Analysis of Management Accounting Systems and Reporting for ARC

This report provides a comprehensive analysis of management accounting systems and their application within Arabian Resources Construction LLC. It begins with an introduction to management accounting, differentiating it from financial accounting and exploring its historical development. The report delves into various management accounting systems, including process costing, activity-based costing (ABC), inventory management, job costing, and price optimization systems. It then examines different management accounting reporting methods such as budget reports, performance reports, break-even analysis, and investment appraisal. Furthermore, the report evaluates the benefits of management accounting systems and their integration within organizational processes, highlighting their role in planning, decision-making, and control. Planning tools such as budgeting, inventory accounting, and forecasting are also discussed, along with their advantages and disadvantages. Finally, the report explores how organizations can adapt management accounting systems to respond to financial problems, including the use of SWOT and PEST analyses, and how these systems can contribute to sustainable success through benchmarking and effective planning.

Table of Contents
Introduction...........................................................................................................................................1
LO1. Demonstrate an understanding of management accounting systems............................................1
P1. Explain management accounting and give the essential requirement of different types of
management accounting systems...........................................................................................................1
Management Accounting System......................................................................................................1
History..........................................................................................................................................2
Advantages of Management Accounting.......................................................................................3
Impediments of Management Accounting.....................................................................................3
Management Accounting System......................................................................................................4
Processing Costing Overview........................................................................................................4
Activity Based Costing (ABC)......................................................................................................5
Inventory/Stock Management Systems......................................................................................6
Job Costing System.......................................................................................................................7
Price Optimizing System...............................................................................................................8
Contract Costing System...............................................................................................................8
P2. Explain different Methods used for management accounting reporting...........................................9
Budget Reports..................................................................................................................................9
Purpose for Budgeting Report.......................................................................................................9
Performance Report.........................................................................................................................10
Break – even Analysis Report..........................................................................................................11
Investment Appraisal Report...........................................................................................................12
Feasibility System Report................................................................................................................14
Account Receivable Aging Reports.................................................................................................14
M1. Evaluate the benefits of Management Accounting systems and their application within an
organizational context. (Arabian Resources Construction LLC)...............................................15
Percentage Accounting Method.......................................................................................................15
Job Cost Allocation.........................................................................................................................15
Return on Investment (ROI).........................................................................................................16
D1 Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes..............................................................16
LO3. Explain the use of planning tools used in management accounting..................................22
P4. Explain the advantage and disadvantage of different types of planning tools used for budgetary
control..............................................................................................................................................22
Budget.............................................................................................................................................22
Inventory Accounting......................................................................................................................23
M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets........................................................................................................................24
Working Capital..............................................................................................................................24
Cash Flow........................................................................................................................................25

Receivable Funds.............................................................................................................................26
Inventory.........................................................................................................................................27
Pricing.............................................................................................................................................29
Standard Costing.............................................................................................................................31
Variance..........................................................................................................................................31
LO4 Compare ways in which organisations could use management accounting to respond to
financial problems.........................................................................................................................33
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.........................................................................................................................33
Swot Analysis..................................................................................................................................33
PEST...............................................................................................................................................33
M4. Analyze how, in responding to financial problems, management accounting can lead
organizations to sustainable success.............................................................................................35
Benchmarking..................................................................................................................................35
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success................................................................35

Introduction
The report is written to critically analyse the Management Accounting System and
Management Accounting Reports as concerned to Arabian Resource Construction. Been a
construction company there are certain Accounting System and Report that are quiet fitting to
the kind of business conducted. The report will attempt at exposing those important
accounting system and report concern. It should be noted that a construction company like
Arabian Resources Construction need Accounting system and Report to be able to keep track
of its Financial plan and consequently deliver standard construction service while scoping on
profit.
LO1. Demonstrate an understanding of management accounting systems.
P1. Explain management accounting and give the essential requirement of different types of
management accounting systems.
Management Accounting System
Management Accounting additionally is known as Managerial accounting is characterized to
be a procedure of giving monetary information and assets to the directors to act. It is utilized
internally in the Company, and this is the main thing which makes it not the same as
Financial Accounting. The aim of the Management Accounting is to utilize this measurable
information and take a superior and exact choice, controlling the undertaking, business
exercises, and advancement.
Financial Accounting however is the introduction of accounting data for the use of
stakeholders of an organization. Management Accounting covers the use of budgeting
information for accounting decision within the company.
History
The Management Accounting is anything but new procedure. Truth be told, it was first tried
in the late 1800s during the Industrial Revolution. Around than ever, most of organizations
were possessed by a little gathering of industrialists. In contrast to the present act of looking
into an Organization record as a consumer, credits and speculations were made dependent on
Relationship and relation. This disposed of the requirement for profoundly point by point
money related announcing. By the end of the century the practice began to mellow down and
eventually end.

With the beginning of 1900 came new government charges. These were joined by legislative
administrative organizations, just as a developing monetary market. New rivalry implied that
more business was done in cooperation with unfamiliar people than it was previously
practice. Accordingly, organizations were required to grow progressively expand financial
revealing strategies to get capital.
The key goal of Management Accounting is to empower the executives to boost benefits or
limit misfortunes. The advancement of the Management Accounting has given showcase
several objectives on Management Accounting.
The principle goals of the Management Accounting are these:
Arranging and strategic policies plan
This includes anticipating based on accessible data/Information, setting objectives; confining
polices deciding the elective blueprints and choosing program of exercises. It helps
significantly this way. It encourages the arrangement of plans and statements in the light of
past outcomes also, it gives estimation for to be expected.
Translation process
The Management Accounting is to introduce money related data to the administration.
Budgetary data is specialized in nature. In this manner, it must be introduced in such a way,
that it is effectively comprehended. It presents accounting data with the assistance of factual
gadgets like outlines, charts, diagrams, and so on.
Aids Decision processes
Decision can now be made in logical and direct fashion with the use of information contain in
management accounting. Procedure processes can now be analytically followed. Strategies of
management of financial issues can be cautiously drafted.
Controlling
Management Accounting is effective for the administration control and direction. Accounting
methods like budgetary and costing control are essentially in execution of control, involving
the execution o each individual unit. Spending plans or budgetary draft are essential for
control of department spending and cost control effectively control standard costing.

Reports
It is a source of information and serve to keep the management consistently updated on the
finances of the company. Through the purpose of reporting, management can have quick
access to any financial information when it needs to make any though official decision.
Encourages Organizing
It allows for efficient organization structure as correct fact are utilize to structure
departmental functions and activity processes and the general company organization are also
effectively drafted in such away that the activities base on financial decision are easily passed
from unit to unit without hitches.
Encourages Coordination of Operations
Budgetary essentially helps in the coordination of spending in the department. Accounting
systems is most effective in this regard as all activities of the company are often coordinated
and directed base on the financial plan and strategies of the company.
Advantages of Management Accounting
It assists the company to expand and increase profit so that fund invested can be judiciously
utilized.
Since management accounting greatly lead to planning and strategizing it thus follow that the
activities of business will fare better as the benefits of judicious planning will aid it.
It ensures that business plan stay within its limit by consistently appraising performance and
ensuring compliance.
It most definitely ensures and increase the productivity of venture.
Impediments of Management Accounting
Despite the Management Accounting several administrative advantages to the board. Still it
has got a few restrictions they include:
For decisive action, and for the process to be effective the decision makers most possess
adequate knowledge of several field of accounting, statistic, tax and even economic. As in all
practical aspect those responsible for such decision often lack these basic skills. The process
is affectual before it is even started.

It also means that the decision taking without the adequate knowledge of this list will be an
error in assumption lacking base and definitely heading towards a failure.
.
Management accounting system usually is very costly to set up and thereby may be necessary
for a large company, but may not be avoidable by smaller company.
It is also often impracticable ensuring compliance of management accounting methods by
every units of the company. Which is a very disadvantage to the process as adequate
compliance is necessary to achieve desired result.
Finally cases that can not be financially understood but that still have serious impact on the
finances of the company is not covered by the process and this render the process less
adequate.
Management Accounting System
Each Management Accounting System (MAS) differ in their utilization Each framework is
intended to give Management various info dependent on the necessities of Management, to
assist in decision. The most fundamental sorts of Management Accounting Systems are:
Process Costing
Contract Accounting System
Inventory Management System
Job Costing System
Price Optimization System
Action Base Accounting
Processing Costing Overview
This costing is often used by manufacturing company especially those that deals in large
scale production. In this kind of production, the expenses are cost as a process because it is
difficult to cost each individual item unit. It thus follows that each expense expel on
individual items production is assumed to be the same with other items in the allotted
production. This process then allow cost to fixed for particular amount of period and then
consequently assigned to the whole units of item delivered in assumption.
Types of Process Costing

There are three sorts of procedure costing, which are:
Weighted Average costs. In this scenario all costs whether they are from the first production
or actually the present are treated as one and ensured under a single production unit. It treats
all product and item as a single cost unit. It then means that ascertaining the varied cost of
each items is often very difficult.
Standard costs. This covers the explanation of standard costing of items. It usually
supersedes weighted costing in nearer to the actual cost of product and very much realistic.
When the standard costing is ascertained by expenses incur from individual cost item. The
difference is often pushed into variance after each product complete expenses have been
decided.
First-in first-out costing (FIFO).
This is an inventory costing strategy that involves the costing of goods initially begun but
unfinished separate from the costing of items been produced in the present.
Process costing is the most ideal way to ensure that some form of costing especially in,
costing of chemical production for instance or oil refineries how can you for example
determine the price of millions of gallons flowing from the treatment plant of an industry
Activity Based Costing (ABC)
Activity based costing (ABC) is a system of allotting overhead expenses by doling them out
into exercises. When expenses are doled out to exercises, the expenses can be allotted to the
cost in question which utilize those exercises. The framework can be utilized for a focused
decrease of overhead expenses. ABC works best in complex conditions, where there are
numerous machines and items, and tangled procedures that are difficult to sift through. On
the other hand, it is of less use in a streamlined domain where creation forms are abridged.
Uses of Activity Based Costing
ABC costing allows for a better understanding of the use of overhead. It also allows the
company to access better information on the whole concern o costing issues and processes.
The costing is of equal assistance to understanding the entire expenses of all activities so as to
be sure that what this activity cost is consequently in accordance with the measure of the

particular sector. It is ideally use to track expenses, ensure compliances and also appraise the
progress of uses of finances with the determinant view of reducing cost where possible.
The framework can assist the company in discovering of unnecessary overhead expenses and
also pinpoint the particular client that is responsible for incurring such expenses. This will
assist the company in exposing clients that are bearing no fruit so as to let them go or for a
more focus on clients that are greatly benefiting the company
Cost distribution can be done more effectively as the company ensure several channels to
dispose of its items or example the Internet, retailers, delivery request, and sell merchant. The
frame work allows the company keep up with vast activity of distribution and consider the
ones that are mostly working and the one causing loss to the company. This understanding of
their overheads will allow the company know the channel to reimburse and the one to dispose
of,
The ABC framework give a detail of cost of items involve in production of a good. This helps
the company understand which cost can be dispose if production is resumed and the cost that
will consistently need to be renewed.
There are certainly many advantages of ABC. It however often relies on the organization
structure. The company that wishes to utilize the framework must structure it in a way that
ensures that information is collected and accessible on every activities.
If a general ABC frame work is used without due diligence to the above it may not produce
the expected information or data. It also however means that since the setting up of the
framework is quiet expensive the organization must conclude on whether the cost of the
frame work is less important the numerous benefits the company will gain.
Inventory/Stock Management Systems
(Stock) speaks to a business' supplied merchandise or materials, and accordingly, the terms
Inventory and stock are regularly utilized conversely. Stock can be seen as either utilized
items to carry out a work, contributions to a processing procedure or products offered to
clients.
Inventory Management System

A stock administration framework consolidates the utilization of bar-code scanner and
printer, mobile devices and desktop software to streamline the administration of stock (for
example products, consumables, supplies, stock, and so forth.)
At its center, stock control works by following two fundamental elements of your stock room
or stockroom — accepting (incoming) and distribution (outgoing). The objective of stock
control is to precisely realize current stock levels and consequently limit under stock and
overload circumstances. By effectively following amounts across stocking areas you'll have
understanding and have the option to settle on more intelligent stock choices.
Functions of Inventory Management System:
Physical stock tallies and cycle checks
Create, run, calendar and offer reports
Create Purchase Orders
Receive, migrate, change and discard stock
Create deals orders
Print standardized tag marks
Advantages of an Inventory Management System:
Improves an organization's primary concern
Improves stock exactness
Improve Company Workflow
Job Costing System
It involves the particular costing of an activities which involve the analysis of the expenses
that a process, activities or construction work incur. Often this costing is necessary as
approve to clients which legally dictates that the client repay the expenses that are incur.
The below three types of information are necessary for job costing;
Materials. This is the gathering of the cost of items utilize in the processing or in carrying out
the activity and the allocating the cost to the individual expenses in an exact and obvious
manner

Labor. The employee charges fall under here, the hours charge and the specific activity or
work done are also highlighted.
Overhead. This involve the aggregates o expenses overhead in the entirety of cost and then
allocating this expenses to the activities.
It is often Practical that a Job costing framework may necessarily be custom-made to the
necessities of the client. few clients might just permit certain expenses to be charged to their
jobs.
Price Optimizing System
This is the appraisal and the consistently monitoring of price movement at various level price.
This are then compare with expenses data and also the levels of inventory And consequently,
using the information to suggest price strategies that will improve the profit level.
A Price Optimization System should factor in three basic valuing components:
pricing or costing technique.
The estimation or value of the item to both purchaser and vendor.
Strategies that deal with all components affecting gainfulness
Price Optimization Systems help organizations decide:
Starting price estimation,
Pricing for promotional Items and
Markdown (or rebate) estimating
Contract Costing System
Contract costing involve the tracking of costing process involve in an agreed upon activities
between a company and its client. Usually the client wanting to carry out a production
process or construction activities will enter to agreement with the company to carry out the
activity or process so as to be reimburse by the client. It then falls of on the company to track
and record every expense incur as prove to the clients.
• Fixed cost. This is a fixed sum that is paid to the company for completing the project.
This involve the company also taking stock of spending behaviour to be sure that the agreed

cost and the actual cost incurred so as to be certain that the company gain or earn a profit in
the venture.
• Cost plus. This allow for the company to be repaid for any extra cost incur during the
contract ventures. This is in addition to the fixed profits that the clients as promised. It is
often the plan that this cost are often investigated by the client who may send an inspector to
check the essential of the extra cost and may allow or disapprove some of this cost.
• Time and materials. This methodology is like the cost plus, although the organization
incorporates a benefit with its billings, instead of being granted a particular benefit. Once
more, the organization must track all agreement costs cautiously, since the client may survey
them in some detail.
In certain businesses, for example, government contracting and business development,
contract costing is the essential undertaking of the accounting unit, or may even be sorted out
as a totally discrete office. Efficient Contract costing can contribute a lot of benefits, as is
regularly set up with highly experienced managers and accountants
P2. Explain different Methods used for management accounting reporting
Management accounting reporting is essential in the management of Company performance.
As regard the Study Arabian Resources Construction needs to used different Management
accounting reports. It will enable the company to know and realise different procedures
through which managerial aspect can be undertaken in efficient manner. The different
management accounting methods that can be used in the company are as follows:
Budget Reports
Budget reports are extremely basic in estimating organization execution and are produced all
in all for private ventures and, division insight for construction bussness. In any case, each
organization makes a general spending plan to comprehend the fabulous plan of their
business. A spending gauge is made dependent on past records; however, an incredible
spending plan consistently provides for unexpected conditions that may emerge. An
organization's budget showcase where all income are coming from into the Company and
also how funds are easing out. An organization attempts to accomplish its objectives and
mission while remaining in the scope of budgeted funds.

Purpose for Budgeting Report
Reports identified with the Budget report can direct management to offer better representative
impetuses, cut expenses and renegotiate terms with contractors and suppliers. In this manner,
a spending report is basic to the construction business.
A spending report assumes a priceless job in assisting with dealing with a business. Toward
the start of the year, each firm readies a Budgeted plan. This gauges the deals that the
organization hopes to accomplish during the year. It additionally gives specifics of the
various costs that the organization will need.
Budgeting is arranged once every year. In any case, fluctuations are typically followed each
month. it is a necessary move. It causes a firm to distinguish the territories that need
consideration.
An audit of the report may find that construction activities are underneath target. On the off
chance that this occurs, the business administrator should start recovering measures. This
may appear as enrolling more labour, adjusting the motivating force program for workers.
Budgeting likewise permits an entrepreneur to survey costs. In the event that the differences
are high, remedial activity may be required. Budget report for the most part contains four
segments:
• Budget – this section contains the subtleties that are set up toward the start of the year.
A firm may conclude that it will focus on yearly deals of A million dollars. Essentially, the
spending limit for costs on workers pay rates might be fixed at lets say $175,000.
• Actual – this section will give insights concerning the genuine outcomes for the
period under audit. It will be contrasted with what the budgeted funds of the particular period.
• Over budget – the over-spending section is the aftereffect of the past two segments. It
reveals to you the aggregate by which the business has surpassed the planned figure.
Obviously, it will give subtleties of under-spending details also.
• Percentage of spending plan – this segment will let you know the under/over rate
accomplishment against the financial limit.