Comprehensive Analysis of Management Accounting Systems and Reporting

This report provides a detailed analysis of management accounting systems and reporting methods, focusing on their application within Equilibrium Asset Management. It begins with an introduction to management accounting, differentiating it from financial accounting, and explores various types of management accounting systems, including cost accounting, job costing, inventory management, and price optimization. The report then delves into different management accounting reporting methods, such as budget reports, account receivable aging reports, performance reports, and financial reports, highlighting their significance in strategic planning and decision-making. Furthermore, it evaluates the benefits of different management accounting systems, emphasizing their role in cost control, price optimization, and inventory management. Finally, the report assesses the integration of management accounting systems and reporting within organizations for strategic planning. The report also includes the use of different planning tools for budgetary control.

Management Accounting

Table of Contents
INRODUCTION..............................................................................................................................1
LO1..................................................................................................................................................1
Management accounting and its different types of system....................................................1
Difference between management accounting and financial accounting................................3
2 Explain different method of management accounting reporting........................................3
Evaluation of benefits of various management accounting systems......................................4
Evaluation of Management Accounting System and Reporting............................................5
LO 2.................................................................................................................................................6
Calculation of income statement using marginal and absorption costs:.................................6
Application of a range of management accounting techniques..............................................9
LO3................................................................................................................................................11
Advantages and disadvantages of different types of planning tools used for budgetary control
..............................................................................................................................................11
Use of different accounting tools and their application for preparing and forecasting budgets.
..............................................................................................................................................13
LO 4...............................................................................................................................................13
How organisation adapting management accounting respond to financial problems..........13
How management accounting can deal with financial problems and attains sustainable
success..................................................................................................................................15
Planning tools to solve financial problems:..........................................................................15
REFRENCES.................................................................................................................................17
Books and journals...............................................................................................................17

INRODUCTION
Management accounting refers to the process of recording, estimating, analysing and
summarizing the data associated with operations of organisation. It is field of accounting that
studies every features related to company's operation (Erserim, 2012). The main purpose of
preparing such accounts is to ensure the smooth running of business. Techniques and tools such
as cost analysis, budgetary control helps in assessing the expenditure incurred and how the
expenses can be controlled. There are different types of management system we will discuss
them in detail in the following report. Equilibrium asset management is medium-sized financial
consulting firm that lends variety of services to it's clients. This company incorporates different
forms of systems in order to maintain information concerning enterprise to efficiently achieve
goals of the organisation. This method helps in systematically organising functions performed by
several department. Equilibrium asset management provides advices with respect to investment
and wealth management. The following report contains detailed description of management
accounting systems, analysis and advantages and disadvantages of planning tools. Let's examine
them step by step.
LO1
Management accounting and its different types of system.
Management accounting is the systematic process of recording the transaction which
occur daily in the business. The financial transactions which occur daily are recorded in the
books. The process of analysing, summarizing of the these transactions for the top level of
management is known as accounting. Financial statements such as balance sheet, cash flows are
also included in the accounting process and these transactions are recorded by the employees
working in the finance division of the company.
The process in which the business analyse its cost for the preparation of the financial
statements to see the actual position of the company is called the management accounting also
known as the managerial accounting or cost accounting. This helps the management to find out
the problems related to the financial accounting in analysing the financial reports and preparing
it. The main objective of the management accounting is cost optimization and reduce the cost to
help company to survive in the market and stand against its competitors. Management
accounting helps the organisation in decision-making process and planning for the future in order
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to make new strategic plans and properly implement those plans (Grabner and Moers, 2013).
There are four types of different management accounting systems as described below:
Cost Accounting System: Cost accounting system is a system in which the main
objective of an accountant is to capture and focus on the company's costs for the production. The
aim of the cost accounting system is to properly and effectively allocate the cost related to
production. It focuses mainly on the cost used for production purposes only it analyse the cost
related to production and find out the new methods to reduce the cost of production and achieve
the maximum profit. As Equilibrium Assets Management is providing the financial consultancy
to other small and medium size businesses the cost which is incurred is high and to be properly
managed.
Job Costing System: This type of management accounting system is used by the
organisation to optimize and allocate the cost to the particular job. This type of management
system is used to keep the track of the work done by an individual as well as team performance.
This types of system helps the top level managers to identify the individual cost of production for
a specific service or product. This organisation is into financial consultancy services which
provides different services to different clients, this job costing system helps it to keep the record
of the individual project.
Inventory Management System: This system involves in management of the inventory
of a company. Inventory is all the stock in the organisation including the finished stock and work
in progress stock. A management system is used to mange the inventories of the organisation
which helps the organisation to check that at what time they have to finish their inventory so that
their work does not stops. Inventory management system also includes the raw material and
keeps track of it so that the raw material can be reordered as early as possible so the production
process does not stops.
Price Optimization: Price optimization is the method which helps the organisation to
determine the price of it products and how they can effectively optimize their price. It is a tools
frequently used by the organisation to analyse the buying pattern of the consumers and determine
the price according to it. As Equilibrium asset management is into the financial consultancy
services they have to optimize the price related to their service what service is to be given or
what price is to be charged to the particular service provided (Mancini, Vaassen and Dameri,
2013).
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Difference between management accounting and financial accounting
Management accounting Financial accounting
The executives Management is utilized for
inside management.
While it is utilized for interior and outer
purposes.
This Management framework is not mandatory
to maintain.
Financial accounting is should have been
finished with in a particular time span. It is
necessary.
It isn't compulsory to finish in bookkeeping
period
It ought to be finished by the accounting time
frame.
This does not pursue any bookkeeping
guidelines and regulation.
Financial accounting is finished by the
bookkeeping principles and guideline.
2 Explain different method of management accounting reporting.
Management accounting reporting is done to make sure that the management has the
clear picture of the financial health and financial position of the company. These reports also
helps the top level management to design new strategies, planing and decision making process.
These reports are used by the management to take the necessary and critical decisions, these
reports are prepared very carefully by the accountants so that it does not have any errors as the
managers only relay on these reports while taking important decision for the company. Some of
the different methods of management accounting system are as follows:
Budget Report: Budget report are the reports which are prepared to analyse the budget
for the company and also it helps in the analysis of the actual performance of the company in
contrast to its budget estimation. These reports are prepared internally for the self evaluation of
the company this report shows the comparison between the actual and the budgeted performance
of the company during the year. These budgets are made on the basis of estimation and future
predictions and are based on financial goals. These budgets helps the managers to make new
changes in the incentive plans for the employees.
Account Receivable Ageing Reports: Account Receivable Ageing Report helps the
organisation to keep track of the debtors. If the organisation relay too much on credit sales than
this report helps the organisation to keep check on the defaulters and helps them to manage
accordingly such that it does not affect the profit of the organisation and find the issues relate to
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the debtors payment. This report is generally made to see that how much money is stuck in the
market in the form of debtors. This report also helps to reframe its credit policy if the number of
defaulters are more in any organisation.
Performance Report: Performance reports are made to check the performance of the
company in order to see that they are performing well or not than their competitors (Ramljak and
Rogošić, 2012). This report helps the management to re think their strategies in order to compete
with their competitors. These reports play an important role in helping the mangers to make the
strategic decisions for the future of the company as this report show the clear picture of the
health and performance of the company. Managers analyse these reports very carefully to find
out the flaws and overcome them in the near future by making the necessary changes in the
system.
Financial Report: Financial reports shows the actual financial position and financial
capabilities of the organisation. These are prepared by the finance department, financial reports
include all the financial statements such as balance sheet, profit and loss statements and cash
flow statement of the company in a report form which helps the management to decide that from
which sources it need to raise its capital and where to invest to grow and expand its business.
The information from these reports helps the management to see that how there profit and losses
have fluctuated over the period of time.
Cost Managerial Accounting Reports: This report computes the cost of the product and
the cost of procurement of the raw material, labour, overhead and all the direct and in direct cost
related to the manufacturing of product. This report helps the managers to identify the cost and
the profit which is charged against that product. This report consist of the cost which is incurred
by the production department to produce the goods and the profit which is to be charged on that
particular product.
Evaluation of benefits of various management accounting systems.
Management Accounting System Benefits
Cost Accounting System  Cost accounting system helps the organisation
to fix its price more efficiently, as this system
provides the details of the cost.
 This system helps the management to improve
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and measure the cost effectively and efficiently
Price Optimization  It helps the managers to set the price of the
product according to the demand. Equilibrium
asset management uses this system to identify
the price for their services (Richardson, 2012).
 It can also be used to see the buying behaviour
of the consumers as in financial consultancy
service clients usually have same problems.
Inventory Management System  In the financial service providers there is not
much inventory. In this only monetary
instruments and the accounts of the client are
the inventory
Job Costing System  This helps in the control on the cost or products
or services provided to the clients. As in
Equilibrium Asset Management clients have
different work so the cost is allocated
differently on the work.
 As different client has different jobs so the
profit for each job is calculated differently.
Evaluation of Management Accounting System and Reporting.
Management accounting system and Management Accounting Reporting is used in the
organisations interrelatedly to find out the flaws in the system and rectify it it also gives the
organisation to plan its resources in the better way to achieve the maximum profit. As in the
Equilibrium Asset Management the managers uses both the system together to make necessary
changes in the organisation (Schaltegger and Burritt, 2017). Different type of management
accounting system and management accounting reporting is used to see the financial position of
the company. Managers analyse these reports and while making and planing to implement new
system in an organisation. Both the systems are integrated within the organisational processes for
strategic planing to have the competitive advantage over their competitors.
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LO 2
Calculation of income statement using marginal and absorption costs:
Absorption Cost: A managerial accounting method which is used to calculate the cost
that includes all the direct cost related to the manufacturing of product which is required by
GAAP (Generally Accepted Accounting Principles) for the purpose of external reporting. Direct
cost in absorption costing includes all the overhead cost whether fixed or variable.
Marginal Cost: Marginal cost also known as the variable cost is the cost which is related
directly to the product. It increase as the number of unit produced is increased. This is the
additional cost incurred for the production of an additional unit. In marginal cost the total cost is
divided in to two categorise such as the variable cost which is related to the number of units
produced and the fixed cost which will be incurred if no unit is produced
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Interpretation: From the above calculations we can see that the net income from both
marginal and absorption cost are same i.e.,50000 when 10000 goods are produced company can
use any of the two methods of costing.
7

Interpretation: The above calculation shows that the company faces loss if the
production is of only 5000 units the. Loss shown from the absorption cost is 145000 and the loss
shown from the marginal cost is 75000.
8

Application of a range of management accounting techniques
Management Accounting Techniques are the techniques used by the mangers to calculate
the financial health and position of the company (Suomala and Lyly-Yrjänäinen, 2012). These
technique are used to calculate the cost and to implement new strategies these techniques play an
important role as they show the clear picture of the companies. Some management accounting
techniques are as follows:
Historical Cost Accounting: the companies in which the cost of any asset purchased by
the company is recorded at the value at which it was purchased use this accounting technique. It
also provides the last year data, which helps the company to plan their new budgets according to
those data.
Pricing techniques: the associations at the season of selling their items and
administrations utilize it. It utilized at the time entered in the market or when business present
new item in the market. It is the business procedures where their rivals can set cost of item.
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Actual costing system: It is the cost which is used at the time of productions, where
actual cost of product incurred and included in the total cost of product. Such as labour, martial
cost etc.
Standard Costing: the companies in order to know the problems related to costing of
any product or service and to plan some remedies to take control of the problems use this
technique. It is the establishment of the cost, which are standard under the most efficient working
conditions.
Normal costing system: It is used when cost have derivation, this cost affect the
actual cost of product & services.
Cost system Job costing Process costing Batch costing Contract costing
It is the cost
bookkeeping
framework where
cost estimation
occur for the
examination of
benefit, stock or
authority over
expense.
It is a strategy
which computing
every unit cost of
item which is
allot various
employments to
singular thing or
salary and costs.
Procedure costing
framework is
helpful for that
association which
produce
homogeneous
item. Where this
technique dole
out expense of
every unit of
creation.
It is a sort of
explicit costing
where each clump
contain
comparative
indistinguishable
units yet each
bunch is not quite
the same as other.
Figure the
expense of each
clump called
group costing.
It is a device of
figuring cost,
which is
identified with
the specific
contract with
their customers.
Interpretation data for a range of business activities.
In the above calculation of the income statements from absorption cost and marginal cost
it was found that absorption cost method was not appropriate as in absorption cost fixed
overhead cost is not shown separately whereas in the marginal cost fixed overhead cost is shown
separately this gives the clear picture of the cost which is associated with the production. The
calculations showed that the profit from the marginal cost and the absorption cost is same in the
case where the production was of 10000 units but when the production was reduced to 5000
units, the company faced the loss. The loss from the marginal cost was 145000 and the loss from
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