Management Accounting Report: Systems, Benefits, and Integration

This report provides a comprehensive overview of management accounting, focusing on its application within Walker Furniture. It defines management accounting, emphasizing its role in internal decision-making and performance improvement. The report details various management accounting systems, including cost accounting, inventory management, job costing, and price optimization, highlighting their benefits. It also examines management accounting reporting methods such as performance reports, inventory management reports, budget reports, and accounts receivable reports. The integration of these systems and reports within the organizational process is discussed, along with a comparison of marginal and absorption costing methods. The report aims to enhance understanding of management accounting concepts and their practical application in resolving financial issues and achieving business goals. Appendices include income statements under marginal and absorption costing.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
REPORT..........................................................................................................................................1
Management accounting systems and its benefits ......................................................................1
Integration of management accounting systems and reports in organisational process..............5
Income Statements of two companies under the marginal and abortion Costing .......................5
Planning Tools used in management accounting.........................................................................6
Different management accounting tools used for solving the financial problems. .....................8
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................10
APPENDICES...............................................................................................................................11
Appendix A................................................................................................................................11
Appendix B................................................................................................................................12

INTRODUCTION
Management accounting is a technique used by the organisation for effective
management of the organisational activities. Management accounting can be defined as the
process involving the collection, identification and interpreting the financial information for
taking decisions that will help organisation to grow and achieve success. Present report is based
on Walker Furniture which is manufacturing sector. This based on the report over management
accounting systems and the benefits, management accounting reporting and the integration of
these systems and reports within the organisational process (Chiarini and Vagnoni, 2015). It will
also involve management accounting systems and the planning tools used in responding to
financial problems. The report will also involve comparison between organisations adopting the
management accounting systems for resolving the financial issues. The overall report will
enhance the understanding of management accounting and various concepts for the benefit of
organisation.
REPORT
Management accounting
MA is defined as an accounting process including the various accounts in the
organisation that helps it to ascertain the various data which is used by them for improving the
performance and efficiency of company. This includes all the activities that are associated with
formulating the reports and sheets that provide the managers with more accurate and reliable
informations to take decisions. Objective of MA is of dealing effectively with the accounting
information in statistical and economic analysis for making the most efficient utilisation of the
organisational resources (Ittner, 2014). MA is used mainly by the internal management for
performance improvements unlike the financial accounting that prepares report mainly for the
external users for decision-making. This essential for the business enterprise to utilise all the
information for effective utilisation of the resources.
Management accounting is defined as process of analysing cost and operations of
business for preparing the internal financial reports, records and the accounts that help the
manager in process of decision making for achieving the business goals.
Roles of management accounting
Functions of management accounting includes
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Margin analysis – To determine amount of profits and the cash flows that a business will be
generating from the specific products, product line, stores or customers.
Constraints analysis – This refers to identifying the bottlenecks in an enterprise and their impact
over ability of business in earning its profits and revenues.
Break even analysis – This involves calculating the break even from contribution and unit
volume mix. This helps in determines price levels for its products or services.
Inventory valuation – It is concerned with measuring the direct cost, cost of goods sold, and the
inventory items.
Forecasting – It is one of the major function of MA in which forecasts about the future income
and expenditures of company. This is done after analysing the previous trends and market
conditions.
Capital budgeting – It refers to identifying requirement of fixed assets and costs involved. This
involves allocation of costs to best option available.
Management accounting systems and its benefits
Management accounting systems
This refers to the different systems that are used in management accounting for effective
structuring and managing the business operations. Walker furniture is using these management
accounting techniques for having smooth and organised flow of manufacturing and other
business operations. There are many management accounting systems which are stated below
Cost Accounting System
It is the main accounting systems that involves the process and methods of recording the
costing informations and transactions. Costing systems helps management in having proper
record of all the cost informations that are incurred by organisations. This method records all the
cost associated with the product both marginal and fixed cost in the manufacturing of furnitures
by Walker furnitures. It provides the concepts and techniques that are utilised in the production
process that help them in reducing their cost of production and increasing the productivity and
efficiency with the available resources (Armitage, Webb and Glynn, 2016). This is an essential
systems that is used for increasing the profitability of business controlling its costs.
Benefits
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 Cost accounting helps in recording information related to the variable and fixed cost
separately.
 Cost accounting systems helps management in keeping its cost and expenditures under
control using variance analysis.
 The system also helps Walker Furnitures in identifying the cost of manufacturing the
product.
Inventory management system
Inventory management system refers to the process which is used for having proper track
and record of each and every information about the inventory. This is collaboration of
technology and human efforts for having proper information about the movement of inventory in
the organisation. Walker Furnitures using the inventory management systems keeps check over
all the movements of raw materials, WIP inventory and finished goods (Otley, 2016). This is
essential for making various decisions related to the inventory of company. Inventory
management systems makes the smooth flow of supply chain. Forecast related to the frequency
of movement of inventory could be made by the business using the information provided by the
inventory systems. It also helps the business in making the inventory available on time without
any interruptions.
Benefits
 Inventory management system helps Walker Furnitures in having proper record of all the
movements of inventory.
 This helps in making forecasts related to the future demand on the basis of frequency of
movement.
 Inventory management is essential for placing orders on time without incurring extra
costs (Appelbaum and et.al., 2017).
Job Costing Systems
Job costing is a process where the cost associated with each job is identified separately.
This is useful for organisations having different production activities. The job systems provide
detailed information about the raw materials, labour and other production overheads incurred in
producing the job. This is very beneficial for organisations the organisations to identify the cost
of each job separately.
Benefits
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 The Job costing is useful in special orders for big clients in calculating the cost of their
orders.
 It provide detailed information about the costs associated with the products in a specific
job.
 This helps management in determining the profits margins related to the each job.
Price Optimisation Systems
This refers to the process where management after analysing all the information related to
the costs sets prices that are most appropriate for the organisation. The objective of price
optimisation is to decide the most optimal prices assessing the consumer behaviours and market
demand of the furnitures produced by company (Alsharari, Dixon and Youssef, 2015).
Benefits
 When prices are decided after analysing the consumer behaviours they are more
profitable.
 IT helps business in setting their profitability margins by setting the most optimum price
of furnitures.
 This has direct impact over sales of product.
Management accounting reporting methods
Accounting reports play crucial part in business management. These report provide the
management about the information related to manner in which operations are being carried out
by the organisation. The reports may be provided by company as per its requirements like
monthly, quarterly, half yearly or annually. Management accounting reports are
Performance Report
Performance report refers to the report prepared by organisations for measuring the
overall performance of business operations and processes carried out by organisation. The report
is prepared after gathering all the information related to the processes and targets. It have records
about the targets and objectives set by departments and the level up to which they have been
successful in accomplishing their targets. The performance measures the effectiveness of
production process in meeting its objectives and goals using the available resources (Azudin and
Mansor, 2018). The report also provide about the employees who have performed well in
achieving the set targets and objectives. On the basis of their performance management gives
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rewards and incentives to promote and encourage them for maintaining the efforts for growth
and success of business.
Inventory Management Report
The report contains information related to all the inventories of organisation from
company assets to finished good. This report contains every information about the movements of
inventories within and outside the organisation. This provides company in making forecasting
decisions analysing the frequency in which movements are made in inventory. This is also
essential for placing the orders for raw material on time so that the production process is not
affected and materials are available on time. One of the major benefit of using the inventory
report is helping the organisations to maintain desired level of stocks keeping in minds the
carrying costs associated with inventories. The inventory report provides about the consumption
of materials in the production process so that future decisions can be made by the management.
Budget Report
Budgeting reports is one of the essential reports used by company and management for
making effective decisions. Budget reports are prepared by making forecasts about the incomes
and expenditures of company. Walker prepares budget report after proper analysis of the
previous budgets which are prepared by company. Management makes important adjustments to
the previous budgets for preparing budgets for current year (Maas, Schaltegger and Crutzen,
2016). These adjustments related to the inflations, market performance, economic conditions,
consumer demands and such other factors. This is prepared before the production process begins
and than the budgets are compared with the actual production figures. This helps in identifying
the variances and keeping the cost control measures.
Accounts Receivable Reports
The accounts receivable report provides information related to the clients whose payment
are due. This used by Walker for assessing the debtors whose payments are outstanding from
long period so that strict action can be taken by company for its recovery. Also makes company
not to give goods on credit to such customers.
Integration of management accounting systems and reports in organisational process.
The management accounting involves both systems and reporting that are essential for
the success and growth of organisation. MA systems relate to the methods or process that are
incorporated in the organisation for having proper record and management of business
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transactions and events. They are integrated with the production processes by Walker for
enhancing its performance. On the other MA reports are prepared from the information that is
provided by the MA systems. They are linked with the systems as they analyse the information
provided by systems and prepares different reports that are essential for decision making (Malmi,
2016). Walker uses both systems and report for determine the optimum prices after the profit
margins. These also help management in reducing the costs that are unproductive and reducing
the wastages. The integration of these systems helps management in improving the profitability
and achieving the success and growth on constant basis.
Income Statements of two companies under the marginal and abortion Costing
Marginal Costing
It is a costing method that is used by organisation for calculating the product price. This
technique only considers variable costs associated with the product. The costing method
considers the fixed associated with product as periods costs and do not include it in the product
pricing decisions. Marginal costing is used by organisation as it enables company in making
comparisons between different products (Lääts and Haldma, 2016). Marginal costing enables
company to carry out the break even analysis for that helps in identifying the level of sales
required to meet the costs.
(Appendix A)
Absorption Costing
This is costing method used by organisation for measuring the cost of manufacturing a
product considering all the costs. The costing method includes both variable and fixed cost as the
product and do not consider is as periods costs. This is used by companies as it is acceptable as
per the accounting standards. However absorption costing do not provide for making
comparisons and is also not used by management for decision making.
(Appendix B)
Reasons of difference between the profits of two companies
Both the companies use separate accounting methods Minba uses marginal costing
method that do not recognise the fixed cost in pro duct price. Because of this reason the closing
stock do not consider fixed cost in its valuation that understates the profit figures. On the other
hand Abinba use absorption costing method that recognises fixed cost in its product cost. This
increases the valuation of closing stock and it is stated as per the accounting standards and makes
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the profit higher (Schuster, 2015). This is the reason why profit under marginal costing is
understated and accepted as per absorption costing.
Pricing strategies
Total Cost – This strategy is being prepared by firm in order to gain maximum amount of profit.
In this type of cost they are been engaged in working towards making use of all overall cist.
Marginal Cost – It is been linked with the movement of inventory that is quick. In this strategy
prices are placed at margin of the price rights. At times where margins and price strategy are
same, no profit is left with business. This is used for removing the old inventories.
Penetration – In this type of strategy the prices are been set according to the needs and demands
of consumers. It provides high number of profit
Skimming – Skimming pricing strategy prices of the product are kept high and are reduced
gradually on entrance of new competitors. This mostly happens in electronic industry.
Planning Tools used in management accounting.
There are different types of planning tools used by organisation for having proper control
and monitoring over the business. Planning tools which are used by Walker Furnitures helps in
achieving the goals and objectives of business.
Sales Budget
Sales budget refers to the budget in which the sales forecasts are made by management.
This is prepared for estimating the average level of revenues that company will be able to
generate in the given time period. Sales budget is an important budget base on which other
budgets are based (Nitzl, 2016).
Application: The forecast about the sales are made after making deep research about the
previous trends, market conditions, economic conditions, production capacities to meet the
demand of customers. On the basis of this expenditures are decided by the company. It defines
the goals and objectives of a business enterprise.
Advantages
It helps Walker Furnitures in estimating the future revenues. The operations and activities
of the businesses are managed as per the targeted sales levels to be achieved by the organisation.
Using the budget company measures the previous trends and decides the growth to be achieved
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after making analysis of both internal and external factors. This helps company in effective
planning and management of business operations.
Disadvantages
Sales budgets are based on estimates derived from previous trends and budgets. Even
after analysing all the factors related to sales it is not possible for company to make accurate
forecast about future.
Flexible budgets
Flexible budgets are the budgets which are not static. The budgets prepared by Walker
Furnitures could be changed with fluctuations in the activity or the production volume. This
budgets is more beneficial for organisation as it allows the company to make changes in budget
as per the requirements on timely basis(Otley, 2016)..
Application: These budgets are more realistic as compared with other budgets of company as it
emphasizes over the cost behaviours at different operational levels. This is used for effective
planning of the business and its future operations Managers have the objective of facing every
changes in positive manner without affecting the process. Other budgets cannot be changed once
they are approved by board.
Advantages
Flexible budgets provides management with the scope of making changes in the budgets
for meeting the demands of customers. It also allows company to make changes in the budgeting
process with the changes and variations in marketing and sales level. It provides for the
reclassification of the budgeted costs. Changes could be made even after approval of the board of
directors.
Disadvantages
Flexible budgets increases the work of managers as the changes are made at various
intervals. Even the small changes makes the managers to reclassify their whole budgets. The
changes in sales level affects all the associated budgets. This increases the variances between
actual and budgeted levels of output.
Cash Budget
Cash Budget is the budget that refers to the budget which is prepared on the estimated of
future cash inflows and outflows.
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Application: The budget is prepared on the basis of sales and other budgets related to the
organisation. The estimates are converted into monetary terms for recognising the revenues and
expenditures that will be incurred for running the business operations. It helps the business in
analysing whether it will be available with sufficient cash for carrying out its activities and
business (Quattrone, 2016). After the estimation of revenues management makes appropriate
allocation of funds between different departments and activities.
Advantages
It helps business in estimating the future cash inflows and outflows from business.
Through this Walker furnitures make appropriate allocation of funds between different
processes carried out within organisation. Also, if sufficient funds are not available for running
the business it can make necessary arrangements for the same.
Disadvantage
Sometimes company do not consider economic factors associated with the cash budget. It
is not possible for management to make accurate forecasts about the future cash requirements of
company as business environment is dynamic.
Different management accounting tools used for solving the financial problems.
Every business operates in a continuously changing business environment. There are
number of financial issues which are faced by organisation while running business. MA tools
and systems helps in identifying and resolving these issues.
Comparison of organisations adapting MA systems for resolving financial issues.
Tools for identifying financial issues.
Benchmarking – It is a MA tool that is used for identifying the targets achieved by business for
achieving the goals and objectives of business. Using this tool Max Furnitures have identified the
issues related to the high costs and effective utilisation of resources.
Corporate Governance - It refers to the structure where the rules, regulations and defined
procedures are to be followed by organisation (Malmi, 2016). This is used in identifying the
problems related to the inventory management faced by Walker Furnitures as proper estimates
could not be made by company.
Key performance indicators – In this they are being used to have an idea about the financial
performance of firm. This will assist the company in setting firm and will also help them in
future.
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MA systems in resolving the financial issues.
Max Furnitures
Company used Cost accounting systems for issues related to the effective utilisation of
resources and increasing costs. It incorporated cost accounting methods through which costs
were controlled and the resources were effectively used by organisation. The accounting system
helped company to achieve the required sales levels keeping the cost under control.
Walker Furnitures
The furniture used inventory management systems with technological advancements.
Inventory management helps in making accurate forecasts about the future demands of
inventories in the production process. This made the company to place purchase orders on time
as before companies was facing issues related to availability of inventory on time of
productions. Also sometimes high stocks increased the carrying cost of organisation.
CONCLUSION
The above research has helped in making conclusions for the importance of management
accounting for the growth of business organisation. Walker Furnitures use the management
accounting systems such as cost accounting, inventory management and job costing for proper
management of business operations. The reports are used by management in making more
accurate and reliable decisions for improving the performance and efficiency of business.
Different costing techniques are used by organisation for proper control of the costs. Planning
tools used in the organisation are essential for the business for effective management of the
business operations. This helps management in business decision-making by the management of
company as it provides all the important information related to the business events and
transactions. Companies using the management accounting tools for identifying the financial
issues and resolving them using the management accounting systems for resolving the financial
issues. This has helped company in achieving the goals and objectives of business and achieving
the required level of profitability.
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