Management Accounting Systems, Costing, and Budgeting Analysis

This report provides a comprehensive overview of management accounting, focusing on its application within an organization, using Marshals Ltd. as a case study. It begins with an introduction to management accounting, detailing its role in decision-making, planning, and control. The report then explores various management accounting systems, including cost accounting, inventory management, and price optimization systems. It delves into management accounting reporting methods, such as budgetary, cost, and performance reports. Furthermore, the report examines costing methods, comparing marginal and absorption costing through income statements. It also analyzes different types of planning tools used for budgetary control, discussing the advantages and disadvantages of cash flow, flexible, variance analysis, and operational budgets. Finally, the report addresses how organizations adapt management accounting systems to solve financial problems, emphasizing the identification of core competencies. This report serves as a valuable resource for understanding the practical applications of management accounting principles.

Management
Accounting System

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1: Management accounting and types of management accounting systems along with their
requirements...........................................................................................................................3
P2: Management accounting reporting and its methods.........................................................4
TASK 2............................................................................................................................................5
P3: Calculation of costs using marginal and absorption costs...............................................5
TASK 3............................................................................................................................................6
P4: The advantages and disadvantages of different types of planning tools used for budgetary
control.....................................................................................................................................6
TASK 4............................................................................................................................................8
P5: Adaptation of management accounting systems by the organisations to face and solve
financial problems..................................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
This report will put light on the basics of management accounting. Management
accounting helps the business or any organisation to analyse data from financial information
provided by financial accounting (Abdusalomova, 2019). Management accounting is the
procedure of identifying analysing, interpreting and communicating the financial information
which helps the business to achieve its goals. Management accounting with the help of financial
information helps in planning decisions, and also keeps a check and control on the finance within
the organisation. In this report management accounting is further explained with practicals and a
case study of Marshals Ltd.
Marshals Ltd is the UK's leading supplier of superior natural stone and concrete
landscaping products. It was founded in the late 1880s. Marshals was the first company to label
its entire range and was the first in the landscaping industry to work with the Carbon Trust’s
labelling scheme.
TASK 1
P1: Management accounting and types of management accounting systems along with their
requirements
Management accounting provides information to the management to assist them in the
process of decision making, planning and controlling and performance measurement.
Management accounting will enable Marshall Ltd. to get organisational reports and these reports
will help it to make necessary changes and take required decisions in the organisation itself and
the management. Management accounting provides the management with the information that
they need to plan and control the operations of the business or organisation.
Management accounting helps the management to form reports and analyse the financial
information which further helps the organisation to carry out its operations effectively and
efficiently and make better decisions by considering all the alternatives.
There are various Management Accounting Systems, some of them are:
 Cost Accounting System: It is one of the major management accounting system
which consists of various accounting techniques which helps the business to
assess cost of specific tasks and projects. With the help of this assessment the
management will be able to compare the profits with costs and take necessary

decisions and plan to cover the shortfall. In context to Marshal Ltd., the company
uses Cost Accounting System with which they are able to manage all their
relevant cost like that of raw material, processes and of distribution of products.
 Inventory Management System: This system has techniques that help the
management to maintain the level of stock. This system involves the process of
stocking and restocking the organisation's inventory so as to increase overall sales
as stock will be available when the customers, retailers and who. Basically, it
combines the characteristics of technologies and processes (hardware and
software) and processes which track and maintain stock goods, whether they are
business properties, commodities and supplies or finished goods ready to be
shipped to salesmen or customers. Marshal Ltd. uses this system with its various
techniques to manage inventory. Techniques may include LIFO, FIFO, JIT and
ABC analysis (Pedroso and Gomes, 2020).
 Price optimization system- This helps companies to determine the selling price
in line with recent trends in the market. In the above company and even their
competitor’s actions, their sales team sets the cost of furniture as per clients'
wishes. Price optimization systems are statistical systems that measure the
variations in competition at various levels of price and then integrate the data with
actual inventory knowledge to suggest values that increase income.
P2: Management accounting reporting and its methods
Management accounting reporting will aid the accountant to represent management
accounting information in a clear form which helps in taking important strategic decisions for the
smooth working of the organisation. This helps in highlighting the profitable operations of the
business so that they are easily visible to the stakeholders. This segment has various techniques
like inventory report, budgetary report, job costs report, account receivable ageing report.
 Budgetary Reports: Budget reports are important in measuring the performance
of a company. Budget reports are made for small companies but they are also
used in large-scale organisations as per the department. They are made on the
basis of past experiences and have power to give insight of future unfavourable
situations. Budgets are prepared on the basis of current expenditure and costs as
compared to expected costs and expenditure. Accounting reports that are related

to budgets help managers to provide with insight of more ways to earn profit,
lowers cost and gives a chance to bargain with the suppliers and stakeholders. It
will enable Marshall Ltd. to evaluate current performance with the expected
performance. With the budget report Marshall Ltd. estimates the value of
expected profit and filter out activities that can become the cause of failure in
achieving so. It also helps in analysing new opportunities which are there in the
market and also which will arrive in the near future.
 Cost Reports: Procurement of raw materials, labours, overheads are the costs for
a company. The total of these costs are divided by the amount of the produce. The
cost report has the information about the cost of items with the selling prices of
the product. Through this report companies decide upon the profit margins for
their products. It will help the manager to evaluate critical expenditure areas, and
have a systematic analysis of total costs involved in specific projects (GOVDYA
and KHROMOVA, 2018). Marshall's management makes report to identifying the
reason of excessive cash outflow or costs which are not beneficial for the
business.
 Performance Reports: These are the reports that are made to review the
performance of an organisation and the workforce of a company. In large-scale
organisations performance reports of departments are also developed. These
reports are developed to aid in decision making for the future of the company.
Exceptional workers who achieve targets on time and even exceed their goals are
appreciated for their performance in the organisation and under performers are
given warning and also motivation to work effectively. Marshall Ltd. form
performance report to identify departments which are not working effectively and
efficiently (Vakhrushina and et. al., 2018).
TASK 2
P3: Calculation of costs using marginal and absorption costs
Income Statement of Marshall Ltd. under marginal costing
Income Statement Amount (£) Total (£)

For the month of October 2019
Sales 40,000*25.00 1000000
Cost of Sales
Variable Manufacturing Cost:
Direct material 40000*10.00 400000
Direct wages 40000*8.00 320000
Variable Manufacturing Overheads 40000*2.00 80000
Variable Selling Expenses 40000*4.00 160000 (960000)
_________
Contribution 40000
Less: Fixed Manufacturing Cost (150000)
Less: Fixed admin and distribution costs (50000)
______(200000)__
_
Actual Net Loss (160000)
Income Statement of Marshal Ltd. under absorption costing
Income Statement
For the month of October 2019
Amount (£) Total (£)
Sales 40,000*25.00 1000000
Cost of Sales
Variable Manufacturing Cost:
Direct material 40000*10.00 400000
Direct wages 40000*8.00 320000 (720000)

Manufacturing Overheads:
Variable 40000*2.00 80000
Fixed 150000 (230000)
_________
Gross Profit 50000
Less: Variable selling expenses (160000)
Less: Fixed admin and distribution costs (50000)
_____(210000)___
_
Actual Net Loss (160000)
TASK 3
P4: The advantages and disadvantages of different types of planning tools used for
budgetary control
Budget is a tool of management which helps in predicting the future expenditure and
income. Budgets are made at different levels in today's world, at corporate level, even in
households. Mainly there are three types of budgets – Surplus, Balance and Deficit.
Budgetary Control is a technique in which the management compare the planned budget
and the actual results of the respected year and provide suitable amendment in the policies to
carry out every task smoothly with minimum cost and maximum profit. It also shows the
efficiency of the management in optimising the budget (Kostyukova and et, al. 2018).
There are multiple types of budgets, some of them are:
1. Cash Flow Budget: Cash Flow Budget compares the budgeted cash inflow and
outflow to actual cash inflow and outflow ( of the respected period), this helps in
making a term plan for the future operations. Advantage: Cash budgets helps the
management in minimising unnecessary expenditure, so the business is able to
manage its finances and use it effectively. Cash flow budget helps predicting
seasonal fluctuations where shortage and surplus cash can be avoided.

Disadvantage: While creating cash flow budget non-financial and non-cash
factors are excluded. When the business has to choose from one of the two
financial institution from where it can incur debt; where one institution may offer
low interest rate and other may offer better services. In cash flow budget non-
financial perks are not recorded.
2. Flexible Budget: It is a budget which is flexible and dynamic as per the volume
and activity. In this budget, the budgeted amount changes and varies according to
the situation. This budget is also known as variable budget because it includes
variable factors like variable factor cost rather than static ones (Drury, 2018).
Advantage: It helps in assessing the efficiency of the departmental head. It control
overheads and help in revaluation of the budget at every level. Disadvantage: This
budget requires skilled workers, therefore it becomes a challenge for the business
to find skilled human resource and it requires a lot of resources. It also depends on
the accounts of the company, if the accounts went wrong the budgets will
automatically be faulty.
3. Variance Analysis Report: Variance analysis report shows the difference
between actual and planned budget. Advantage: It highlights areas where actual
performance varies from the expected one so that management can take necessary
decisions to amend that. Furthermore variance analysis reports assists in assessing
certain places or tasks in the organisation where assets are not effectively utilised
and tasks where meeting the shortfalls are necessary. Disadvantage: Variance
analysis requires a lot of time to evaluate and determine the effect the deviation
which causes further delay in restorative actions and decisions.
4. Operational Budget: This budget helps as a financial plan which is designed to
aid the business to meet its debt obligations and sustain growth over time.
Operational budget provides the company with the areas where cast is needed the
most and how the company spends its resources. Advantages: Its useful in small
businesses as it allocates resources not only for short term but also over several
quarters to three years. Operational budget allows the business to manage its cost
in short run to meet its long term financial obligations (Alsharari and Youssef,
2017). Disadvantages: If company is of large scale or has big figures of revenue

and costs the making an operational budget becomes time-consuming and prone
to errors. It also requires extensive research to assess long term insight of
financial needs of the company.
TASK 4
P5: Adaptation of management accounting systems by the organisations to face and solve
financial problems.
Financial Problems: Sufficient financial resources are needed for the smooth
functioning of any business or organisation. There may come many financial problems for the
business where the finance is inadequate. These problems come when decisions taken by the
management are not efficient. Commonly this is faced by small and medium-sized businesses
and organisations, because they are not able to take efficient management decisions as they do
not follow management accounting systems. Marshall Ltd. is working on getting more financial
resources which can be managed by Management Accounting Systems.
Problems in recognising core competencies: Marshal Ltd. is suffering from this
problem because they are not able to recognise and identify competencies of various
departments. It face issues related to finance and is unable to identify the weaknesses and flaws
of departments. That's why the company suffers from finance related problems and which further
leads to losses and unprofitably operations of the business.
Below cited techniques can help Marshal Ltd. to overcome its drawbacks:
Management accounting
techniques
Reverting to the financial problems by using management
accounting system
Marshall Ltd. Pedragon Plc
Benchmarking Marshall Ltd. face problems in
financial resource segment
because it is unable to measure
department's performance and
its sales are also decreasing.
Management of the company
can use benchmarking, this
The company faces financial
problem due to their inability
to identify weaknesses and
strengths of their departments.
With the usage of key
performance indicator method,
management with the help of

tool helps to set bars, standards
and benchmarks. With these
standards management can
identify performance and
measure efforts and
performance of each
department. With the help of
benchmarking they can form
policies to solve problems
(Hertati and Safkaur, 2019).
indicator can identify the
department which is providing
strength to the company (Uyar,
2019).
Advising to Marshall Ltd. to
use technique of
benchmarking:
With the application of Key
performance indicator,
Marshall Ltd. will be able to
form a plan for the future to
solve and control problems
related to finance. By setting
KPI they will be able to
control cash outflows of
business activities.
CONCLUSION
Management Accounting System is a major factor that determines the sustainability of
business in the industry. It helps the organisation to take important decisions related to the
functionality and management. Marshall Ltd. is taking the right step to adopt Management
Accounting Systems. This will help the company from coming out of the financial crises that has
overpowered the company's growth. Implementation of management accounting systems along
with financial accounting systems would enable them to strengthen its decision making which
will help the enterprise to survive in the long run and in this competitive market.

REFERENCES
Books and Journals
Abdusalomova, N., 2019. PROBLEMS OF MANAGEMENT ACCOUNTING AND WAYS TO
SOLVE THEM. International Finance and Accounting, 2019(3), p.2.
Alsharari, N. M. and Youssef, M. A. E. A., 2017. Management accounting change and the
implementation of GFMIS: a Jordanian case study. Asian Review of Accounting.
Drury, C., 2018. Cost and management accounting. Cengage Learning.
GOVDYA, V. and KHROMOVA, I., 2018. Methodical Aspects of the Decomposition Approach
to the Formation of the Managerial Cost Accounting System in the Organizations of the
Russian Agroindustrial Complex. Journal of Applied Economic Sciences, 13(3).
Hertati, L. and Safkaur, O., 2019. Impact of Business Strategy on the Management Accounting:
The Case of the Production of State-Owned Enterprises in Indonesia, South Sumatra.
Journal of Asian Business Strategy, 9(1), pp.29-39.
Kostyukova, E. I. and et, al. 2018. Improvement cost management system for management
accounting. Research Journal of Pharmaceutical, Biological and Chemical Sciences, 9(2),
pp.775-779.
Laela, S. F. and et. al., 2018. Management accounting-strategy coalignment in Islamic banking.
International Journal of Islamic and Middle Eastern Finance and Management.
Pedroso, E. and Gomes, C. F., 2020. The effectiveness of management accounting systems in
SMEs: a multidimensional measurement approach. Journal of Applied Accounting
Research.
Uyar, M., 2019. The management accounting and the business strategy development at SMEs.
Problems and perspectives in management, (17, Iss. 1), pp.1-10.
Vakhrushina, M. A. and et. al., 2018. Integrated management accounting in the financial
management system. Research Journal of Pharmaceutical, Biological and Chemical
Sciences, 9(3), pp.808-813.