do costing of inventory. It
can be said that there is huge importance of inventory management costing system for the
business firms.
 Price optimization systems: Price optimization costing system is used at wide scale by
the business firms. Under price optimization system sales that is made by the firm at
different price level is identified and appropriate price level is identified at which product
must be sold by the firm in the market. In current time period price optimization system
is used at wide level by the business firms. Hence, it can be said that there is significant
importance of the price optimization system for the business firms.
1.2Methods used for management accounting reporting
In respect to management accounting reporting there are different methods that are used by
the business firms. Some of these methods are as follows. Ratio analysis: Ratio analysis is the one of the most important method that is used in the
management accounting reporting by the business firms. Ratio analysis method reflects
the proportion that exist between the two variables. On the basis of increase or decrease
in value of the variable performance of the business firm is classified in the category of
excellent or worst. In terms of management accounting reporting some of the ratios that
are commonly used are inventory turnover ratio. It is the one of the most important ratio
which reflect the number of times stock turned in to sales (Li and et.al., 2012). If on
comparison with previous year data it is identified that inventory turnover ratio get
reduced then it means that goods are in stock for long time. This means that cost for the
business firm is increasing consistently. In this way ratio analysis as a method of
management accounting is used for reporting to the management.
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 Comparative statements: Comparative income statements are also used for management
accounting reporting. Under this statement direct and indirect expenses of both years are
listed and change between them is identified and on that basis decisions are made by the
managers. Thus, it can be said that comparative statement is the one of the most
important method that is used for management accounting reporting (Angelakis, Theriou
and Floropoulos, 2010). The percentage change that takes place in the direct and indirect
cost in two years help management in getting overview of their performance. Thus, it can
be assumed that comparative statement are the one of the most important methods that
are used for management accounting reporting by the business firms. Marginal costing: Marginal costing is the one of the most important method that is used
for reporting by the business firms. This method reflects the difference that comes in the
costing with increment of one unit. By using mentioned method the amount by which per
unit cost get changed is computed. Thus, reporting of same in the reports provide
information to the managers about whether cost per unit increased or decreased in
comparison to previous year (Pitkänen and Lukka, 2011). It can be said that there is great
importance of the marginal costing for the managers. Analysis of cost variances: Analysis of cost variance is another method that have
paramount importance for the business managers. Under this method, first of all standard
for varied expenses is determined. High level of brainstorming is done and on that basis
standards for varied expenses are determined. Thereafter, after some time actual
performance of the firm is measured by the business firm. Comparison of actual with
budgeted is done to measure performance. Reporting of results is done in the
management accounting reports. Through such kind of reports managers come to know
about the performance that firm deliver in terms of control on cost in the business. If
actual expenses are greater than standard value it is assumed that firm give poor
performance in terms of control on cost (Herzig and et.al., 2012). Contrary to this, if
current expenses are lower than standard one it is assumed that firm perform will in
respect to control on cost. It can be said that analysis of cost variance is the one of the
most importance management accounting reporting method that is used by the firms in
their business.
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 Simulation theory: This method of management accounting reporting is totally different
in comparison to previous one. In this method it is assumed that specific situation may
come in existence and accordingly likely amount of cost is computed. It can be said that
simulation model help firm in making projections about the likely amount of
expenditures (Caglio and Ditillo, 2012). Thus, it can be said that simulation theory is
another tool that is used for the management accounting reporting by the business firms. Budgetary control: Under this method budget is prepared by the business firm and under
this values of cash inflows and outflows is determined. Thereafter, actual value of the
variables is compared with the budgeted values and on this basis it is decided whether
firm perform good or bad in its business. It can be said that budgetary control is the one
of the most important method that is used for reporting by the managers. Managerial reporting: In case of this approach simple report is prepared which is
addressed to the managers of the business firm. In the managerial report varied areas that
are related to measurement of the firm performance are explained in detail and
information about the firm performance is provided to the managers (Burritt and
Schaltegger, 2010). It can be said that managerial reporting is the one of the most
important approach that is used for reporting of information related to costing of
products. Job cost reports: Job cost reports are used by the business firms to get an overview of the
costs that are incurred across different product categories. On the basis of relevant report
managers comes to know about cost that are incurred in different order that are placed by
clients. It can be said that cost related decisions are better taken by the firm by using job
cost reports. Sales reports: Sales reports are prepared by the business firms in order to obtain an
information about sales that are made across different product categories and cost
incurred in respect to same. Thus, sales report help managers in focusing on those
products that are highly profitable in nature. Account receivable reports: Account receivable reports are those that provide managers
an information about debt that is given by the firm to the varied customers. Through these
reports, customers that may fall in category of bad debt is identified and appropriate
action is taken on time to control cost.
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 Inventory management report: Inventory management report help managers in
identifying the status of different sort of inventory at different dates. Cost incurred on
these different sort of inventory is also revealed in the inventory management report. It
can be said that there is significant importance of the inventory management report for
the firm.
TASK 2
2.1Financial statements under varied costing methods
Income statement under the marginal costing method
Particulars Amount Amount
Revenue from sales 21000
Less: Cost of production 6600
Gross profit 14400
Less: Variable Expenses
Production overheads (Non static) 1200
Sales expenses 600
Total cost 1800
Net profit 12600
Interpretation
It can be seen that under marginal costing method net profit is valued at 12600 which is
computed only by considering fixed and variable expense. Both these expenditures are different
from each other. It is clear that marginal costing method is giving better overview of the firm
performance because in calculation both fixed and variable expenses are taken in to account.
Income statement under the absorption costing method:
Particulars Amount Amount
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Revenue from sales 21000
Less: Cost of production 6600
Gross profit 14400
Less: Variable Expenses
Variable production overheads 1200
Variable sales overheads 600
Total variable expenses 1800
Less: Fixed Expenses
Production overheads (Non static) 2000
Office expenses 700
Cost of sales 600
Total fixed expenses 3300
Total expenses 5100
Net profit 9300
Interpretation
In the absorption costing method profit is 9300 and in case of marginal costing method
profit is 1200. It can be said that in absorption costing method low amount of profit is computed.
This is because in absorption costing method both fixed and variables expenses are taken in to
account.
Difference between absorption and marginal costing method
There is a huge difference between marginal and absorption costing and same is explained
below.
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 Marginal costing is a method of costing in which variables expenses are apportioned in
relation to produced units. On other hand, absorption costing is one under which first of
all expenses are absorbed and then apportion of same is done in relation to produced
units. Thus, it can be said that there is a difference between marginal and absorption
costing methods.
 In terms of inclusion of expenses also marginal and absorption costing method are
different from each other. In the marginal costing method, only variable expenses are
taken in to consideration. Whereas, in the absorption costing method both fixed and
variable expenses are taken in to account to do costing of products.
 In terms of classification also marginal and absorption costing methods are different from
each other. In the marginal costing method costs are classified in to two categories
namely fixed and variable overhead. Fixed overhead are those that does not get changed
even production keeps on changing consistently. Variable expenses are those which never
remain static (P. Tucker and D. Lowe, 2014). So there is a large difference between fixed
and variable expenses. On other hand, in case of absorption costing method costs are
classified in to categories namely production, administration, selling and distribution
expenses. It can be said that method of classification is different in case of marginal and
absorption costing. In absorption costing classification is done on the basis of functional
departments. Whereas, in case of marginal costing classification is done on the basis of
nature.
 In the marginal costing method difference that exist between the opening and closing
stock does not affect the per unit cost of the product. Whereas, in case of absorption
costing method difference that is between the opening and closing stock affect the per
unit cost of the product (Cadez and Guilding, 2012). It can be said that stock affects per
unit cost in case of absorption costing not marginal costing method.
 In case of marginal costing method data that is related to cost is presented to reflect the
total cost of the product. On other hand, in absorption costing method in traditional
manner data of cost is prepared and net profit for each and every product line is computed
by considering fixed and variables expenses. Thus, it can be said that there is a huge
difference between marginal and absorption costing on various fronts. It depends on the
firm that which method of costing it find most appropriate for its business. Wise
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decisions must be taken by the managers in terms of selection of costing method at the
workplace.
TASK 3
3.1Advantages and disadvantages of different planning tools that can be used for budgetary
control
For budgetary control different planning tools are used by the business firms. There is
great importance of these planning tools. This is because it is relevant tools by using which
budget is prepared in proper manner and budgetary control is done by the business firm
(Taipaleenmäki and Ikäheimo, 2013). Budgetary control refers to the process under which firm is
comparing its current performance with the standard. By doing so it is identified whether firm
give excellent performance or worst. Varied planning tools and their advantages as well as
disadvantages are explained below.
Budget
Budget is the tool that is used for the budgetary control. Under this tool a projected
statement is prepared whose each and every value is assumed as target by the business firm. In
order to measure firm performance actual figures are compared to values of budget and in this
way level of performance given by the firm is identified. There are varied approaches that are
followed to prepare a budget. Each of these approach have some merits and demerits. Managers
of the Blue Mango must determine the approach that they must follow in order to prepare a
budget after considering number of factors. Zero based budgeting is the common approach that is
followed to prepare a budget. Under this method past year’s budget and data is not taken in to
consideration. Managers under this approach first of all evaluate the business environment and
on that basis estimate about the values that must set for each component of the budget (Kotas,
2014). One of the most important characteristics of the zero based budgeting is that managers
that are operating at middle level prepare a budget for their department and same is send to the
top managers for the approval. After approval amount is allotted to the functional department.
Another approach that is followed to prepare a budget is incremental budget. Incremental budget
refers to the approach under which increment is done to the past year budget values. It can be
said that zero based and incremental budgeting are different from each other.
Advantages
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