Management Accounting Report: Systems, Techniques, and Planning Tools

This report delves into the realm of management accounting, focusing on its application within Creams Ltd. It begins with an introduction to management accounting, emphasizing its role in providing financial data for decision-making, cost reduction, and profit maximization. The report then explores essential components of management accounting systems, including cost accounting, inventory management, job costing, price optimization, and financial accounting. It highlights the differences between financial and management accounting. The report further analyzes various management accounting reporting methods, such as budget reports, accounts receivables aging reports, cost managerial accounting reports, and performance reports. Task 2 provides an income statement using marginal costing. Finally, the report evaluates management accounting systems and reporting, emphasizing their importance in strategic decision-making and achieving organizational goals. The assignment covers cost calculations, planning tools, and the use of management accounting to address financial challenges, ultimately aiming to provide a comprehensive understanding of the subject.

Management Accounting

Contents
INTRODUCTION...........................................................................................................................................4
TASK 1..........................................................................................................................................................4
D1: Critical evaluation of management accounting systems and reporting............................................9
TASK 2..........................................................................................................................................................9
P3: Calculation of costs by using appropriate techniques.......................................................................9
M2: Application of management accounting techniques......................................................................16
TASK 3........................................................................................................................................................16
Planning tools in management accounting............................................................................................16
Application of different planning tools for prepare budget and forecast..............................................18
TASK 4........................................................................................................................................................19
Use of management accounting system for responding few of financial problems..............................19
Analysing the way in which management accounting lead companies to respond financial problems.22
Application of planning tools to respond financial issue along with attainment of sustainable success
...............................................................................................................................................................22
CONCLUSION.............................................................................................................................................22
REFERENCES..............................................................................................................................................23

INTRODUCTION
Management accounting refers to a provision of financial data and advice which a company
can use for policymaking and taking of decisions. Management has to use it so that the right
decisions can be taken which can benefit the organization in the long-run (Akkermans and Van
Oorschot, 2018). It helps the enterprises in realizing their long-term aims which includes
reducing costs and maximizing the level of profits. Problems and issues can be eradicated using
it and processes can be streamlined. It aids the management in controlling the various functions
in an organization and helps in taking the right decisions for the benefit of the organization. This
report is based on Creams Ltd. which provides a range of products such as ice-creams,
doughnuts, waffles etc. In this assignment, focus will be made on understanding of systems of
management accounting, applying a range of techniques. Additionally, the use of planning tools
and the ways in which firms can use management accounting to solve their financial problems
will be discussed as a part of this report.
TASK 1
P1 and M1: Explanation of management accounting and essential requirements of its systems
Management accounting is a part of accounting which helps the managers in taking
decisions on the basis of its various concepts and approaches. The essential requirements of its
various systems is explained in the context of Creams Ltd. as follows-
Cost accounting system-
Cost accounting refers to procedures which are used in order to find out the costs of the
company. It also states methods for reduction of cost. Creams Ltd. can use it to find out its costs
and to reduce them.
Advantages-
 Cost accounting helps in elimination of wastage by identifying their source and also
provides methods for reducing it.
 It reduces the inefficiencies which generally occur in the production process so that
efficiency can be brought into production (Barros and da Costa, 2019).

Disadvantages-
 Cost accounting system is quite complex and can involve complicated calculations and
thus is not easy to use.
 Cost accounting system is quite expensive especially for small-scale organizations.
Essential requirements-
 A good cost accounting system should be simple as well as practical to use. It should be
able to benefit the organization in the long-run. It should benefit a company by reducing
its cost effectively and efficiently so that it would be able to maximize its level of profits
in the future time period. Thus the managers of Creams Ltd. must ensure that their cost
accounting system is simple as well as easy to use.
 It must display accuracy so that it can benefit the company. It should be accurate enough
to find out the costs of the business. An accurate cost accounting system can benefit the
organization a lot because accuracy will lead to correct determination of profits in the
future. Therefore the managers of Creams Ltd. need to ensure the accuracy of cost
accounting system.
Inventory management system-
Inventory management systems refer to a system in which guidelines and procedures are
set in order to keep a proper track of the inventory level. Creams Ltd. can use it so that its stock
can be tracked properly (Bedford and Speklé, 2018).
Advantages-
 This system results in saving of time which in turn benefits a lot to the organization.
 This system results in saving of cost for the enterprise.
Disadvantages-
 Setting up of this system is quite expensive.
 This system involves various complexities.
Essential requirements-
 A good inventory management system should enable tracking of inventory. It must be
able to track and locate stock items whenever required. Inventory management system

should be such so that it is able to track the inventory items which are misplaced or lost
and therefore the managers of Creams Ltd. should ensure that.
 A good inventory management system should allow for reporting and analysis of
information. It must be able to find out the problems with the system of enterprise if any
to remove them as soon as possible for maximizing the profits. Managers of Creams Ltd.
have to ensure that reporting and analysis of information is done in the inventory
management system.
Job costing system-
Job costing system involves procurement of information regarding execution of a particular
task or job. Creams Ltd. can use it so that it can easily track its different orders and can fulfill
them on time (Berry, Broadbent and Otley, 2019).
Advantages-
 The cost of performing a specific job can be easily ascertained by using this system.
 There is no under recovery of overheads in this system.
Disadvantages-
 There is no standardization of work in this system.
 It is a very expensive method.
Essential requirements-
 A good job costing system should ensure accounting of direct materials. This is important
for Creams Ltd. because it deals in manufacturing process and therefore this system can
help a lot in accounting work related with direct materials.
 A good job costing system should account for the overheads being incurred in an
enterprise. It is necessary for the managers of Creams Ltd. because overheads have to be
reduced in order to raise the level of profits.
Price optimization system-
Price optimization system uses mathematical models to identify the variation of price at
different levels of demand of a product. Creams Ltd. can make use of it so that it can set a
right price for its products.
Advantages-

 Firm can earn high profits by choosing an appropriate price.
 It helps in setting the right price for the product.
Disadvantages-
 If the right price is not set it can impact the customer base of the company.
 It can result in losses if right price is not set by the company.
Essential requirements-
 It requires analytics and management of performance. Managers of Creams Ltd. need to
ensure that performance is analyzed effectively by them so that right price can be set in
the organization.
 It also requires price segmentation (Boddy, McCalman and Buchanan, 2018). This
ensures that the firm is able to raise its level of profits in the long-run. Therefore the
management of Creams Ltd. can use the technique of price segmentation effectively.
Financial accounting- Financial accounting refers to a specialized branch of accounting
which is used to track the accounts and financial information of a company. The
managers of Creams Ltd. make use of it in order to analyze the accounts and financial
information of their company.
Management accounting- Management accounting refers to the provision of financial
data and advice for a company for using in organization and development of the business.
The management of Creams Ltd. can make use of it to analyze and interpret the financial
information of their company.
Difference between Financial accounting and Management accounting-
Basis Financial accounting Management accounting
Aggregation Financial accounting is
used to report the results of
the entire business.
Management accounting is
used to report at a more
detailed and specific level.
Efficiency It reports the profitability of
a business.
Management accounting
focuses on problems and
their solutions.
Proven information In it, records are kept with
precision.
It deals with estimates
rather than proven facts.
P2: Various methods used for management accounting reporting
Management accounting reporting emphasizes on information received through financial
accounting. The information is used for analysis and thereby for planning, regulating,

decision-making and measurement of performance of the organization. The methods of
management accounting reporting which Creams Ltd. can use are as follows-
Budget reports- Budget reports are used for measurement of performance of different
departments and the whole company. These reports can be used by managers of Creams Ltd. to
effectively and efficiently ensure that the expenses being incurred are in check and are not more
than the budgeted ones. It also helps a lot in comparison purposes. It includes summary of all
types of budgets such as cash budget, operating budget, master budget etc. Overall, they also tell
whether the company’s budget is in deficit. Also guidance is provided to managers to facilitate
better decision-making in the future. It facilitates improvement of performance in different
departments of the company (Booth, 2018).
Accounts receivables aging reports- Accounts receivables aging reports are used in
order to find out those debtors who have not paid their dues since a long time. Creams Ltd.’s
management can use them to identify these defaulters so that collection can be done from
them to prevent bad debts. It is quite helpful for the managers to avoid bad debts and collect
the dues from debtors on time. Thus, it actually prevents mismanagement in an organization.
Also if there are many defaulters identified in this report then it signals that it is time for the
company to tighten its credit policy.
Cost managerial accounting reports- It accounts for all raw material, overhead, labor
any other costs. It provides summary of all the costs being incurred in the organization.
Creams Ltd.’s managers can make use of it to identify the departments where the cost is
increasing so that measures can be taken to prevent it so that profits can be maximized in the
future. Also it brings out efficiency and effectiveness in the organization by facilitating
improvement of performance in every area of the enterprise. Managers can use these reports
for comparison purpose with the standard costs being set up by the industry or with the costs
incurred by the company in the previous years. Thus these reports are extremely helpful in
the context of an organization.
Performance reports- Performance reports are used for reviewing the overall
performance of the company. Also it measures the working of every employee at the end of the
term. Creams Ltd’s managers can use these reports to measure performance as well to take

strategic decisions for the benefit of the company. They offer deep insights into the working
pattern of the organization which can be quite helpful for analysis purposes. Also performance
can be easily compared using these reports with the competitors to find out where the firm is
lacking and the areas it can improve. Their role is vital for a company to keep an accurate
measure of their strategy towards their mission (Dewi, and et. al., 2018).
D1: Critical evaluation of management accounting systems and reporting
Management accounting systems and reporting are helpful for an organization to frame
its policy. Creams Ltd.’s management can use them effectively and efficiently to optimize the
performance of the entire company. This will result in strategic decision-making which can put
the company ahead of its competitors and can facilitate maximization of profits and help in
achievement of short-term, medium-term and long-term goals and objectives which are set up in
the organization.
TASK 2
P3: Calculation of costs by using appropriate techniques
Income statement using marginal costing for January
Sales (10000*25) 250000
Less: Cost of goods sold 130000
Opening Stock 0
Add: Direct material 50000
Add: Direct labour 30000
Add: Variable manufacturing
overhead 20000
Less: Closing stock 0
Add: variable selling overhead 30000
Contribution 120000
Less: Fixed costs 70000
Fixed manufacturing overhead 40000
Fixed selling and distribution
overhead 30000
Profit 50000

Income statement using marginal costing for February
Sales (5000*25) 125000
Less: Cost of goods sold 80000
Opening Stock 0
Add: Direct material 50000
Add: Direct labour 30000
Add: Variable manufacturing
overhead 20000
Less: Closing stock (5000*10) 50000
Add: variable selling overhead 30000
Contribution 45000
Less: Fixed costs 70000
Fixed manufacturing overhead 40000
Fixed selling and distribution
overhead 30000
Loss -25000
Working Notes (1) Marginal cost unit
Direct material + direct labor + variable manufacturing overhead/units
50000 + 30000 + 20000 = 100000 / 10000 = 10 per units
Working Notes (2) COGS (January)
Opening Inventory + Production – Closing Inventory
0 + 10000 – 10000 = 0
Income statement using Absorption costing for January
Sales (10000*25) 250000
Less: Cost of goods sold 140000
Opening Stock 0
Add: Direct material 50000
Add: Direct labor 30000
Add: Variable manufacturing overhead 20000
Less: Closing stock 0
Add: Fixed manufacturing overhead 40000
Gross Profit 110000

Less: Non manufacturing cost 60000
Add: Variable selling overhead 30000
Add: Fixed selling and administrative
overhead 30000
Profit 50000
Income statement using Absorption costing for February
Sales (10000*25) 125000
Less: Cost of goods sold 70000
Opening Stock 0
Add: Direct material 50000
Add: Direct labour 30000
Add: Variable manufacturing overhead 20000
Less: Closing stock (5000*14) 70000
Add: Fixed manufacturing overhead 40000
Gross Profit 55000
Less: Non manufacturing cost 60000
Add: Variable selling overhead 30000
Add: Fixed selling and administrative
overhead 30000
Loss -5000