Management Accounting: Systems and Reporting Analysis

This report comprehensively examines management accounting, covering various systems and their applications. It begins by defining management accounting and its significance in internal reporting, exploring different types of systems such as inventory management, cost accounting, and job costing. The report then details various management accounting reporting methods, including budget reports and cost reports, and highlights the benefits of these systems. A significant portion of the report is dedicated to a comparative analysis of marginal costing and absorption costing, including the preparation of income statements under both methods. Furthermore, the report delves into budgetary control, outlining the advantages and disadvantages of planning tools like flexible and fixed budgets, and cash budgets. Finally, it addresses how different management accounting systems can be used to resolve financial problems, providing a holistic view of the subject.

MANAGEMENT
ACCOUNTING

Table of Contents
TASK 1.......................................................................................................................................................3
Management accounting and the essential requirement of different types of management accounting
systems....................................................................................................................................................3
Different method used for management accounting reporting.................................................................4
Benefits of management accounting systems..........................................................................................5
Integration of management accounting system and management accounting reporting...........................5
TASK 2.......................................................................................................................................................6
Income statement as per marginal costing and absorption costing...........................................................6
TASK 3.......................................................................................................................................................9
Explaining the advantages and disadvantages of different planning tools of budgetary.........................9
control.....................................................................................................................................................9
Analyzing the usefulness and application of different planning tools...................................................11
TASK 4.....................................................................................................................................................12
Different types of management accounting systems available for resolving the financial....................12
problems...............................................................................................................................................12
CONCLUSION.........................................................................................................................................14
REFERENCES..........................................................................................................................................15

INTROUCTION
Management accounting is the process of analyzing the cost of business and assist in
preparing internal financial report. This assignment will provide understanding about the
different types of management accounting systems. Moreover, it consists of different methods
used for management accounting reporting. It also evaluates the benefits of management
accounting systems. It also includes the different types of planning tools used for budgetary
control. Also, it will assist in providing information regarding the management accounting
systems which helps in responding to the financial problems.
TASK 1
Management accounting and the essential requirement of different types of management
accounting systems
Management accounting assists in preparing the internal report on the basis of which the
organization is able to make the decision for improving the future performance and profitability.
It assist in allocating the cost and identifying the ways in order to reduce the cost for increasing
the profitability of organization (Kaplan and Atkinson, 2015). The management accounting is
the way the organizations able to manage the internal accounting of the firm and helps in
reducing the cost in order to achieve the goals and objectives of organization. With the help of
identifying the cost of the process the management accountant is able to provide the organization
the reports on the basis of which the firm can take decision which will be profitable for the
business in future. There are different types of management accounting systems which are as
follows :
 Inventory management system: It is the management accounting system
through which the organization is able to manage the level of inventory which
will helps in reducing the wastage and also the cost of the organization will be
reduced. It helps in identifying the level of inventory which is required in the
organization and can assist in providing the firm with the benefits and cost of
maintenance of the inventory is also minimized.

 Cost accounting system: It is the system used in the organization in order to
estimate the cost of their product in order to determine the level of profitability an
control the cost for the future which will help in increasing the profit margin
(Quattrone, 2016). It helps in controlling the cost by allocating the cost in the
effective and efficient manner.
 Job costing system: It is the process of allocating the cost to the specific job in
order to identify the profit associated with that job. It will assist in identifying the
cost of every job and the information regarding them.
Different method used for management accounting reporting
Management accounting reporting assist in identifying the performance and profitability
of the firm on the basis of which he organization is able to make decision for the future. With the
help of this report the firm is able to make forecast for the future and can determine the strategies
which are required to be formulated in the organization in order to improve the profitability and
performance in future. The following are the different reports which are being prepared by the
management accountant.
 Budget reports : This are the reports which are being prepared by the management
accountants in order to make forecast for the future on the basis of which they are able to
determine the future performance and profitability of the firm and can also take the
decision for improving the performance and profitability. It consist of case budget report,
operating budget report, sales budget reports etc.
 Account receivable aging report: It is the reports which is prepared by management
accountant in order to know the customers that have taken credit for the amount payable.
It also assist company in taking the decision regarding limiting the credit limit in order to
reduce the bad debts which affect the credibility of the firm and also the firm profitability
is affected to a great extent (Otley, 2016). It helps in tracking the customers and the
balance which not payable by them. This report assist the firm in making the effective
decision for improving the credibility of the firm and receiving the payment by customers
on time in order to reduce the bad debts.
 Cost report : The cost report assist in allocation of the cost to the different products
manufactured by the organization. With the help of cost report the firm is able to identify

the cost of different product on the basis of which they are able to minimize the expenses
and identifying the selling price of the product. The cost report helps in making the
effective decision for improving the performance and profitability of the organization.
Benefits of management accounting systems
Management accounting system assist in improving the internal system of the firm. The
firm through the use of management accounting system helps in making the effective decision
for the firm growth and success. The following are the benefits of the different management
account ting systems :
Benefits of inventory management system
 It helps in managing the flow of inventory in the organization. With the help of inventory
management system the organization is able to make the inventory
 It assist in reducing the cost of maintaining inventory for the disposal an also assist in
increasing sales and profit.
 It is also beneficial because it helps in achieving the efficiency and productivity in
operations.
Benefits of cost accounting system
 It helps in estimating and allocation of cost for the products and services offered by the
firm.
 With the help of cost accounting system the organization is able to reduce the cost of the
firm which will help in increasing the profitability and performance of the firm.
 It helps in improving the efficiency and measurement in the organization (Renz, 2016).
Integration of management accounting system and management accounting reporting
Management accounting systems and management accounting reporting are integrated
because f the firm follows the management accounting system than the firm is able to prepare the
reports which can be helpful in making the effective decision for improving the performance
and profitability of the firm (Maas, Schaltegger and Crutzen, 2016). Management accounting
system helps in preparing the management accounting reports which assist the firm in order to
prepare the reports n the basis of which the organization will make the effective decision for the

future. The cost accounting system assist in preparing the cost accounting reports on the basis of
which the organization will be able to make the decision regarding minimizing the cost in order
to increase the profitability. Moreover, the job costing system helps in preparing the job costing
report which assist in identifying the profitability of business regarding the specific job.
TASK 2
Income statement as per marginal costing and absorption costing
Cost per units
Sales prices 60 Production units 18000
Direct material 12 Sales units 16000
Direct labour 20 Closing stock 2000
Variables production o/h 8
Fixed production o/h 120000
Marginal costing
Direct material 12
Direct labour 20
Variables production o/h 8
Cost per unit 40
Absorption costing
Direct material 12
Direct labour 20
Variables production o/h 8
Fixed production o/h 6.67
Cost per unit 46.67

Calculation of total cost of production
Marginal costing
Sales revenue 960000
less: opening stock 0
production cost 640000
less: fixed production o/h 120000
marginal cost of production 200000
Absorption costing
Sales revenue 960000
less: opening stock 0
production cost 840060
Absorption cost of production 119940
Budgeted Marginal Income statement
Sales 16000*60 960000
add: closing stock 2000*40 80000
less: variable cost 40*16000 640000
Contribution 400000
Less fixed cost 120000 120000
Gross profits 280000
Budgeted Absorption Income statement
Sales 16000*60 960000
add: closing stock 2000*46.67 93340
Gross profits
less: cost of production 18000*46.67 840060

net operating profits 213280
Actual Marginal Income statement
Sales 16000*60 960000
add: closing stock 2000*40 80000
less: variable cost 40*16000 640000
Contribution 400000
Less fixed cost 120000 120000
Gross profits 280000
Actual Absorption Income statement
Sales 16000*60 960000
add: closing stock 3000*46.67 140010
Gross profits
less: cost of production 19000*46.67 886730
net operating profits 213280
From the above calculation it has provide information regarding the budgeted income
statement as per marginal costing and absorption costing and also it has prepared the income
statement as per the marginal and absorption costing. The actual net profit as per absorption
costing is 213280 and as per budgeted income statement is 21280 which show that the firm is
able to achieve their budgeted target (Hopper and Bui, 2016). The absorption costing and
marginal costing assist in determining the profitability of the business on the basis of the
budgeted figures and comparing with that of the actual figures in order to identify the variances
to achieve the difference in the shorter period. There are other costing system which can be used
by the organization that I clued job costing system which helps in identifying the profitability of
the business related to the specific job.

TASK 3
Explaining the advantages and disadvantages of different planning tools of budgetary control.
Flexible Budget –Is defined as budget which makes adjustment with the change in the level of
business activity or sales volume. This budget helps KEF Ltd. In measuring actual revenues with
the estimated one and are recorded while making of budget after completion of an accounting
period. The actual expenses are compared with the actual revenues for keeping control over the
cost.Because of its changing nature& adaptive featurein relation with adverse situations it
benefits business in case of variations taking place in the business.
Advantages Disadvantages Any change in the level of business
activity is evaluated so that accuracy in
the results increases. This budget helps
taking corrective action against
variance evaluated. It is an effective tool for measuring
performance level of the company as
well as of the employees as a whole at
regular time period.
 All the expenses and revenue amount
are continuously adjusted in this budget
for operating with current conditions.
 This method of budgeting is considered
as one of the most difficult and
complex process as it includes the
changes (Ibrahim and Adamu, 2017).
 It is a time consuming process and
requires a lot of time for preparing this
budget as it considers all the changes
while formulatingthe final budget.
 It does not facilitate comparison
between the actual and the budgeted
revenues, as both contains the same
number.
Fixed Budget- It doesn’t changes with the increase or decrease in the volume of businessactivity
and does not change irrespective of the change in other resources of business such as sales, units
produced etc.Fixed budget is also known as static budget.
Advantages Disadvantages This budget is considered as one of the
simple methodas it doesn’t get
 One of the disadvantages of this budget
is that there is no flexibility in budget

influenced by any changes in relation
with the sales volume & turnover.
 Estimation of the tax amount by KEF
Ltd. can be done easily Flexible budgets are known as master
budget as it helps KEF Ltd. in
analyzing data and forecasting.
as it remains unchanged and any
change in the expenses and the revenue
are not evaluated which results in
unrealistic budget.
 Sometime forecasting is not supported
as it becomes difficult due to lack of
presence of actual changes with the
changing business and market
environment.
Cash Budget –Cash budget allows KEF Ltd. In making estimates about cash requirements of the
business for carrying on future business operations. This budget also helps in forecasting about
the cash inflow as well as outflow from future business operations related to a specific period of
time.
Advantages Disadvantages Cash budget sometimes restricts the
amount of spending of business which
in turn reduces debt factor of KEF Ltd.
It helps in evaluating cash related
expenditure and incomes during the
specific period. It acts as a basis for making comparison
of the actual with the estimation made.
It also ensures that cash amount is
spend as per the budget or plan made
by the company. This budget helps in assessing the
current liquid as well as financial
position of the company.
 The main disadvantage of this budget is
that it relies on estimates made.
Allocation made in previous
yearrelated to the cash inflows and
outflows are used for making cash
allocationto all the items in the coming
year budget (Bogsnes, 2016).
 It affects the decision making of the
business as all the decisions are
required to be takes while keeping in
mind the cash present in the business.

Analyzing the usefulness and application of different planning tools.
Planning tools Uses Application
Flexible Budget This budget is used for making
estimates related to amount of
income and expense associated
with business operation and
profit planning. It also helps in
controlling cost and provides a
balanced approach for making
comparison. It is also used for
deciding its product and
service price and for setting
the future business quotations
(Mirgorodskayaand et.al.,
2017).
This type of budget is best
suited in organizations where
the business activity level
varies or changes at a regular
interval. For making future
estimates this planning tool is
very useful as it helps in
forecasting demand of the new
product and service.
Fixed Budget This budgetary planning tool
helps KEF Ltd. in measuring
performance level of both the
company and its employees for
making of final budget. It
provides better plan by
allocating a fixed amount in
relation with the business
operations like overhead cost.
This budget can be applied in
those business organizations in
which business activities are of
stable nature and operates in a
consistent environment at the
workplace. The main
application of this budget is by
Small business firms as there
level of business activities do
not fluctuatefrom period to
period.
Cash Budget It is considered as one of the
most useful planning tool for
every business organization as
This budget is prepared and
applied to overcome the
position of the firm where it

it provides detailed plan
related to cash allocation. It
can also be used to itemize the
budgeted sources and cash
uses in a future time period. It
helps in ascertaining the
liquidity and the cash position
of the company as well.
holds excess of nonproductive
cash balances. With the help of
this budget, KEF Ltd. can
make proper use of available
cash amount for making more
profits and to improve
business performance.
TASK 4
Different types of management accounting systems available for resolving the financial
problems.
For overcoming financial problems of the business, KEF Ltd. Can use various performance
indicators along with various management accounting tools which are as follows-
Benchmarking - It is the method in which actual performance is compared with the standard
performance as set as the benchmark by the company. It helps KEF Ltd. At the time offraming of
budget and financial performance goals (Li and et.al., 2019). Companies often compare their
own performance with other companies in the same industry to see and evaluate their
performance and focus on goals for improving their overall business performance.With the help
of benchmarking KEF Ltd. Can evaluate how their business department are performing on
individual basis and thus company as a whole. It helps company in setting performance targets,
improvement in business operations etc.
Balanced scorecard - Balanced scorecard is another tool which is used by the company to
achieve goals by making comparison of performance of the four main attributes present in the
business viz. growth, process of business, customers and finance. With the help of balanced
scorecard, KEF Ltd. can easily assess the factor which is hampering business performance of the
company and can makes changes accordingly. It also assists in framing of different business
plans and strategies for attaining business objectives successfully. The learning and growth

factor helps in determining method related to how information can be converted well so as to get
competitive advantage. The business process evaluateshow the production function of KEF Ltd.
Is working by tracking gaps, delays etc. The customer perspective helps in determining
customers satisfaction levelon the basis of price, quality etc. The financial data helps in
understanding the financial performances related to sales, income, expenditures etc.
Key performance indicator - With the help of Key Performance Indicator, KEF Ltd.Can monitor
its growth and progress in relation with achievement of business goals and financial results.
Itemphasizes on important business ratio such as gross margin, current ratio etc. Business
analytics collects the information of the company and this tool calculates it and present up to date
results to the management of the company (Parmenter, 2015). These KPIs tool are monitored by
the KEF Ltd. management allowing company to take necessary action in case when performance
indicators are not in line with expectation of company. Company can make use of these indicator
at multiple levels related to their daily business operations so as to evaluate success.
Financial governance - It is a tool which helps KEF Ltd. in collecting, managing, monitoring,
evaluating and controlling the financial information. It helps in controlling internal data, ensures
proper work flow, tracks data & ensures its security by determining risk associated, comply with
financial policies as well. It is important tool to solve financial problems which allow company
to prepare sound budgets, plans and models that forecast the future correctly and help business in
being dynamic in nature. It works on the basis of track record of different companies in
controlling its data and managing its performance through various departments. It assists
company in handling its business operationsfor meeting customer needs. In case if the financial
governance of KEF Ltd. is poor and inefficient it can leads to fraud, errors, penalties and poor
decision making thereby decreasing the performance level and shareholders base.
KEF Ltd. Is using key performance indicator for solvingfinancial problem of inventory
management. With the help of this tool, inventory valuation and cost can be controlled by the
company. It also helps in evaluating the current inventory level present with the company and
helps in determining reorder time so as to minimize business loss which can arises due to stock
out situation.

CONCLUSION
From the above report it can be concluded that management accounting helps in
preparing internal managerial report for decision making of the management. The report has
discussed with the help of management accounting system KEF Ltd. Can make use of available
statistical and financial information for increasing its profit margin and improving business
performance as well. Also, report has disclosed about benefit of making budget viz. controlling
cost expenses, inventory valuation etc. The report has also provided cost analysis report of KEF
Ltd along with its interpretations. Benchmarking is best for solving the financial crises of KEF
Ltd.

REFERENCES
Books and journals
Bogsnes, B., 2016. Implementing beyond budgeting: Unlocking the performance potential. John
Wiley & Sons.
Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management
Accounting Research. 31. pp.10-30. Kaplan, R. S. and Atkinson, A. A., 2015. Advanced
management accounting. PHI Learning.
Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management
Accounting Research. 31. pp.10-30.
Ibrahim, S.Y. and Adamu, U., 2017. BUDGET AND BUDGETARY PROCESS IN
NIGERIA. GLOBAL JOURNAL OF APPLIED, MANAGEMENT AND SOCIAL
SCIENCES, 14.
Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.
Li, H., and et.al., 2019. Targeting Building Energy Efficiency Opportunities: An Open-source
Analytical & Benchmarking Tool. ASHRAE Transactions. 125. pp.470-478
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136. pp.237-
248.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136. pp.237-
248.
May, G., and et.al., 2015. Energy management in production: A novel method to develop key
performance indicators for improving energy efficiency. Applied energy. 149. pp.46-61.
Mirgorodskaya, E.O. and et.al., 2017. Balanced budget system: organizational and financial
tools. European Research Studies. 20(3B). p.300.

Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
Parmenter, D., 2015. Key performance indicators: developing, implementing, and using winning
KPIs. John Wiley & Sons.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Online
Budgeting tools. 2019. [Online]. Avail/able through:
<http://www.yourarticlelibrary.com/financial-management/financial-control/tools-and-
techniques-for-controlling-financial-activities/44194>.
Financial Problem solution. 2019. [Online]. Available through:
<https://www.click.in/jalandhar/financial-problems-solution-919872481515-c125-
v29285476#vp10>.