Management Accounting Report: Iceland Ltd Case Study

This report comprehensively examines management accounting, its systems, and their practical application within Iceland Ltd. It begins with an introduction to management accounting, contrasting it with financial accounting and highlighting its role in decision-making. The report then delves into various management accounting systems, including cost accounting, inventory management, job costing, and price optimization, evaluating their benefits and illustrating their use within the context of Iceland Ltd. Detailed analysis of the integration of these systems within the organization is provided. Furthermore, the report explores the different types of management accounting reports, such as cost reports, budget reports, and performance reports. Finally, the report addresses the application of microeconomic techniques and planning tools within management accounting, as well as how management accounting can be used to respond to financial problems and contribute to organizational sustainability. The report provides a holistic view of management accounting principles and their practical implementation, offering valuable insights for business development and financial management.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
P.1 Presenting an understanding of management accounting system....................................1
M1 Evaluation on benefits of management accounting system and their application in Iceland
Ltd...........................................................................................................................................4
P.2 TYPES OF MANAGERIAL ACCOUNTING REPORTS.............................................5
TASK 2............................................................................................................................................6
P3 and M2 Application of different Management accounting techniques............................6
TASK 3............................................................................................................................................9
P4 and M3 Use of planning tools used in management accounting.......................................9
TASK 4..........................................................................................................................................11
P5 Use of management accounting to respond to financial problems.................................11
M4 responding to financial problems with management accounting and leading to
organisational sustainable success:.......................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
For each and every organization accounting is considered as its language through which
the performance and growth are reflected. There are two branches of accounting financial and
management. The former one deals with all monetary transaction and present financial reports at
the end on income period. The later one have a wider scope as it considers both financial and
statistical data and present reports that assist management in decision making process.
In the present report a detail discussion about management accounting, its different
system and reports is done and its integration in Iceland Ltd is presented. Along with this various
planning tools and management account inf techniques are applied in the organization. In last
section of the report ways are presented on how this can be used by Iceland Ltd to respond to
financial problems.
TASK 1
P.1 Presenting an understanding of management accounting system
MANAGEMENT ACCOUNTING:
Management accounting takes into consideration events that took place in the organisation with
taking into account the needs of business. From this data and estimates are generated and with
use of cost accounting this data is translated into relevant information which guides the decision
making.
Definition:
According to institute of cost and management accountant, London, it is defined as
application of professional knowledge and skills in presentation of accounting information in a
particular manner that aids the management of the business in formulation of policies, planning
and controlling the business operations (Ahmed and et.al., 2016).
According to American Accounting Association, it includes the methods and concepts
which are essential for effective planning to chose among different alternatives for business
operations and for control through the evaluation and interpretation of performances.
ORIGIN, ROLE AND PRINCIPLE OF MANAGEMENT ACCOUNTING:
Origin: management accounting has got its beginning from financial accounting but still
have different role and principles. Its was generated during 1900 and at that time more focus
was on financial one, later its importance was determined and its was evaluates as a different
branch of accounting.
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Role:
 Purpose of management accounting is to provide timely and accurate financial
information to managers so they can make sound business decisions.
 To serve the core needs of internal management.
Principle of management accounting system
Principle of causality: this deals with understanding and capturing quantitative cause
and effect relationship for the purpose of modelling.
Principle of Analogy: this is more concerned with application of casual insights in
learning and optimization actions.
DIFFERENCE BETWEEN MANAGEMENT AND FINANCIAL ACCOUNTING:
Basis Financial accounting Managerial accounting
Objective To supply information
through financial statements to
external stakeholders.
To assist management in
planing, controlling and
decision making.
Nature of data used Record all monetary, historical
and quantitative data.
Used descriptive, statistical,
subjective data which is related
with future.
Precision More emphasis is given on
preciseness of information
presented to external parties.
Information is for internal use
so less emphasis on precision.
Flexibility More rigid and less flexible. Highly flexible and less rigid.
MANAGEMENT ACCOUNTING SYSTEM:
This can be defined as the internal system that is used by an organisation to measure and
evaluate the management process of the business. This system provides information to mangers
so that they can make effective and sound decisions (Shenoy and Nandakumar, 2015. This is a
complex system which gather lot of information and details which depend on requirement of
management.
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The scope of this system is very wide as this reaches to all the department of the business
such as finance, IT, marketing, HR, operations sales etc. It uses both financial and non-financial
data such as cash on hand, current sales reports, number of sales calls per day, order backlog,
delivery deadline dates, status of accounts receivables and payables, and current inventory levels
of raw materials and finished products.
INTEGRATION WITH ORGANISATION:
In Iceland Ltd management accounting system is very important as with financial data
other information is treated with consumer's demands, taste, preference, and change in trends is
determined and this can only be provided through application of management accounting in the
business (Bennett and James, 2017). With determination of all requirement Iceland Ltd can
timely address all the demands and case increaser consumer base with meeting all their
demands.
TYPES OF MANAGEMENT ACCOUNTING SYSTEM:
Cost accounting system:
This is a system, used by Iceland Ltd for determining the estimate cost of production of
goods. With this estimate the management can determine the exact cost incurred and then sales
price of the product is decided after adding profit margin in the cost. Accuracy in cost estimation
precisely leads Iceland Ltd toward greater profitability. The cost can be estimated as follows:
Actual costing: cost which is actually incurred on the production of articles. This is bifurcated
as actual material. Labour and overhead expenses done to produce the goods.
Standard costing: In this method of costing comparison of actual cost is done with the
estimated cost the different is called as variance. The variance is determined as actual cost of
production and the cost which should have actually occurred.
Normal costing: under this method of costing the cost of labour, material and overheads is
calculated with as predetermined rate.
Inventory management system:
Under this system non capitalised assets and stock articles are supervised which are
used in prosecution of goods in Iceland Ltd. With this system the materials required for
production is determined along with estimated future requirement which is needed for further
production and to maintain minimum stock level. There are several methods to keep the stock
level in organisation such as LIFO, FIFO etc (Chenhall, and Moers, 2015). LIFO method is not
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used in practical world. FIFO (First in first out) methods is one in which material purchased
before is introduced to the production line on a prior basis.
Job costing system:
In this system the cost incurred on a particular job of the Iceland Ltd is determined.
The cost so found out is in totality which includes all the cost related with that particular job. A
track is kept by mangers to keep record of cost related with each job carried out in organisation.
With this cost allocation and bifurcation is made easy as it is known that what expenses is done
where.
Price optimisation system:
This is a mathematical tool used by management of Iceland Ltd which determines that
how consumer will react to the different prices that will be offered to them for goods and
product of the organisation which are distributed with different channels. This system helps in
deamination a price that can be offered to consumer which is acceptable to them.
M1 Evaluation on benefits of management accounting system and their application in Iceland
Ltd
Cost accounting system:
This Assists management of Iceland Ltd in reducing cost of production as cost incurred
on each job and material is clearly determined and areas are determined where cost can be
controlled. Ascertainment of the reason behind profits and loss for business done with this
system. This also helps in elimination of waste, failures and inefficiency from production.
Inventory management system:
The mangers of Iceland Ltd are able to accurately determine raw martial required for
production and to maintain minimum level of stock with firm. Along with this the stock used in
production by each department is significantly presented by this system and a record is
acquirable about how much stock is available with the organisation for future production.
Job costing system:
Iceland Led mangers determine the cost incurred on each job carried out in organisation. The
Manger is provided with exact information related with cost and expenses on production on each
department and step can be taken to control or increase the production and performances can be
evaluated with cost efficiency and control.
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Price optimisation system:
This system helps the management of Iceland Ltd in determination of price which can be
offered to consumer and assist management in cost control for each product and overall
organisational activities. This also assist in forecasting the future cash flows and estimates the
requirements in business.
PRESENTATION OF FINANCIAL INFORMATION:
Form of data presented:
The information present to the user that is mangers must be relevant and precise as on
the basis of these data decision are taken. With incorrect or wrong information decision taken,
and plans made will not be 100% rights and this can hamper the smooth flow and working of the
organisation Iceland Ltd (Codesso and et.al., 2015. The data must be reliable as data taken
from non reliable source can be stated as authentic and accurate and if presented to
management the overall decision making process can result in a failure. This can lead to failure
of the decision, waste of time and resource. So to avoid all theses data must be accurate, precise,
reliable and authentic.
Way of presentation of data:
The manner in which data is presented must be precise, clear and unambiguous.
Presentation is very important a right and correct information displayed in such a manner which
is not clear and precise can lead to misunderstanding of informations and declension taken on
its basis can not be 100% right. So presentation of the information must be done precisely and
accurately in clear way which is easily understandable.
P.2 TYPES OF MANAGERIAL ACCOUNTING REPORTS
Cost reporting:
This is the cost related with production of article. Cost includes raw material, labour,
manufacture and administration overheads and other cost incurred for production of goods by
Iceland Ltd. Total cost is divided by units produced, this gives per unit price of an article. A
cost report provides a summary of all information and gives an insight to mangers about cost
versus selling prices. Estimation of profits margins are done with estimated given by cost reports
and then selling prices of the articles are decided. Iceland Ltd used this reporting system to
identify cost incurred on procurement, transportation of each good and then selling price is
decided after adding profit margins.
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Budget reports:
This is very crucial for measuring the performance of Iceland Ltd as under this
estimated targets are set for the organisation to be achieved in a given time frame. The budgets
pays a critical role in performance evaluation and corrections. The budgets are made with
previous data, information and experiences. Budget requires close and regular monitoring on the
operation of activities so that budgeted performance can be reached without any deviation.
Iceland Ltd tries to achieve its goals and mission while staying within the budgeted amount.
Performance reporting:
This report is prepared to review the performance of the Iceland Ltd as whole as well as
for each and every employee within the organisation. Department wise performance reports are
also generated under this reporting system (Groom, 2017). With using this reports mangers take
strategic decisions for future of the business. The reports also points out any flaws in the
performance. The role of performance reports is critical for Iceland Ltd to keep an accurate
measure of their strategy towards their mission.
TASK 2
P3 and M2 Application of different Management accounting techniques
MICROECONOMICS TECHNIQUES:
Cost: it can be defined as the amount that is requires to carry on a business or a
particular job. In accounting it can be explained as the amount spend on production of goods or
service. It does not include profits as this is pure expenses incurred fore creation of goods.
Types of cost:
 Fixed and variable costs
 Direct and Indirect Costs
 Product and Period Costs
 Controllable and Uncontrollable Costs
 Out-of-pocket and Sunk Costs
 Out-of-pocket and Sunk Costs
Cost analysis: this is process of developing and analysing the cost data from separate
business elements and estimating incremental and total resources needed to support current and
future business strategies. This is a decision making tool which is used to evaluate and prioritize
resource need based on estimation of the cost and their expected return on investment.
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Cost volume profit: this is a method through whicProvide proper heading of P's
and M's while mentioning the headings as it is necessary to do in that format
h the impact of different level of costs and volumes of production have on operating profit of
the organisation (Otley, 2016 ). This determines the break even point for different level of sales
volumes and cost structure tat assist in taking short term economic decisions.
Flexible budgeting: this can be defined as that budget that can be adjusted with change
in volume of activity. This is considered as more sophisticated and useful than a static budget
that is more rigid in nature. This is also called as variable budgets as this calculates different
expenditure levels for variable costs.
Cost variance: This can be defined as the difference between actual cost and budgeted
or planned amount (Ozyurek and Uluturk, 2016). The variance is the difference between actual
and budgets cost, this determines the extent up to which the cost variates from expectation, this
helps the mangers to determine the reason of variation and them plan corrective measures.
Absorption costing: this is a method of costing which considers all variable and fixed
manufacturing overhead as part of cost of production. All other fixed costs is charged as period
cost. With this method profits determined is always high. In this factory cost is taken as a part
of production cost.
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Marginal costing: this can be defined as the method which considered all variable cost
as part of the production cost but do not take into account any fixed cost as part of contribution.
All fixed cost are written off as period cost. Variable cost is charged against cost of production.
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Interpretation: this can be seen from above calculations that both of them are giving
same profits but fixed manufacturing overhead becomes part of cost of production in absorption
costing which gives higher profits.
Reconciliation:
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PRODUCT COSTING
Fixed and variable cost:
Fixed cost : this is the cost which is do not have any link with production. Whether
production is done or not this cost occur and remain fixed width change in level of output. This
cost chane in totality but not in per unit.
Variable cost: is the one which is directly linked with level of production . Which a
change in level of output the variable cost also changes. This cost changes in per unit and
remain unchanged in totality.
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