Management Accounting Report: Systems, Approaches and Planning Tools

This report delves into the realm of management accounting, offering a comprehensive analysis of various systems and approaches. It begins by outlining different management accounting systems, including cost accounting, job costing, process costing, and throughput accounting, detailing their essential requirements and applications. The report then explores diverse reporting approaches, such as job cost reporting, sales and profit reports, and budget reports, emphasizing their significance in managerial decision-making. Furthermore, it incorporates practical applications through the preparation of income statements using marginal and absorption costing methods, providing a comparative analysis of their impact on profit calculation. Finally, the report examines different planning tools and their advantages and disadvantages in budgetary control, along with strategies for adopting management accounting systems to address financial problems. The report is written in the context of Bristol Commercial Vehicles (BCV).

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION....................................................................................................................................3
P1 Management accounting systems and essential requirements of different management accounting
systems........................................................................................................................................................3
P2 Varied approaches availability for management accounting reporting...................................................5
P3 Marginal and absorption costing method................................................................................................8
P4 Different types of planning tools and their advantages as well as disadvantages for budgetary control. 8
P5 Adoption of management accounting system in order to respond to financial problems......................10
CONCLUSION.........................................................................................................................................11
REFERENCES..........................................................................................................................................12
Table 1Profit calculation by using marginal costing method.......................................................................8
Table 2Profit calculation by using absorption costing method....................................................................8

INTRODUCTION
Management accounting is the one of the important area which helps firm in measuring
its performance and business condition. In the current research study, varied management
accounting systems are explained along with essential requirements associated with them. In
middle part of the report, varied reporting approaches are explained and along with this income
statement is prepared by using marginal and absorption costing method. At end of the report,
varied planning tools are discussed and tools that can be used to deal with financial problem are
explained in detail.
P1 Management accounting systems and essential requirements of different
management accounting systems
To
The Board of Directors of Bristol commercial vehicles(BCV) Date: 25-2-2017
Subject: Management accounting systems and essential requirements
Management accounting system refers to the system under which by following specific
process transactions are recorded by the firms in their books of accounts. Before understanding
management accounting system it is important to understand relevant domain. Management
accounting is the domain wherein facts related to costing of products are recorded in proper
manner and varied calculations are performed in respect to cost and profit for the business firm.
It can be observed that there are varied approaches in management accounting like variance
analysis by using which useful management decisions can be taken by the managers. Usually, in
the business in respect to costing of products varied standards are determined which need to be
fulfilled in order to access firm performance in proper manner (Kothari, Mizik and
Roychowdhury, 2015). Management accounting assist managers in keeping track record of
expenses that are incurred in the business and help them in identifying areas where actually work
need to be done in the business. Varied management accounting systems that are used by the
firms in their business are explained below. Cost accounting system: Cost accounting system is one that is accepted by the firms to
great extent. Under this system overall costing for the business firm is done in terms of
fixed, variable and semi variable expenses. There is wide difference between these

costing systems in nature. In cost accounting system simply all products fixed
components and variable expenses are added separately. Thus, cost accounting system
reflects overall fixed cost that is incurred in the business. In same way cost accounting
system indicate overall variable expenses in the business. So, by comparing variable
expenses that are computed for different time period it can be identified whether variable
expenses increased or decreased in the business. It can be said that cost accounting
system help managers in identifying areas they need to do hard work to improve
company performance (Luft 2016). Thus, there is huge importance of the cost accounting
system for the business firms. There is easy to use feature in cost accounting systems and
due to this reason it is widely used by the firms in their business. Thus, in upcoming time
period more use of cost accounting systems can be observed in respect to the business
firms. Job costing system: Job costing system is another important accounting system where for
different jobs separately costing is done by the BCV. There are many business firms that
manufacture goods on basis of received order. In other words, it can be said that many
firms manufacture products by considering orders that different companies give to them
in respect to manufacturing products at their workplace. For example many firms like
BVC manufacture care steering for car manufacturing firms. So, different orders that are
received by the company are considered as jobs. For these different jobs costing is done
separately. Hence, it can be said that job costing system is one under which for each job
or order cost is calculated separately. Computations that are done for each job reflect
managers that which of received order is proving costly to the company and which one is
cheaper in nature. Managers take strict action to control cost for those jobs where cost is
high. It can be said that there is huge importance of the job costing system for the
companies because by same in proper manner in right direction decisions can be taken by
the managers. Job costing system is used on large scale by the companies. This is because
it give managers an overview of costing of each and every product line. This flexibility is
not available in the other costing systems. Hence, this is the reason due to which job
costing system is widely used by the firms in their business (Bromiley and et.al,, 2015).
Importance of the job costing system increased to great extent in past couple of years and
its great assistance in problem solving is the one of the important feature that is usually

considered by the firms for making decisions. Thus, it can be expected that in the
upcoming time period also usage of job order costing system will increase in the
business. Process costing system: Process costing system is the different approach under which for
each process costing is done. Means that while any product is produced a specific process
is followed and under this there are several stages that need to be performed in order to
do costing of products. In the process costing system for each stage of production
separately costing of product is done by the business firm which is BVC. Process costing
proved beneficial for the companies when they want to evaluate cost of varied stages of
production. It can be said that there is huge importance of the process costing method for
the companies. This is because mentioned approach assists managers in identifying stages
of production where cost was very high and need strict action for control purpose. It can
be said that process costing process have significant importance for the business firms.
So, cost control and wastage minimization objective can be easily achieved by using
process costing method by the business firms (Järvinen, 2016). Process costing is used
specially by those firms where product production process is larger and it is difficult to
track points where cost is skyrocketing which ultimately lead to increase in production
cost in the business. It can be said that process costing is the one of the management
accounting system that assists firms in achieving multiple objectives in the business. Throughput accounting system: Throughput accounting system is another one that is
widely used by the firms. in above section varied management accounting systems are
discussed in detail but they are traditional approaches. In category of modern approach of
management accounting throughput accounting system comes. Mentioned approach was
evolved by one of the Israeli businessman. These costing systems help firms in
minimizing wastage in the business (Zheng and Alver, 2015). There are many companies
that are commonly facing problem where wastage increases consistently in the business.
Throughput accounting system is one which assists firms in tacking such kind of
problems to great extent. Thus, it can be said that throughput accounting system have due
importance for the companies and its adoption is also increasing with passage of time by
the business firms.

P2 Varied approaches availability for management accounting reporting
To
The Board of Directors of Bristol commercial vehicles Date: 25-2-2017
Subject: Management accounting systems and essential requirements
Reporting is the one of the most important function of management because it assists managers
in making business decisions. In these reports varied facts are provided by the assistants that help
manages in taking idea of situation that is going on in the business and making decisions.
Different sort of reporting approaches that are used by the firms in their day to day business are
explained below.
 Job cost reporting: Under job costing reporting approach for different jobs cost reporting
is done separately by BVC managers. In these reports separately sheets are prepared for
each product line. Costing is shown individually for these product lines in reports.
Hence, it can be said that through job cost reporting managers get a better overview of
the product costing. Job costing have due importance for the firms because for each
product line managers comes to know that which are the products where cost is high
(Watson, 2015). With passage of time some of changes comes in the job cost reporting
system as firms according to their requirements make changes in reporting approaches in
order to view inside facts with more granularity and making sound business decisions.
There are multiple advantages of the job cost reporting approach for the firms and due to
this reason this approach of reporting is widely preferred by the companies. In many
business firms software’s like Tableau is used and under this charting of variables is
done. Through visualization managers get clear information about product line costing.
Thus, it can be said that use of advanced software or technology is underpinning decision
making process that managers follow in respect to cost control at the workplace. In
upcoming time period large size corporate can make many changes in their accounting
system in order to make wise decisions at fast rate in the business. Not even large
corporate but small companies also prefer to use job order costing reporting because there
are multiple product lines that are operated by the firms in the market. Thus, with passage
of time job costing reporting may gain wide popularity then other accounting system due
to its some of the important characteristics. Out of all characteristics one of the main
features of job cost reporting is that it is informative in nature about costing of product

(Bui and De Villiers, 2017). Through job cost reporting managers get more information
about cost of product than any other approach of cost reporting. This is the reason due to
which job cost reporting is gaining wide popularity among large, medium and small size
corporate.
 Sales and profit report: It is another reporting approach that is used by the firms in their
business. Under this reporting approach sales and profit report is prepared individually. In
sales report, entire sales amount is classified among different categories which are varied
product lines or different geographic areas. In case of profit report sales amount is listed
and varied expenses are taken in to account. From sales value expenses are subtracted
and in this way net profit amount is computed by the business firm (Young and et.al.,
2015). Thus, it can be said that sales and profit report both have significant importance
for the firms. This is because through sales report managers come to know about
contribution that is given by varied geographic areas in revenue earning of the business
firm. Thus, managers easily identify that which are the fastest growing markets and
which are one that are growing at slow rate. By preparing strategy areas where firm
performance is weak is identified and effort is made to generate more revenue from that
area if there is huge growth potential in that area. Profit report is another one that like
sales report reflects lots of things to the firms. In profit report last five years income and
expenditure are reflected and by making comparison between them it is identified
whether firm performance is excellent or worst. On basis of obtained results tactic is
prepared to improve company performance. It can be said that sales and profit report
have due importance for the firms. Company managers must make best use of these
statements or reports and must work in relevant area to improve condition of the
company.
 Budget report: It is another method that is used for reporting purpose by the BVC. In the
budget report actual and estimated values are compared with each other and on that basis
company performance is accessed. In budget report, quarter wise budget and actual
values are given and results are also presented in the report. Thus, managers are always
interested in identifying areas where consistently firm performance is poor. By taking
strict action against relevant areas performance of the firm is improved to great extent. It
can be said that budget report have due importance for the firms. There are different sort

of budgets that are prepared by the firms like fixed and flexible budget (Erkan, 2015).
There is wide difference between these budgeting approaches. In case of fixed budget
values that are determined for specific element of budget remain certain and does not
change over the time period. It can be said that there is huge importance of the budget
report for the business firms. There is much other approach that is used for preparing
budget like zero based budgeting. In this approach each department manager prepare
budget for its department separately. If that budget is passed by the top manager then
budget amount is allocated to the department. In this way, budget is prepared under zero
based budgeting. In order to make reporting procedure more accurate zero based budgets
must be used. This is because in this method first of all department heads are making
estimations and then top managers carry out detail discussion with them. Hence, budget
is prepared accurately and due to this reason reporting of performance become more
accurate in case of zero based budget in budget report.
P3 Marginal and absorption costing method
Marginal and absorption costing methods are commonly used by the business firms. In
case of marginal costing approach variable costs are taken in to account and deducted from sales
revenue. On other hand, in case of absorption costing method fixed expenses and variable
expenses are taken in to account and deducted from the sales revenue amount. Thus, it can be
said that there is difference between marginal and absorption costing method (Kalpan financial
knowledge bank, 2017). There is importance of the both marginal and absorption costing method
for the firms. Usually, it is observed that companies are using both these methods to make
business decisions. If managers wants to know firm profitability level if fixed expenses are not
taken in to account then marginal costing approach is better for the firm.
Table 1Profit calculation by using marginal costing method
Sales revenue 52500
Less: COGS
Opening stock -
Variable cost of production (2000 * 15) 30000
Closing inventory (500* 15) 7500 22500
30000

Less: other variable costs (52500*15%) 7875
Contribution 22125
Less: Fixed cost (15000 + 10000) 25000
Profit / loss (2875)
Closing inventory at the end of March: 500* 15 = $7500
Table 2 Profit calculation by using absorption costing method
Sales revenue 52500
Less: COGS
Opening stock -
Variable cost of production (2000 * 15) 30000
Fixed overhead absorbed (2000 * 5) 10000
Closing inventory (500* 20) 10000 30000
22500
Less: under absorption (5000)
Gross profit 17500
Less: Non production cost (17875)
Profit / loss (375)
Closing inventory at the end of March: 500* 20 = $10000
In above tables it can be observed that profit calculation is done by using marginal and
absorption costing method and profit amount computed is 8625.
P4 Different types of planning tools and their advantages as well as
disadvantages for budgetary control
Variance analysis

Variance analysis is the method under which current and determined standard are
compared with each other and by doing so performance of the firm is measured. There is huge
importance of the variance analysis method for the firms. Advantages and disadvantages of the
variance analysis method is explained below.
Advantages
One of the major advantage of the variance analysis approach is that by using performance of the
BVC can be measured accurately. Weak areas can be find out and by working on that area
performance can be improved to great extent.
Short term and long term performance of the company can be measured in proper manner by
using variance analysis method. Thus, usage of mentioned method ensured that cost will be
measured in proper manner in the business.
Disadvantages
One of the major disadvantage of variance analysis is that estimations are made in order to
prepare budget. Many times managers wrongly forecast future time period and due to this reason
wrong predictions are made (Rieckhof, Bergmann and Guenther, 2015). Hence, if budget is
prepared in wrong way business decisions are also made in wrong direction. This is one of the
major disadvantage of the variance analysis method.
Zero based budgeting
It is one of the approach under which departments prepare their own budget and same get
approve from top manager. Accordingly, budget amount is allocated to all departments.
Advantage
One of the major advantage of zero based budgeting is that from bottom to top estimations are
made and there are little chances of their inaccuracy. Due to this reason there is high reliability of
results that are obtained in zero based budgeting method.
Disadvantage
One of major disadvantage of zero based budgeting is that many times top managers does not
pay much attention and due to this reason even middle level managers make a mistake error in

budget is not detected (Erkan, 2015). Hence, actions can be taken in wrong direction. This is one
of major disadvantage of zero based budgeting for the BVC.
Incremental budgeting
It is the budget under which increase is made in the previous year budget values. This
approach is commonly followed by the firms in their business. Some of advantage and
disadvantage of incremental budgeting are as follows.
Advantage
Usually on yearly basis business of firms grow at specific percentage level and due to this reason
expenses also increase. Hence, it is not hard to make estimation of cash flows and due to this
reason in incremental budget formation there are less chances of error.
Disadvantage
One of major disadvantage is that business certainly cannot every year and due to this reason it is
possible that values in budget increased but actually its value get declined due to downturn in
economic condition of the nation (Bui and De Villiers, 2017). In such kind of situation business
performance can be wrongly accessed. This is one of major disadvantage of incremental budget
for the firm.
P5 Adoption of management accounting system in order to respond to
financial problems
Financial problems are commonly faced by the firms in their business and in order to deal
with such kind of situations there is need to follow specific management accounting system.
Some of the system that can be followed by the firm are given below. KPI: Cost control is one of the problem that is faced by the firm in its business. Under
KPI some of the standards can be determined for varied indicators and by comparing
actual performance with same performance can be accessed. Benchmarking: It is the approach under which like KPI standard is determined and
current performance is compared. Weak areas are identified and preparing tactics that
weak area is converted in to strong domain.

 Financial governance : Under financial governance some rules and regulations are
prepared which are followed while performing any operation (Erkan, 2015). In case it is
identified that there was any mistake that was made by an employee then in that case
culprit entity can be easily identified and action can be taken against it for making
mistake. Such kind of practices create fear among employees and ensure that mistakes
will never made from their side in respect to performance of operation. Ratio analysis: Ratio analysis is the another approach that is used to measure firm
performance. Under this company condition is evaluated on varied parameters and an
area where performance is poor is identified. By taking corrective action weak area is
converted into strong one.
At the time of responding financial problems several aspects are considered by the
organization such as net cash flow, opportunity and relevant cost etc. Hence, in the context of
BCV, management accounting techniques are highly significant which in turn assists in
responding monetary problems more effectually under various areas such as:
Issues Method 1 Method 2 Conclusion
Decision pertaining to
the closure of braches
or operations
Absorption costing:
Such technique
allows business unit
to spread fixed
overhead expenses
into the individual
units. Hence, by
closing operations
related to few braches
firm would become
able to reduce the
level of fixed
overhead expenses.
Marginal costing: It
gives input for
decision making by
taking into account
only variable cost.
In comparison to
marginal costing
technique, absorption
is considered as
suitable in regard to
this problem because
it considers both
fixed and variable
cost while presenting
solution of the
problem.
Issues Method 1 Method 2 Conclusion