Management Accounting Systems and Techniques Report - Unit 5

This report examines management accounting systems and techniques. It begins with an overview of management accounting, its essential requirements, and different methods for reporting. The report then delves into cost calculations, comparing absorption and marginal costing systems, and prepares profitability statements for each. Furthermore, it explores various planning tools utilized in budgetary control, highlighting their advantages and disadvantages. Finally, the report compares organizations based on their adaptation of management accounting systems to address financial problems. The report covers topics such as inventory management, cost accounting, job costing, and price optimization. It also includes an analysis of budget reports, accounts receivable reports, cost managerial accounting reports, and performance reports. The report provides a comprehensive analysis of planning tools used in budgetary control and their advantages and disadvantages, including cash budgets, and flexible budgeting.

MANAGEMENT ACCOUNTING SYSTEMS AND TECHNIQUES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
LO1..................................................................................................................................................3
P1: Explaining management accounting systems along with their essential requirements........3
Management Accounting:...........................................................................................................3
P2: Explaining different methods that can be used for MA reporting........................................5
LO2..................................................................................................................................................7
P3 Calculating cost and preparing profitability statement as per absorption & marginal costing
system..........................................................................................................................................7
LO3..................................................................................................................................................7
P4: Explaining planning tools used in budgetary control with their advantages and
disadvantages..............................................................................................................................7
LO4..................................................................................................................................................9
P5: - Comparing organizations in relation to the adaptation of management accounting
systems for responding financial problems.................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting (MA) helps the business to prepare reports that are essential for
decision-making. There are many types of management accounting like inventory management,
cost accounting, job costing, and price optimization which provides many benefits and
drawbacks to organization. There are many managerial reports which help the organisation to
evaluate its performance. This project introduces various planning tools that are used in
budgeting and the advantages and disadvantages that they pose in Capital Joinery Ltd. It has
reflected the budgets that are prepared by applying expertise like the flexible budget and zero
based budgeting. The project also highlights the various techniques in the management
accounting which are applied to solve the financial problems that arise in an organization.
LO1
P1: Explaining management accounting systems along with their essential requirements
Management Accounting:
Management accounting helps in preparing the business operation reports that help the
manager of Capital Joinery Ltd to make short term and long term decisions. It helps the
management accountant to decide the important factors that help the company to improve the
profitability and growth. There are many management accounting reports that help the business
to measure performance and profitability of organization.
Vital requirement of MAA system
It is developed to support decision-making process of company, internal process of
company,resource application of any company like capital joinery ltd
Accuracy
Accuracy principle states that accounting record fully reflects all of supporting facts. All
transactions should be recorded on time regardless of actual cash flow. This principle helps
capital joinery Ltd to analyse its actual position.
Reliability
This principle says that all available information should be most accurate and relevant.
This helps CJL company to have true information regarding its transaction so actual profit and
actual position of business can be known.
Trustworthy

Trustworthy principle states that all information available should be available as evidence
so it can be presented at the time when capital joinery company can be proved to be trustworthy
to its clients and other important parties.
Up to date
The data available while recording transaction should be updated information so capital
joinery company can have updated information for making new strategies.
Future Planning
Future planning helps company to use these available data to for planning like
what strategies and decision can be modified to achieve target
Different Types of Management Accounting:
Inventory Management system:
Inventory management system of Capital Joinery Ltd is the process of monitoring and
maintenance of stocked products (Tan and Low, 2019). The inventory management system helps
business unit like CJL to be efficient and effective as it manages both the revenue and return. It
also provides assistance to the manager in relation to deciding price of the products offered by
them and also deciding the price of rooms and distribution techniques, and also it helps to
prepare for flexibility for accepting the changing preference and taste.
Benefits Drawbacks
 Lowering cost of inventory  Expensive technique
 High efficiency of management  Breakage and spoilage cant not be
detected
 Each material can be produced in
economic quantity
 Increased insurance charges
 Positive control over desired level of
inventory
 More space required
 Cost saving of the organization  Hides production problem
 Data security  Difficult to control
Cost accounting system:

cost accounting system of the company help the company to estimate the cost of the
products for profitability analysis, inventory management analysis and cost control. Cost
accounting system of Capital Joinery Ltd help the company to evaluate the cost of each activity
and product offered by them (Qiu, 2019). Cost accounting system help firm in comparing the
previous cost, standard cost with the actual cost so the actual position and profitability of the
company can be estimated.
Benefits Drawbacks
 Ascertainment of cost  costly
 Measures and improves efficiency  Lack of uniformity
 Identifies unprofitable activities  Unable to determine tax liability
 Ability to view data in different way  Additional step to verify accuracy
 Ease of monitoring and controlling
labour cost
 Reliance on highly skilled talent.
Job costing:
Job costing helps the manager and accountant to identify the cost of each job and
maintain a data which is more useful for operation of business like CJL(Park, 2020). Job costing
helps the managers to identify that the cost incurred in each jobs is relevant or cost cutting is
required it also help them to crack the cost of material used or scrapped during the job. Job
costing of Capital Joinery Ltd helps the manager of project to identify the cost of each job which
is more important for him for cost controlling.
Benefits Drawbacks
 Detailed understanding of each job  Detailed work is required
 Accurate profitability analysis  The market determines the cost of job
 Correct bidding and costs  Getting buy in form with the team
Price Optimization:

Price optimization is the technique that the company uses to analysis of customer’s
responses towards price variation of products and services offered by them. It helps the company
to identify the suitable price for the product and services offered by them so they can meet their
profit margin. Price optimization helps company like CJL to analyse the market pricing strategies
, sales of the company, profitability of the company (Appelbaum and et.al., 2017). In the context
of Capital Joinery Ltd, price optimization is used to maximize their profit they use price per
segment strategy to optimize the profit level.
Benefits Drawbacks
 Easy to implement  Limits flexibility
 Low risk  Disconnects with demand
 Involves with market  Risk of over satisfaction
P2: Explaining different methods that can be used for MA reporting
Management Accounting reports helps the business like CJL to provide the information that
are needed to trim the cost and also information regarding performance of each employee so the
organization can know that how employees are performing, cut unpopular product lines and
focus on the products that have more sale and have more market share as compared to other
(Sepehri and et.al., 2020)|. These reports can be generated quarterly, monthly, weekly or daily.
Budget Reports to analyse the performance of the company:
The budget report helps the small company’s manager to analyse each department's
performance and also gives the suggestion from budget reports of the previous year to get the
idea to trim irrelevant cost of the departments. Each company creates the budget to estimate the
overall cost, it is always prepared on the basis of previous experience for smooth functioning of
each department. Every company like Capital Joinery Ltd always tries to achieve the goals and
objectives while staying with budgeted amount. A budget report is critical to every business
because it gives the suggestions of better employees for appreciation and for cost control.
Account Receivable Report:
Accounting receivable reports are important for the companies who adopts the credit
policies because this report help the manager of the company to analyse the collection method
that it is accurate or changes are required, it also helps to analyse that in how much time the

company will receives amount from its debtor. In case of more bad debts the companies decide
to stop selling particular products on credit basis so liquidity require for the operation of business
can be obtain. Account receivable report is one of important report of management accounting
for evaluation of debtors so that proper policies can be made.
Cost Managerial Accounting report:
Cost managerial accounting report provide the summary of all cost of raw material,
labour, etc. and divide the total amount by total amount of product produced. As the company
have the clear picture of the manufacturing cost and other overheads, so it can evaluate the profit
margin and estimate other cost also with the help of these report, cost managerial report provides
the clear idea of hour labour cost, inventory waste, overhead cost, etc. so the company can make
better plans for resource optimization.
Performance Report:
Performance reports are prepared to evaluate the performance of the company, in some
companies it also prepares performance reports of each department (Song and et.al., 2019).
Strategic decision is made with the help of these performance reports. These reports are also used
to check the performance of the employees of each department so awards can be given to those
who are contributing their best for the organization's performance.
Job costing Report:
Job costing report is a management tool that is used to evaluate production performance
with standards. Primary function of this report is to find beneficial results and discrepancies.
Capital Joinery Ltd uses this tool to evaluate its performance with standards and also use to find
improvement areas.
Other Managerial accounting reports:
There are many other managerial reports like competitor's analysis, project reports, etc
that are essential for every business for decision making. These are such reports that business can
prepare, or they can outsource also.
LO2
P3 Calculating cost and preparing profitability statement as per absorption & marginal costing
system
Marginal costing and Absorption Costing:

Marginal costing is the technique that assumes only variable cost as production cost and
absorption costing involves both fixed and variable cost as product cost. Variable cost is
considered as product cost and fixed cost is considered as period cost. Both variable and fixed
cost are considered as product (Drury, 2018). Nature of overheads in marginal costing is fixed
and variable and in case of absorption costing overheads are production, distribution, selling and
administration. Profit is calculated by using profit volume ratio and in absorption profit is
calculated by considering fixed cost also so profit is reduced.
Profitability statement as per marginal and absorption costing is enumerated below:
From the assessment of marginal and absorption costing it can be concluded that
profitability accounts for £6500 & £6500 respectively. On the basis of this, it can be analysed
that profit is same but the company should go with absorption costing as in modern era
absorption costing is more relevant. Because it provides more wide and accurate view.

Variance assessment
Particulars Formula Results
Material Price Variance
Standard Price - Actual Price
(£12 - £9.3) * 2400 kg
= 6480 F
Material Usage Variance Std Qty - Actual Qty) x Std
Price)
2000 kg - 2400 kg) *£12

= (4800)
LO3
P4: Explaining planning tools used in budgetary control with their advantages and disadvantages
There are certain planning tools which can be used in controlling the operations through
budgets.
Various financial and non-financial budgets are formed by the management in order to
forecast the position of the company in the future (Drury, 2018). Such planning tools act as
blueprint for the workforce to carry out the tasks allotted to them. Some most popularly used
tools are: -
Cash Budget- A cash budget plays vital role in an organization as this shall forecast the
future cash position of the Capital Joinery Ltd. The estimates regarding inflow and outflow of
cash are made on the basis of projected receipts and expenditure of the company. It shall
highlight the liquidity position of the company as we can know the amount of surplus cash with
the company to meet up its obligations (Cooper, Ezzamel and Qu, 2017). It is generally prepared
after preparation of other budgets as it requires the estimate as to how much cash shall be used
up in which of the activities.
Advantages: -

 It clearly highlights that whether the Capital Joinery Ltd has surplus cash or it is facing
deficit of cash. In case of excess cash, it can plan its investment in a profitable venture
and if there is shortage of cash then the same could be arranged by taking loan or an
overdraft. Another advantage is that it can help the management in optimizing the usage of cash by
controlling the cost in the departments which are not much profitable and on the other
hand investing in the ones which show growth prospects.
Disadvantages: -
 It does not reflect the profitability of the company as the cash inflows also includes the
amount which is received by the sale of a fixed asset or that is received as security
deposit. So we can say that profitability of the company cannot be inferred. By preparing such budgets in advance including use of cash, it limits the spending power
of the company. This is because majority of today's transactions can be done online with
the use of debit card and credit card, or some prior reservations need to made etc.
Variable Budget- It can be called as a flexible budget which forecasts the revenues and
expenditure that is to be incurred in future based on the current level of output, which is taken as
the base. It discloses the worst as well as the best level that the company can attain.
Advantages: -
 The most prominent advantage of preparing a flexible budget is that it is not rigid in
nature and so the changes can also be incorporated in it. It can be formed at various levels
of output and so it provides a certain level of flexibility in the working of the members of
Capital Joinery Ltd. Optimization of resources is another benefit that it provides as we can calculate the sales,
costs and associated profitability at various levels of operations in a business. The
management can go with the option providing the highest benefits to the Capital Joinery
Ltd.
Disadvantages: -
 The computation of these types of budgets is a pretty challenging job as it needs skilled
professionals, which are difficult to hire as well as a costly deal for the company.

 The level of activity in the organization is very much dependent on the factors of
production which are not in control of the management. So certainly such estimates can
prove to be wrong (Hopper and Bui, 2016).
Zero Based Budgeting- This concept is different from other budgets as in this case we do not
have any base figures available but the budgeting is start a fresh. For every item that is covered
in the budget there has to be justification and associated resources. It is purely prepared knowing
the strength of the Capital Joinery Ltd.
Advantages: -
 Its main advantage is that all the expenses, income and the levels of various activities is
justified in accordance with the available resources of the company. It ensures optimum
utilisation of the resources which ultimately leads to the profitability of the company
(Labro, 2019). Another benefit of it could be that it is prepared by experts so the estimates could be
closely accurate and so plans could be formed by taking these into considerations.
Disadvantages
 This is very resource intensive budget as it shall take lot of time, efforts and skilled
experts to form budget from scratch.
 Managers can make manipulations in the budget and bring in extra resources as there are
no base figures of previous years taken into consideration.
LO4
P5: - Comparing organizations in relation to the adaptation of management accounting systems
for responding financial problems
There are various financial problems as faced by Capital Joinery Ltd like poor management of
cash flows and mis- utilization of resources which are leading to bad financial health of the
organization. Apart from that shortfall in the capital, late payments disturbing the working
capital cycle etc. Management accounting systems prove to be efficient in resolving such issues
(Langfield-Smith, Thorne and Hilton, 2018). By the usage of various techniques like
benchmarking, variance analysis and certain key indicators it is easy to find the deviations and
rectify them.

Benchmarking is a technique used by the management as a response to certain financial
problems. In this we compare our organization with the competitors and then out the deviations
that are there. The comparison can be made internally as well between departments or it can be
done externally with the leader of the industry. This can also perform the function of controlling,
as benchmarks are already established and the employees have to perform accordingly to achieve
the set goals (Mack and Goretzki, 2017).
Variance Analysis helps in calculating the deviations in actual behaviour as against the
planned or budgeted one. Such a technique of management accounting system is helpful as it
boosts the performance of Capital Joinery Ltd. The reasons for the occurrence of such deviation
is found out and rectified to get better results in the future.
Key Performance Indicators are certain indicators reflecting the overall performance of
the organization. It quantifies the achievements be it strategically, operationally or financially.
Ratios can be used as indicators to know the efficiency of various elements in the Capital Joinery
Ltd.
CAPITAL JOINERY LTD GRAND COMPANY
Capital Joinery Ltd uses the technique of
variance analysis for resolving its financial
problems. This technique helps it develop its
operational efficiency by finding deviations
and rectifying it. The difference between actual
and budgeted data of Capital Joinery Ltd is
found out to know the shortcomings in the
organisation.
Alternatively, the Grand Company uses the
technique of benchmarking so as to compare its
performance against its competitors. This
technique proves to be very essential as it helps
in fighting with competition and building core
competencies to gain competitive advantage.
Positively responding to the financial problems in Capital Joinery Ltd shall lead to the
sustainable success of the company by the usage of various techniques like benchmarking,
variance analysis etc. By comparing the entity with its competitors it shall boost the current
performance and motivate to achieve much more. Also by rectifying the deviations the company
can minimise their cost and maximise the output. All these somewhere or the other shall help in
achievement of objectives and lead to growth (Thomas, 2016).

CONCLUSION
This report shall discuss regarding management accounting as a tool used for the purpose of
decision making with the help of financial information as provided to managers. It shall also
highlight the various types of management accounting systems that provides deeper insights into
the various operations carried on in a business entity. The advantages and disadvantages of such
systems is also reflected in the study. The study also shows the various reports that are formed
under management accounting. Another part of the project discloses the various planning tools
that are used in budgetary control in an organisation, and its application and merits demerits with
respect to the Capital Joinery Ltd. It also helps in getting an overview regarding how the
financial problems in an organisation is solved with the help of techniques like benchmarking,
variance analysis etc. The descriptive analysis of these techniques proves that it plays crucial role
in increasing the operational efficiency and motivates the workforce to work better. It can also be
useful for the company in developing core competencies to fight its competitors.

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Online
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