Management Accounting Systems, Reporting, and Financial Analysis

This report delves into the realm of management accounting, exploring its various systems and techniques within the context of a business like Asda Limited. It begins by defining management accounting and highlighting the need for different systems such as product costing, cost accounting, job costing, process costing, inventory management, activity-based costing, and price optimization. The report then discusses the benefits and applications of these systems, emphasizing their role in effective decision-making and improved organizational efficiency. Furthermore, it critically evaluates accounting system reporting, analyzing different managerial accounting reports like budget reports, accounts receivable reports, and job cost reports. The report also examines the relevance of information gathered from these reports, particularly in the context of decision-making and cost reduction. The report covers techniques used in managerial accounting reporting, including budget reports, accounts receivable reports, and job cost reports. Finally, it explores the application of planning tools for forecasting and budget analysis, and the use of management accounting systems in responding to financial issues. This analysis provides a comprehensive overview of management accounting principles and their practical application in a business setting, offering insights into financial problem-solving and strategic decision-making.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management accounting and requirement of various management accounting systems.....1
M1: Benefits and applications of management accounting systems...........................................3
D1: Critically evaluate accounting system reporting..................................................................4
P2: Explain various methods used in managerial accounting reporting.....................................4
TASK 2 ...........................................................................................................................................6
P3: Calculation of cost using techniques and preparation of statement of profit and loss..........6
M2: Different types of management accounting techniques.......................................................8
TASK 3 ...........................................................................................................................................9
P4: Advantages and Disadvantages of different types of budgetary controls.............................9
M3: Application of planning tools for forecasting preparing and analysing budgets...............10
D3: Evaluation to deal with planning tools used in resolving financial problems....................11
TASK 4..........................................................................................................................................11
P5: Use of management accounting systems in responding to financial issues.......................11
M4: Analysing management accounting techniques.................................................................12
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Accounting process is related with recording, classifying and summarising the
transactions of business into the financial accounts of business such as journal, ledger and trial
balance in a manner that is easily understandable and comparable to the stakeholders of the
company. This project will discuss about the branch of accounting, which is management
accounting. Management accounting is the process of summarising the details of the financial
statements of the company as well as about the future economic and non economic activities of
the market that will be prevalent in future.( Alleyne, and Weekes-Marshall, 2011) These reports
are then used by the internal management of the Asda Limited so that they can make decision
regarding the formulation of policies and defining objectives in the company. This project will
discuss about the various management accounting systems that are adopted by the organisations
and how different management accounting techniques range are applied in the companies. Uses
of different planning tools in the management accounting process. The report will also perform a
comparison about the ways in which companies like Asda limited use the techniques of
managerial accounting in responding to financial problems.
TASK 1
P1: Management accounting and requirement of various management accounting systems
Management accounting is a process of preparing managerial accounts and reports by the
financial managers to provide reliable and accurate financial and costing data which can be
further used by managers to understand and handle day to day operations of the organisation.
Management accounting also includes translating the financial data into understandable
information which can be used for effective decision making.
Asda limited is a leading supermarket retailer based in United Kingdom, Asda is diverse
in its activities and due to their efficient management accounting system they have a advantage
of reliable management accounts and effective decision making process.( Baldvinsdottir,
Mitchell, and Nørreklit, 2010)
Types of management accounting systems and their need in an organisation
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Management accounting systems provides a framework to the organisation to help
managers to prepare accurate management accounts and reports so that sound decisions can be
made.
 Product Costing – Product costing management accounting system helps in identifying
all costs involved in production of the products, so that manager of an organisation like
Asda limited can analyse all the expenditures and can manage the allocation of
overheads. This management accounting system is ideal for business of small scale which
has simplicity in their activities and can easily handle allocation of overheads and can
determine profitability, this system also helps to analyse organisational position that at
what point business can face break even condition or no profit no loss condition.
 Cost accounting system – Cost accounting system also referred as product costing
system provides a framework to estimate or forecast future costs which can be incurred
by the organisation. Organisations like Asda is beneficial by this management accounting
system as they can analyse their future costs and profitability, Cost accounting system
also forecasts costs of individual functions like costs of inventory, cost of direct material,
direct labour and other variable and fixed costs. Cost accounting system does not gives
accurate costing estimates but the budgeted costs helps in allocation of various
overheads.( Chenhall, and Moers, 2015)
 Job Costing – Job costing or job order costing is a method of determining costs for every
manufactured unit, organisations which are engaged in manufacturing unique single units
can get benefited by this management accounting method as it helps in estimating
separate costs involved in each job of manufacturing. This method is appropriate for
those business entities which perform their manufacturing tasks upon order requests.
Asda is a supermarket retail company which is mainly engaged in delivering the goods
and not m,manufacturing it, due to which job order costing unit is not followed by this
company.
 Process costing – Process costing is a management accounting system which is similar to
job order costing but it estimates all costs separately involved in various processes, this
type of system or method is appropriate for the organisations which has various
departments or processes like Asda limited. Asda limited is a supermarket retail store
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which has various departments like customer care support department, grocery
department, clothing department, home appliances department etc., where separate costs
are involved and with the help of process costing all these costs can be identified and
profitability can be estimated. Few organisations uses process costing and job order
costing simultaneously which is referred s hybrid management accounting system.
 Inventory management system – Inventory management system is a management
accounting system which monitor and maintain the inventory of the organisation either
raw material or goods engaged in work in progress, an efficient inventory management
accounting system maintains the stock through out the manufacturing process from raw
material to finished goods. This management system is ideal for organisations which has
a lot inventories stocked like Asda limited, organisations like Asda is a retail store which
manages and maintains its inventories by the processes involved in inventory
management system.( Dillard, and Roslender, 2011)
 Activity based costing – Activity based costing is a management system which
determines cost involved in every activity, this costing system involves two types of costs
that is variable or marginal cost and absorption costs. All variable costs are allocated to
variable or marginal costing overheads whereas in absorption costing overhead all costs
either variable or fixed are included, variable costing is used to determine contribution
and net profits, while absorption costing is used to determine gross profit and net income.
 Price optimisation system – Price optimisation system is a method of price
determination for different products; managers of organisations like Asda limited
allocates a price to certain products and also analyse how customers are going to react on
those prices. An effective price optimisation system helps an organisation to earn more
profit by allocating correct prices to the products, if a product's price is too high or too
low it either be undesirable for the customers or non profitable for the organisation,
maintaining a balance between these prices is the real task for managers.
M1: Benefits and applications of management accounting systems
Management accounting systems like job costing or price optimisation system has
universal applicability, these systems are used by every organisation for effective decision
making process. Management accounting system such as job costing or process costing are used
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to determine costs of specific process or unit whereas systems like product costing or cost
accounting are used determine costs of all the manufactured products. These systems are
appropriate for various kinds of organisations depending on their nature of size, scope and
inventory control. These systems are beneficial for the organisations as they increases efficiency
and profitability of the organisation along with it improves transparency of the cost accounts and
enables flexibility in accounting reports so that it can be changed according to the fluctuations in
the business, it also facilitates the organisation in goal achievement which are pre determined by
the mangers.
D1: Critically evaluate accounting system reporting
As per the accounting reports that are discussed above, it has been observed that all of
them has assisted in providing the maximum outcomes for Asda limited. If the internal
management of the company utilise these reports then these are the reason behind generation of
accurate and reliable outcomes within a less period of time. The main objective of the company
is to achieve all the objectives and aims of the organisation that is been set by the company.
According to this, the performance reports are analysed in much effective manner such the
details of the financial position of the company can be analysed easily.( Endenich, Brandau, and
Hoffjan, 2011)
P2: Explain various methods used in managerial accounting reporting
Management accounting reports are prepared so that the internal management of the
company can formulate policies and define objectives for the efficient functioning of the
company. These reports use the financial as well as non financial transactions that has been
occurred in the companies and these reports also require future economic and non economic
activities that will be implemented in the market in the near future. This is why is becomes very
crucial for the company to prepare these various reports so that managers can easily formulate
and define the policies and objectives of the company. The different types of menagerial
accounting reports include:
Budget reports: Budget reports are formulated by the companies in every area of the
organisation and in every department so that the managers can estimate about the amount of
expenses and revenues that will be reported in undertaking certain activities. The budgets reprots
assists the internal management of the company in financing the funds and formulating the
objectives for each department and overall organisations. These reports also set the performance
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standards for individual employees and the departments regarding the objectives they are
required to achieve. The managers then use these report in the end of the financial year in
measuring the performances of the employees and analysing whether the set objectives were met
or not and if not what are issues that occurred in achieving the targets and accordingly taking
corrective measures to resolve those issues. The budget reports are formulated at the starting of
the accounting period which helps the concerned person in getting a know-how about what the
organisation is going to do in the coming period.
Accounts receivable reports: This reports are prepared by the managers so that they can
get a idea regarding the total number of debtors that the company have in the current period.
These reports keep a check on the companies accounts receivables regarding when the amount is
to be received from these debtors and which debtors are not paying there amount on due dates.
The report also keep a track record of the amount of bad and doubtful debts of the company. The
main assistance that this report provides to the managers of the company is that it helps in
tightening or loosening the collection period of the company in the upcoming periods.( Gond,
and et. al. 2012)
Job cost reports: In the job cost reports the estimation regarding the information about
the total revenues or total cost that is incurred in producing batch of products or a specific
product. This reports assists the internal management in estimating the total profitability that the
company is making in undertaking a particular job function. This report makes a comparison of
total revenues with the total cost that is incurred in the production of particular product. The
manager uses this in choosing those project which are most profitable and invest more funds in
the projects which are more profitable then other ones.
Relevance of information gathered from management accounting reports:
Decision making: The managerial reports assists the internal management in the decision
making process. The managerial reports provides the information about the financial and non
financial transactions of the company as well as about economic and non economic activities of
the market that will be be prevalent in future. The managers considers all these information in
formulating the policies of the company and defining the objectives so that no hindrance is
occurred in the operations of business in future.
Cost reduction: The managerial accounting reports helps the management in formulating
policies and objectives by considering all the factors and thus does not cause any form of issues
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in the future operation which in turn reduces the cost of resolving these problems if they have
occurred in future.
Increasing Financial returns: The reports that are made under management accounting
such as budget reports assists the management in getting a summary of the financial reports of
the company and thus helps in analysing projects which are suitable and profitable of the
company as per future trends of the market. ( Lavia López, and Hiebl, 2014)
TASK 2
P3: Calculation of cost using techniques and preparation of statement of profit and loss
Cost: This refers to the amount which the Asda limited invests in the process of
production so that they can produce goods which are of good quality and providing efficient
services to the customers. This refers to the amount which is incurred in every process of
production till the final unit of goods are produced and sold to customers.
Marginal costing: It is that cost which the company incurs when they decide to do
additional production. This cost refers to the additional cost which is incurred when the company
decides to produce one additional unit of product. The marginal cost of production include the
variable cost of production that is incurred in process of producing additional unit and there is no
fixed cost involved in the marginal cost. It is beneficial to produce the additional products until
the marginal revenue is more then the marginal cost.
Marginal costing method -
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 * 16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
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Net profit 17500
Absorption costing: In this method of costing, the actual cost that is incurred in the
process of production involves both variable and fixed cost. The profitability in the absorption
costing is less as compared to marginal costing because it considers both fixed and variable cost
of production. ( Macintosh, and Quattrone, 2010)
Absorption costing method -
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
a. The number of products to be sold to break even
Break-Even:
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. The break even point in terms of sales revenue
sales per unit 40
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variable costs VC = DM + DL 28
contribution 12
fixed costs 6000
Profit volume ratio PVR = Contribution /
sales * 100 30.00%
BEP in sales 20000
c. The number of products that need to be sold to make profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
d. The margin of safety if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M2: Different types of management accounting techniques
The techniques of management accounting such as absorption costing and marginal
costing are adopted by the companies in calculating the net income or the profitability of the
company. The net income which is calculated using marginal costing techniques is higher then
the net income which is calculated using absorption costing because in marginal costing only
variable cost of production is considered in pricing the product whereas in absorption costing
both variable and fixed cost is taken into consideration. Managerial accounting techniques such
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as historical costing and standard costing are not considered by the Asda limited as the marginal
and absorption methods seems more suitable to the company as per its production capacity.
D2: Interpretation:
As per the above calculations, it has been observed that organisation can earn a profit on
their sales if they produce goods more then 500 units as at this point the company achieves break
even point, which is a situation of no profit and no loss. The above mentioned organisation needs
to sell a minimum of 1334 units in order to earn a profit on the total sales of 10000. with the use
of these techniques the organisation can easily determine the profits of the company.
TASK 3
P4: Advantages and Disadvantages of different types of budgetary controls
The different types of budgets which are prepared by the internal management of the
company in order to increase the efficiency of the company. The budgets that are prepared by the
companies include operational budget, master budget, cash flow budget etc. Descriptions of
these budgets are as under:
Operational budget: The operational budget of the companies include the cost and revenue that
is incurred in the day to day operations of the company. The costs that are taken into
consideration are administrative and overheads costs that are required to be ascertained by the
management of the company. ( Otley, and Emmanuel, 2013)
 Advantages: The advantage of this budget is that it covers the revenue and cost that is
incurred in daily operations. It helps in minimising the expenses that may be incurred in
future business operations.
 Disadvantages: Preparation of operational budgets require a lot of time.
Cash flow Budget: The cash flow budget helps the management of company in managing the
cash of the organisation. This budget helps in determining the daily outflow and inflow of the
company in its daily operations. Hence, for managing the daily cash requirements in an effective
and efficient manner the managers acquire funds from only those sources where there is capacity
of repayment.
 Advantages: This budget helps the management in maintaining sufficient amount of
cash in the company so the operations of company does not get hindered.
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 Disadvantages: Maintaining the cash outflow and inflow of the company becomes
critical for the managers.
Fixed Budget: These budgets are prepared at the starting of the financial year for recording the
expenses and costs of business which are fixed in nature. The fixed budgets are not modified if
the company decided to do more production or sales in the upcoming period. The modifications
are not allowed in financial plans according to this budget.
 Advantages: This budget helps the small organisation in measuring their growth and
profitability.
 Disadvantages: The only demerit of this budget is that it can not be modified according
to the needs of the management in the future if they try to change the production of the
company.
Master Budget: The master budget is prepared by the managers so that they can forecast
the amount of sales in future, production level, required capital investment in the execution of
future operations of business. The budgets are formulated for the purpose of setting the
performance standards and creating effective plans.
 Advantages: this budget assist in determining the overall cost that will be incurred in the
production process.
 Disadvantages: master budgets are formulated for a specific production process and
thus accuracy and reliability of information is decreased.( Qian, Burritt,and Monroe,
2011)
Various pricing Systems:
Full cost pricing: According to this strategy of pricing the organisations determine the
value of the services and product on the basis of all types of direct cost such as direct material,
direct labour etc. that is incurred in the process of production.
Cost plus pricing: this pricing method takes into consideration the cost of factors of
productions such as direct labour, direct material and other overheads for the the determination
of the prices of products and services.
Marginal cost pricing: as per this pricing strategy the prices of the products and services
are determined on the basis of the cost that is incurred for the production of additional unit iof
product. The marginal cost only includes variable cost of production.
Different costing systems:
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Standard costing: This costing system determines the standard cost that should be
incurred in the process of production. The costing system is undertaken in preparing the budgets
of the company. The standards are used as measure to compare the actual performances of the
departments and employees with the pre-determined standards.
M3: Application of planning tools for forecasting preparing and analysing budgets
It has been considered that financial reporting functions is one of the significant aspects
for the departments. There application is as follows:
Budgeting: Once the business decides t formulate future plans, there is an requirement to
decide how these will be implemented in the organisation effectively. For the prediction of
expenses related to production Asda limited need to use the tools of forecasting in an efficient
manner.
Cash flow forecasting: This is said to be more productive in nature. Cash flow
forecasting will assist the owners of the business in analysing the trough and peaks in the
business cycle. This will lead to create certain risks which will be resolved with the assistance of
contingency plans.
D3: Evaluation to deal with planning tools used in resolving financial problems
There are various kinds of techniques that are helpful in in controlling the budgets of the
company. The tools of forecasting can assist them in dealing with issues before they have
actually occurred. There are various tools which are used for this purpose such as balance card
approach, benchmarking etc which can be utilised by the company in setting specific standards
in the upcoming future and the start the operations of the business in that particular direction to
increase the overall profitability of the company.(Ward, 2012)
TASK 4
P5: Use of management accounting systems in responding to financial issues
Key performances Indicators (KPI): KPIs are considered as an most effective tool for
measuring the performances and comparing them with the actual performances of the employees
and departments of the company. The actual performances of the various departments are
compared with the pre specified standards of the company. The internal management of the
company then analyses the variations in the performances, if any and then taking the necessary
corrective actions for rectification of those issues. KPI can be used at various stages of
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organisation for the evaluation of success and capability in achieving the desired objectives.
(Management Accounting. 2016. [Online])
Balance scorecard approach: this approach is used by the companies for aligning the
activities of the business in accordance with the policies and objectives of the business, such that
each activity of organisation are well coordinated and evaluated. The company can achieve this
by providing training sessions to the employees of the company so that the employees can
perform the allotted task in an effective and efficient manner.
The perspective of balance card approach are as follows:
Customers and stakeholders: It is the obligation of every business that is operating in
the market to provide genuine quality products and services to the consumers and thereby
increasing the overall wealth of the shareholders of company.
Financial: Every business entity's main motive is to attain a strong financial position in
the industry and market and this can only be achieved by the organisation when the managers of
the company allocate the funds of the company in most profitable projects and is utilised
efficiently by the organisation.(Budgetary Control, 2017.)
M4: Analysing management accounting techniques
The organisation adopt various accounting techniques such as standard costing costing
which assist the companies the company in setting an range of expenses that company can make
in its operations. The historical cost method is based on the past regulations and rules. Whereas
marginal costing method assists the organisations in determining the prices of products that are
additionally produced by the company.
CONCLUSION
It has been concluded from the above project that management accounting process assists
the internal management of the company in the formulation of policies and defining the
objectives of the organisation that are in accordance with the financial position and trends of the
market. This project also discusses about various budgets that assists the managers of the
company in setting the performance standards for the employees and departments of the
company. The reports such as budget report, job costing report and accounts receivable report are
used by the managers for the formulation of policies. In this project the marginal and absorption
costing methods are also used for the preparation of profit and loss account of the company. And
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in the end, the discussion regarding various tools of managerial accounting that assists in the
overcoming the financial problems of company.
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REFERENCES
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