Management Accounting Report: Systems, Techniques, and Problem Solving

This report on management accounting, prepared for MSD Lighting Ltd., covers various aspects of management accounting systems, including cost accounting, inventory management, and job costing. It explores different methods for management accounting reporting, such as performance reports, budget reports, and inventory management reports. The report delves into marginal and absorption costing for preparing income statements, analyzing their applications, and presents reconciliation statements. It also examines planning tools and their advantages and disadvantages, as well as methods for adopting management accounting systems to solve financial problems, ultimately aiming to achieve sustainable success. The report concludes by integrating these elements to offer a comprehensive understanding of management accounting's role in organizational decision-making and financial management.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1: Different types of management accounting system and their essential requirements:..........3
P2: Different methods for management accounting reporting:....................................................5
M1: Benefits of management accounting system and their application within an organisation: 6
D1: How management accounting system and management accounting reports are integrated
within an organisation:.................................................................................................................6
TASK 2............................................................................................................................................7
P3: Marginal and absorption costing for preparing income statements:......................................7
M2: Range of management accounting techniques for financial reporting:..............................10
D2: Explanation of financial reports in range of business activities:........................................10
TASK 3..........................................................................................................................................10
P4: Planning tools and their advantages and disadvantages:.........................................................10
TASK 4..........................................................................................................................................13
P5: Methods of adopting management accounting system for solving financial problems:.....13
M4: Analyse financial problems in management accounting can lead organisation to
sustainable success:....................................................................................................................15
D3: planning tools helps in order to solving financial problems:..............................................15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management is the process of preparing reports and managing things for the organisation
which helps managers for making firms short term and long term decisions. It helps business for
identifying, measuring, analysing, interpreting, budgeting, communicating organisations
information to managers. Management helps firms to organise its resources in such way so that
firm can accomplish its objectives effectively and efficiently. It is duty of managers that they
assess performance of employees and making them successful. Management has functions which
includes planning, organising, analysing, coordinating, directing, budgeting etc. These functions
helps management for assessing organisational activities in order to accomplish organisations
objectives. Management accounting helps in overview of company finance and resource flow for
decision making. It helps in arranging resources of production, assembles and organizes,
integrates resources in effective manner in order to accomplish objectives (Bromwich and
Scapens, 2016). The company which is selected for this report is MSD Lighting Ltd. It is light
manufacturing company, headquarter situated UK. This report covers topics such as management
accounting system and essential requirements of this, methods of management accounting
reports, marginal and absorption costing in order to cost analysis. Apart from this it also covers
topics such as disadvantages and advantages of different types of planning tools and how
organisation adapting management accounting system in respond to financial problems.
TASK 1
P1: Different types of management accounting system and their essential requirements:
Management accounting is the process of providing information to the higher authorities
for short term and long term decision making (Cooper, Ezzamel and Qu, 2017). In management
accounting there are various systems which includes cost accounting system, inventory
management system, job costing system, price optimisation system. These systems are
mentioned below:
 Cost accounting system: This system helps managers for tracking costs involves in its
production process. It is using for known costs of each activity which indicates which
resource is beneficial and which is not MSD Lighting Ltd. as manufacturing company it
is important to know the costs involves in its production process and helps in identify
excessive costs so that they can take decisions regarding reducing the costs.

Essential requirements:
 It is important for the eliminating excessive expenses so that it can generate higher
probability.
 This helps organisation for identifying different types of costs so that it can find out the
problems and solutions for these (Drury, 2018).
 Inventory accounting system: In this system, it helps managers for identifying
inventory and tracking inventory management how the company manages its stock
orders. How the company manages its outward and inwards by movement of stock
orders. It also considers its storage, ordering costs whether it is managed in proper way or
not. By assessing inventory management firm using various approaches so that it can
manage it effectively and efficiently (Langfield-Smith, Thorne and Hilton, 2018).
 In this system, organisations using different methods for assessing inventory management
. These techniques includes LIFO, FIFO, Weighted average costs etc. it is important so
that level of inventory can be assessed effectively and efficiently (Lavia López and Hiebl,
2016).
 This is used for reduction of unnecessary things and inefficiency in wastage of resources
and helps In enhancement of overall level of profits.
 Job accounting system: This is related to tracking of costs associated with specific
production and services. This information is required in order to track the information to
the customers which are under contract where the costs are reimbursed. This helps
management for tracking costs involved in every process of goods and services which
gives it profitability.
Essential requirements:
 In this techniques is using for identifying job costing. It should be update the frequent and
latest changes in job costing. It is essentially required for accurate profitability reports
about the individuals operations.
 It is required for knowing employment performance, indirect costs measurement, costs
monitoring by the manufacturing process (Malina, 2017).
 Price optimisation system: This management accounting system is used for tracking
demand variations at different levels and collect the data for costs affection. It is about
costs should be set according to customers satisfaction which can provide probability to

the company. In context to MSD Lighting Ltd. It is about how the change in demand and
prices leads to improve profits. It is company assess for how the customers respond to its
different prices for the goods and services.
Essential requirements:
 The essential requirements for this it provides opportunities to the company for focusing
on various goals including margin of sales and the number of conversions (Ostaev And
et. al., 2019).
 This is require for better and quick decisions and maintaining consistency for the
company. It helps organisation for meet customers needs and maintain firms probability.
P2: Different methods for management accounting reporting:
Management accounting reporting: It is different from financial accounting which
helps in produces reports for the company's internal shareholders for opposed to its external
shareholders. It is about providing information related to the firms different activities so that it
can provide to the external parties such as shareholders so that they can investment in the
company. By this various departments of the firm collects data from tracking key performance
indicators.
 Performance reports: It is the report which indicates performance bout the something. It
is about collecting information about the firm for the proper utilisation of resources and
provide this information to the stake holders which is including in performance report. It
report considers information related to the activities of employees conducting in
manufacturing process (Schaltegger, 2018). This is about clear picture of the organisation
that can be find firms weaknesses and works on it. In context to MSD Lighting Ltd. it is
beneficial for the company as it provides the performance data and achieved goals by
employees, this will increase morale of the employees and increase the productivity of
the company which leads to higher profitability.
 Budget reports: Every company makes budget for assessing its actual performance with
expected performance. It is helps in assessing which activity gives higher expenditure
and how can control it according to expected budget level. In context to MSD Lighting
Ltd. The budget report helps firm to manage its activities expenses and income so that
actual performance of the company can be measured by expected results.

 Inventory management reports: It helps in keeping records about the inventory which
business buy and sells from the raw material to finished goods so that desired results can
be achieve. In context to MSD Lighting Ltd. inventory management tells how much
inventory a business have with it at a given point of time. It helps business in order to
avoid excess ordering, storage and out of stock costs. It provides snapshot of material
purchasing strategies for managers for decision-making (Shields, 2015).
 Account receivable reports: It helps in recording credit purchase by the customers
which shows actual performance of the company. It analysis the financial health of the
company in order to achieving desired results. It helps in estimating bad debts and due
amount from the customers. In context to MSD Lighting Ltd. account receivable reports
helps it to making collection period strategy and helps to know its due payments so that
firm can manage its cash and bank statements for the company.
M1: Benefits of management accounting system and their application within an organisation:
Management accounting system helps MSD Lighting Ltd. In order to assessing its costs
and reducing it for making profitability. In this cost accounting helps in management of costs,
job costing helps in assessing cost of manufacturing goods in production process by using
resources. Price optimisation system helps in setting prices and forecasting changes in prices.
Performance report gives information about overall activities running in organisations
(Spraakman, 2015).
D1: How management accounting system and management accounting reports are integrated
within an organisation:
The management accounting system and management accounting reports are integrated
within MSD Lighting Ltd. As the management accounting system and reports both are made for
providing profits to the company as by tracking its inventory, costs, price optimisation etc. it
ensures firms for assessing activities and maximising use of its resources in order to accomplish
firms objectives. These records helps in higher authorities for short term and long term decision-
making.

TASK 2
P3: Marginal and absorption costing for preparing income statements:
Costing is the system which is used in assessing costs of elements of the organisations.
Costing is used in developing costs for customers, geographic regions, distribution channels,
products, processes etc. MSD Lighting Ltd., as the lighting manufacturing company it helps it to
develop its costs so that it can achieve its objectives (Sugahara, Daidj and Ushio, 2017).
Marginal costing: Marginal costing is the process of change in total costs when the
additional units are produced. Marginal costing refers to variable costs which is happens in
product costs and fixed costs for the period. It is the technique which assumes variable costs as
the product costs. In this technique, it considers contribution per unit.
marginal costing
Particulars May June
Sales 25000 18750
Less: Variable costs
Sales commission 500 375
Manufacturing cost 2000 1500
Direct material 6000 4500
Direct labour 4000 3000
Total cost 12500 9375
Contribution 12500 9375
Less: Fixed cost
Fixed selling 1000 1000
Fixed production overhead 2000 2000
Fixed administration 3000 3000
Net profit 6500 3375
Absorption costing: Absorption costing is the process of manufacturing costs involves
in all units which are proceed. The costs involves fixed and variables costs as as the product

costs. It includes fixed and variable costs for production costs. This costing is made for the
reporting purpose. This helps MSD Lighting Ltd. For reporting about its financials and taxes. It
is the cost which involves absorption and marginal costing and considers net profit per units.
absorption costing
Particulars May June
Sales 25000 18750
Less: Cost of goods sold
Variable sales commission 500 275
Variable manufacturing cost 2000 1500
Direct material 6000 4500
Direct labour 4000 3000
Fixed production expenses 2000 2000
Gross profit 10500 7475
Less: Selling and distribution costs
Fixed selling 1000 1000
Fixed administration 3000 3000
Net profit 6500 3475
Inventory costing: Inventory cost refers to cost of storing and managing goods in the
specific period of time. Inventory costing is called as weighted average cost inventory for the
goods and services which are sold. It has three types includes, ordering costs, storage costs,
carrying costs.
 Ordering costs: The ordering costs is the process of ordered inventory placed which
includes receiving costs, data interchange costs, preparing purchase costs, transportation
costs and cost of suppliers etc.
 Carrying costs: This is about storing costs of goods and cost occurs by maintaining stock
in the warehouse (Tucker and Schaltegger, 2016).

 Storage costs: It is about costs which occurs when the customers demands are comes and
inventory goes out of stock.
reconciliation statement
Particulars May June
Profit/ loss under marginal costing 6500 3375
Less: Profit under absorption costing 6500 3475
Add: closing stock 8000 6400
Over absorpiton 8000 6300
Working note:
material variances
Particulars Amount
Material cost variance
Standard cost 24000
Actual cost 22400
Result 1600
Material price variance
Standard price 12
Actual price 9.3
Actual quantity 1000
Result 2700
Material usage variance
Standard quantity 2000
Actual quantity 2400
Standard price 12
Result -4800
LIFO:

LIFO
Date Receipts Issue Balance
Quantit
y
Unit
cost Amount
Quantit
y
Unit
cost
Amoun
t
Quantit
y Unit cost Amount
01/06/20 Balance 10 35 350
01/06/09 15 38 570 15 38 570
01/06/15 12 38 456 3 38 114
10 35 350
01/06/20 10 32 320 3 38 114
10 35 350
10 32 320
01/06/23 10 32 320 3 38 114
10 35 350
01/06/27 3 35 105 3 38 114
7 35 245
01/06/30 2 35 70 3 38 114
5 35 175
Closing balance 27 951 8 289
Weighted average costs:
Date Receipts Issue Balance
Quantit
y
Unit
cost Amount
Quantit
y
Unit
cost
Amoun
t
Quantit
y Unit cost Amount
01/06/20 Balance 10 35 350
01/06/09 15 38 570 25 36.5 912.5
01/06/15 12 36.5 438 13 36.5 474.5
01/06/20 10 32 320 23 34.25 787.75
01/06/23 10 34.25 342.5 13 34.25 445.25

01/06/27 3 34.25 102.75 10 34.25 342.5
01/06/30 Closing balance 2 34.25 68.5 8 34.25 274
M2: Range of management accounting techniques for financial reporting:
Costing is essential requirement for any organisation as it provides costing of production
goods and services. Costs plays vital role in profitability of the firms. It helps firm in order to
know its productivity and profitability by the better use of its resources. Costing has two types
absorption costing and marginal costing. Absorption costing is refers to cost of all produced
goods and services in the organisation. Marginal costing refers to costs of each extra units which
is produced by the company.
D2: Explanation of financial reports in range of business activities:
As per the above data it shows all costs involved in manufacturing process such as
absorption cost, marginal costs, inventory costs etc. According to this, in absorption costing net
profits shows 6500 in may and 3475 in June. Marginal costing, it shows in may 6500 and 3375 in
June. As per its bank reconciliation it shows over absorption in may as 8000 and June as 6300.
As per LIFO method of inventory valuation it shows balance of 289 while weighted average
method shows 274 in its balance.
TASK 3
P4: Planning tools and their advantages and disadvantages:
Budgeting is the process of making plans about the firms spendings. It is the pre
estimation of expenses and income which are occurs from firms activities. It helps in comparing
actual performance with expected performance of the company. In context to, MSD Lighting
Ltd., firms financials department makes budget for their activities which are running in
organisation. It is made for achieving goals by strategic plans (Van der Stede, 2015). Budget
involves sales, operating expenses, income for the company which occurred by its manufacturing
activities. It provides roadmap to the employees so that they can manage activities by efficient
utilisation of resources. It helps managers for fund management and arrangement of money for
running business activities. It helps in forecasting how much money firm has to manage in the
future. In context to MSD lighting Ltd. Firm makes budget for forecasting firms performance so
that it ensures that firm has enough money for the activities.

It estimates expenditures, revenues which helps company bin its manufacturing process,
inventory details, fund arrangement, pricing, managing activities. From this managers can review
performance of the employees if there are any problem than they can takes actions towards them.
Budgeting ensures that money is allocated in those resources which are comes under in firms
strategic objectives.
 Cash budget: Cash budget is the planning of expected cash receipts and payments during
the specific period of time. Cash outflows and inflows includes revenues, expenses,
loans receipts and payments. It is the pre estimation of firms position in the future. It
ensures firm that it has enough cash for running its activities.
Advantages Disadvantages
Cash budget is helpful in avoiding debts,
regulate expenses, it use to show deficits and
surplus etc.
Cash budget is not prefer by them those deals
with flexibility. In context to MSD lighting ltd.
It creates disadvantage of the for the managers
as it provides only cash related informations.
 Capital budget: It is the process of which business use to assess fixed assets
investments. It is used to evaluating potential major investments which company makes
for future growth. Example of this, as construction of new building, machinery purchase,
new product line which gives future benefits to the company. It has various techniques
for knowing which investment option is better which provides higher return in the future
to the MSD lighting ltd.
Advantages Disadvantages
Capital budget helps in understanding risks and
returns involved in investments. It helps in
increase shareholders wealth and advantages in
the market.
This helps in long term decisions, in this
techniques are assumed.
 Production budget: It is about calculating number of units of the goods that business
must be manufactured and derived from the sales. In context to MSD lighting ltd., it

provides budget for the forecasting future sales which company has to produce in order to
meet with customers demand.
Advantages Disadvantages
Production budget helps in planning for future
production process, taking managerial
decisions, manufacturing decisions etc.
It is making as based on sales forecasting
which may fluctuate, it is time consuming
process (Wagenhofer, 2016).
 Sales budget: It shows the financial planning how the resources should be utilise in order
to achieve forecasted sales. This helps organisation for optimum utilisation of resources
so that it can achieve expected sales. It helps managers for setting goals that strive to
achieve them. It is the source which strives coordination between sales, production,
advertising, finance departments.
Advantages Disadvantages
The sales budget helps in achieving objectives
of the sales department. It also considers as
planning tool which helps firm to achieve its
objectives. It helps managers for allocating
resources for the all departments which are
based on sales forecast.
To preparing for sales budget is time
consuming and sales is fluctuate in nature, it
can be change in the future.
 Labour budget: Labour budget is the process of anticipating labours time required for
the production. It helps in determining the time which is required for the production of
the goods and services (Wang, Wang and Wang, 2019).
Advantages Disadvantages
It provides labours efficiency and time taking
for producing goods and services so that order
can place in the specific period.
It depends on future activities, resources
cannot measure for the future period.
M3: Different planning tools and their applications for forecasting and preparing budget:

Budgeting is the process of pre estimation of expenses and income which helps in
comparing actual performance with expected performance. Budgeting involves Budget involves
sales, operating expenses, income for the company which occurred by its manufacturing
activities. It provides roadmap to the employees so that they can manage activities by efficient
utilisation of resources. In context to MSD lighting Ltd. Firm uses various types of planning
tools which includes cash budget, capital budget, production budget, labour budget, sales budget
etc. These budget helps in managing its resources so that company can accomplish its objectives
effectively and efficiently (Yaacob and Nahar, 2017). Budget helps managers for managing day
to day activities according to estimation as it includes costs of goods sold and it can motivate
employees for completing tasks effectively and efficiently.
TASK 4
P5: Methods of adopting management accounting system for solving financial problems:
Financial Problems:
Financial problems refers to the problems occurred in a business during a given period of
time and the measures taken by the business to correct them. Every business has the financial
problems and should take the measures so that the business will not come in debt. Debt is the
biggest burden faced by the people in an organization. Financial problems of the MSD lighting
Ltd. Are very high and the company should take the measures to correct them. The company will
go in debt if measures are not taken on the time. Financial problems of the company is described
below:
 Low income: Low income is the biggest issue faced by the company as the company
would not be able to earn the revenue and will decrease the cost because of the decreased
income the company would not be able to fulfil its debts and may suffer from the losses.
MSD lighting Ltd may also face this issue as the company may not earn the revenue
because of the less customer attraction which makes the low earning of the company.
 Lack of budgeting and money management skills: This is the issue faced by the
company as they do not know how to manage the money and their ability to spend the
money accordingly without having proper budget. Budget is mandatory for every
business so that there is easy distribution of the money of the resources that are needed.
MSD lighting ltd may also face this issue because of this proper budget should be

maintained if not there is unnecessary expenses by which the company may suffer from
the losses and have financial crisis in the business.
Techniques for solving various financial problems:
Benchmarking: It is the process of comparing businesses and their practices by such
elements includes cost per unit, productivity per unit, time of production etc. In context to MSD
lighting Ltd., benchmarking approach using to solve its low income financial problem by
assessing different organisations practices.
KPIs: KPIs is the management accounting technique which is based on income
statements and balance sheets and also change in expenses by increasing sales. By this firm
solving its lack of budgeting problem by making income statements and balance sheets.
Financial governance: Financial governance has rules, regulations, policies which is
using by firms in order to overcoming with its financial problems. It deals with Lack of cash
flow problem of the company.
Balance scorecard: Balance score card is the process of strategic management
performance used to identify and improve various internal functions. It deals with lack of
budgeting problem of the company.
Basis Morrisons Sainsburry
Benchmarking Firm solving its inventory
management problem by using
benchmarking technique.
Firm is solving its
mismanagement of funds
problem by using
benchmarking method.
KPIs Firm solving its lack of cash
flow problem by using KPIs
technique.
Firm solving its money
management problems by
using KPIs method.
Balance scorecard Firm solving its low income
problem by using balance
scorecard technique.
Firm solving its inefficient use
of resources problem by using
balance card problem.

M4: Analyse financial problems in management accounting can lead organisation to sustainable
success:
Firms faces various financial problems such as lack of cash flow, mismanagement of
resources, inventory management etc. in context to MSD lighting Ltd. It solving its financial
problems by using various management accounting techniques includes benchmarking, KPIs,
financial governance, balance scorecard etc.
D3: planning tools helps in order to solving financial problems:
Planning tools are the elements that helps organisations for taking actions related to
implementation of an initiative, program and interventions. Planning tools helps firms in order
to solving its financial problems as pre estimated performance. Planning tools includes cash
budget, capital budget, production budget, labour budget, sales budget etc.
CONCLUSION
From the above report it has been concluded that management is the process of
managing, controlling activities in the organisations. It has various functions such as planning,
organising, analysing, coordinating, controlling, budgeting etc. it helps employees for better
utilisation of resources so that firm can accomplish its objectives effectively and efficiently.
Management accounting report helps in proving information to higher management it includes,
costing, job costing, inventory management, price optimisation system etc. There are different
types of planning tools including, cash budget, capital, production, resource based budget etc. In
organisation for calculating cost its using absorption and marginal costing. There are various
financial problems, for solving these problems firms using various management accounting
techniques such as benchmarking, KPIs, financial governance, balance scorecard etc.
management accounting helps managers for making short term and long term decisions.
Absorption costing refers to costs of all produced units while marginal costing refers to cost of
each units produced.

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