Management Accounting: System Analysis, Techniques, and Reporting

This report provides a detailed analysis of management accounting, focusing on its systems, techniques, and financial reporting applications within a UK-based furniture company, Prime Furniture. The report explores various management accounting systems, including cost accounting, job order costing, price optimization, and inventory management. It examines different methods of management accounting reporting such as budget reports, account receivable reports, cost accounting reports, and performance reports. The report further delves into cost analysis techniques like marginal and absorption costing and their application in financial reporting. It also discusses the advantages and disadvantages of planning tools used for budgetary control, like zero-based budgeting. The report concludes by comparing management accounting systems adopted to respond to financial problems and providing insights into how these systems contribute to sustainable success.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management Accounting and requirement of different management accounting system....1
P2. Explanation of different methods of management accounting reporting .............................3
M1. Benefits and application of management accounting system...............................................4
D1. Evaluation of integration of management accounting system and management accounting
reporting ......................................................................................................................................5
TASK 2............................................................................................................................................6
P3.Calculation of cost using different cost analysis techniques for preparation of income
statement......................................................................................................................................6
......................................................................................................................................................7
M2. Application of range of cost analysis techniques and financial reporting documents.........7
D2. Financial report which apply and interpret data for various business activities...................7
TASK 3............................................................................................................................................8
P4. Advantage and disadvantage of various planning tool used for budgetary control...............8
M3. Analysation of use of planning tools and their application in preparing budget..................9
D3. Evaluation of planning tool for respond to solving financial problems..............................10
TASK 4..........................................................................................................................................10
P5. Comparison of management accounting system adopted by financial problems ...............10
M4. Analysation of management accounting to respond to financial problem for sustainable
success........................................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is a process of identification, analysation, communication of
financial information to managers of organisation to achieve organisational goals
(Abdusalomova and Tashkenbaeva, 2021). It is different from other accounting method as main
goal of this accounting is to helps managers in in internal decision masking of enterprise. It also
helps to analyse cost of operation of business which helps in managing process. This project
include study of Prime furniture which is UK based organisation providing different furniture
product in market with good quality. This project report include understanding of management
accounting system and application of different management accounting techniques. It also
include use of different planning tool in process of management accounting and comparison of
organisation of adopt management accounting system.
TASK 1
P1. Management Accounting and requirement of different management accounting system
Management accounting refers to a process which helps to analyse, measure and
communicate information of operation of business to managers (Barth, 2018). This accounting
focuses on providing information to management which allow them to take decisions related to
operation. It also include information cost, purchase and other activity in business and use budget
for operational planning of enterprise. Managers use performance reports to identify variance by
comparing actual and budgeted terms.
Cost Accounting system: Cost accounting system is a kind of system which assist in
estimation of cost as well as profit for their product and service, inventory valuation and
measured of cost control (Bescos, Deville and Foulquier, 2020). It is difficult for managers of
organisation to estimate right cost of product and service. An enterprise need to understand that
which product provide them maximum profit and this can be done only by assessing right cost of
production of product and service. Managers use product cost system to analyse cost of for
inventory at different level including material, work in progress as well as finished goods which
helps them for creation of financial statements. This system include traditional costing system
and activity based system for calculation of cost.
Requirement of Cost accounting System: Cost accounting system is one simple as well
as practical system which is suitable for requirement of business. Managers require this system
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for estimation and analysation of cost, profit as well as inventory. This system is required by
managers of Prime Furniture for analysation of profitability of a prospective project as well as
assessment of stages of production of product and service.
Job Order costing system: Job order costing is a system which is assist managers of
enterprise to identify cost of production of a single unit (Chen, 2017). This system helps
managers of Prime Furniture in identifying cost of a significant product when they are producing
various types of products. This system helps managers to identify cost of every products as there
are varying cost of each product. Identification of cost include in job order costing system
include cost of material, labour, production cost involved in manufacturing process of product
and service.
Requirement of Job order costing system: Job order system is that system which assist
managers to analyse profitability for each activity as well as unit produced in an organisation. It
also include assessment of performance of employees to analyse that which employee is more
efficient for company. This system has flexibility as it accept changes and also provide accuracy
in operation of organisation which helps to get scalable solution for business of Prime Furnitures.
Price Optimisation System: Price optimisation system is one of mathematical program
which helps to calculated variation in demand at fluctuated price level. It also recommand best
price by combining data as well as information for inventory and cost level which helps to
improve profit of organisation. This system helps an enterprise to use pricing as a strategy to
improve profit level of business. Price optimisation system helps managers of Prime furniture to
use different pricing for different market segment and simulate response of target customer
towards changing price level. Changes in price in different items in dynamic market, insight
helps in forecasting demand, promotion strategies, inventory level improve level of customer
satisfaction.
Requirement of Price optimisation system: Price optimisation system provide
immediate benefit to an organisation related to product as well as service (Ebaid, 2016). It assist
managers of Prime Furniture to sell their product as well as service at low level which helps
them to capture more market to earn profit and helps to provide them competitive advantage in
market. This system helps in selling product and service at mark down price as well as
promotional price to survive in market.
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Inventory Management System: Inventory management system refers to a process
which include tracking good of company in their supply chain which start from purchase of raw
material to sales of product in market. Management of every company is different form each
other depend on their size, nature of business. It analyse need of organisation for inventory, track
them and control wastage of inventory at work place.
Requirement of Inventory Management System: This system is beneficial for any
organisation as it track inventory to avoid wastage and control cost of organisation. It assist
managers to get inventory in company which is sufficient to meet need of customers effectively.
Managers of Prime Furniture use this system to forecast inventory requirement and also analyses
trend in market to identify demand for their product as well as service.
P2. Explanation of different methods of management accounting reporting
Management accounting reports are those reports which present clear picture of
performance of business (Goretzki and Messner, 2016). It also reflect financial position of
organisation as well as status of company and helps managers of company in making important
decisions related to operation of organisation. There are various management accounting reports
used by managers of Prime Furnitures which are as follows:
Budget reports: Budget reports are refers to fundamental reports which helps business
managers to understand activities of business as well as control cost of organisation. This reports
is applied in unified organisation as well as several department of enterprise. It helps to identify
expenses which increase cost of business and include various action to be taken to control
expenses in budget. It is based on comparison of actual as well as budgeted terms. This report
identify errors and include corrective action to improve performance of business. It assist
managers in formulating policies as well as strategies for company.
Account receivable report: Account receivable report is one of those reports which
categorise account receivable of organisation according to time length of outstanding invoice
(Grossmann, Mooney and Dugan, 2019). This report is used as a tool to determine financial
health of customer of enterprise. If company has increased number of receivable then it indicate
manager to tight their collection policy to reduce credit risk. It is an important report for
organisation as it helps to detect customer whose payment is late and identify internal as well
external issues related to payment.
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Cost accounting reports: Managerial accounting reports are those reports which include
raw material, overhead, labour that helps to identify cost of unit produced within an organisation.
It can be identify by dividing number of unit produced to total cost of producing product and
service of company. This report also assist managers to identify profit of company by analysing
cost incurred in process of procurement of product.
Performance report: Performance reports are those which helps to review performance
of organisation as well as each team and employee working in company (Gullberg, 2016). These
reports are generate for each department in large organisation and allow management to provide
promotion and other wards for effective performance of employees. Main goal of performance
reports is ti analyse measure of company which helps them in their strategic decision also for
attainment of their mission.
M1. Benefits and application of management accounting system
Management accounting system Benefits and application in organisation
Cost accounting System This system helps managers of Prime Furniture to monitor
cost of their operation as it helps to increase their profit
level (Hrasky and Jones, 2016). It also assist managers in
estimation of cost, inventory valuation and control over each
activity to helps to optimise cost.
Inventory management system This system helps managers of Prime Furniture to track
inventory in operation process of company to ensure there is
no wastage of inventory which helps to reduce cost of
organisation.
Job order costing system This system helps managers of Prime Furniture to analyse
cost of every job which allow them to identify which project
is more beneficial for organisation and which is not.
Price Optimisation system This system helps managers of Prime furniture to set an
appropriate price which allow them to generate proper
demand as well as profit for their product and service. It
also increase profit level of organisation by setting right
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price which helps them to cover large market area.
D1. Evaluation of integration of management accounting system and management accounting
reporting
Integration of management accounting system as well as management accounting reports
create positive impact in operation process of organisation (Jacobs, 2016). It assist managers of
Prime furnitures in ensuring control over cost and allow them competition of every activity
within budget of company. It prepare managers as well as team member of organisation to
prepare for adverse situation in business. This system track inventory, job performance of
organisation with an object to control cost and increase profit of enterprise.
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TASK 2
P3.Calculation of cost using different cost analysis techniques for preparation of income
statement
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M2. Application of range of cost analysis techniques and financial reporting documents
Cost analysis techniques are those which assist managers to identify cost of operation of
organisation. There are various cost analysis techniques including marginal costing, absorption
costing. Cost analysis techniques adopted by Prime Furniture are as follows:
Marginal cost techniques: Marginal cost technique refers to a techniques which include
variable cost which is based on unit produces as well as fixed cost and were written of against
contribution (Levine and Smith, 2019). It include cost of direct labour, material, overhead
expenses.
Absorption cost techniques: Absorption costing is a techniques which helps to include
all cost connected with manufacturing of product as well as service. These direct and indirect
cost included labour, rent and insurance.
D2. Financial report which apply and interpret data for various business activities
To sum up everything that has been stated in income statement, it is analysed that net loss
in month of may is less with marginal costing in compare to variable costing. Fixed cost in
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operation process remain fixed which is 12000 € and variable cost is varies with production of
additional unit.
TASK 3
P4. Advantage and disadvantage of various planning tool used for budgetary control
Budgetary Control: Budgetary control refers to a system which include use of budget
for purpose of planning as well as control of cost (Mikes and Morhart, 2017). It helps to reduce
different between actual result as well as budgetary terms. Managers of Prime Furniture adopt
various planning tool which helps to ensure budgetary control and these are as follows:
Zero Based Budgeting: Zero based budgeting refers to that kind of budgeting which
starts from zero. It is not that type of budget techniques which is based on previous year instead
it is prepare new for every year. In this technique, managers of organisation require to justify
each expenses related to operation of business. It represent every expenses in a way that
managers can easily identify of expanses which helps to reduce cost of business.
Advantage of Zero Based Budgeting: This budget is not based on previous year budget
and prepare new for every year which increase accuracy in their budget. It helps managers of
organisation in efficient allocation of resource and deduce redundant activities. It helps in
coordination as well as communication of information in different departments.
Disadvantage of Zero Based Budgeting: Zero based budgeting is a time consuming
process in compare to other techniques as managers need to prepare new budget for every year.
It include efforts for various employees and an enterprise does not have that much human
resource as well as time to compete this work. Explaining every cost is difficult for managers of
business and require proper training and development.
Variance analysis: Variance analyses is a technique which include difference between
actual as well as planned performance (Moilanen, 2016). These variance helps managers to
identify whether organisation has over performance or under performance. Companies assessing
these variance by comparison of actual cost with standard cost of organisation. It identify both
price as well as quantity of labour, material and overhead and provide these information to
managers so they can take important decision to avoid these differences. Manager need to pay
attention to these area and analyse variances to identify problem in operation of business.
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Advantage of Variance analysis: Variance analysis provide competitive advantage to an
organisation as it helps business to attain its target and also assist in mitigating risk which build
trust between members of organisation. It also identify changes required by managers in strategy
of enterprises. It also assist managers in analysing risk of business and create value for
shareholders.
Disadvantage of Variance analysis: This may create delay in operation of business as
result of this technique is provide result late to managers. Variance cannot be available in records
of accounting as it is difficult for business to determine variances.
Operating budget: Operating budget refers to those budged which include cost as well as
profit of business and also include cost of selling product in market or cost of good sold
(Nobakht and Baradaran Hassanzadeh, 2017). Cost of good sold is a cost which include cost
related to direct labour as well as material which are related to production of goods as well as
service. This budgetary tool helps to identify administration as well as overhead cost connected
with production process of product and service. It include components like profit, variable cost,
fixed cost, non operating expenses and non cash expenses.
Advantage of Operating budget: Operating budget helps an organisation to manage
current expenses of business including salaries of labour, rent of office etc. It assist managers in
projecting expenses related to future period of business by understanding need of organisation. It
allow managers to build reserve to face adverse situation and mitigate risk of operation of
company. Budget increase accountability of business which increasing savings which is
beneficial for smooth functioning of business.
Disadvantage of Operating budget: This budget is costlier a s well as it is difficult for
business to follow standard cost of business as only guide employees but does not attain actual
result.
M3. Analysation of use of planning tools and their application in preparing budget
Planning tool are used to for budgetary control in an organisation which helps manager to
attain desired result from operation within enterprises (Stephenson, 2017). Zero based budgeting
refers to analyse a budgetary control techniques which helps to coordinate between different
activities of business and also assist in efficient allocation of resources. Variance analysis is one
of tool which is used to minimise difference between actual result and budgeted terms. Operating
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