Analysis of Management Accounting Systems at Creams Ltd.

This report provides a detailed analysis of management accounting principles and their practical applications, focusing on a case study of Creams Ltd. The report begins with an explanation of management accounting, its essential systems (cost accounting, inventory management, job costing, and price optimization), and various reporting methods. It then delves into the application of specific techniques such as marginal costing and absorption costing, evaluating their advantages and disadvantages. The report further explores the use of planning tools, examining their benefits and drawbacks, and concludes with a comparison of how organizations adapt management accounting systems to address financial challenges. The analysis includes an assessment of how Creams Ltd. utilizes these techniques to improve its operational efficiency, make informed decisions, and achieve its financial objectives.

Management
Accounting

Contents
TASK 1..........................................................................................................................................................3
P1: Explanation of management accounting and the essential requirement of its systems....................3
P2: Management accounting reporting methods....................................................................................5
M1: Benefits of management accounting systems..................................................................................6
D1: Critical evaluation of management accounting systems...................................................................6
TASK 2..........................................................................................................................................................6
P3: Application of various techniques of management accounting.........................................................6
M2: Accurate application of techniques................................................................................................13
D2: Producing of financial reports.........................................................................................................13
TASK 3........................................................................................................................................................14
P4: Advantages and disadvantages of planning tools............................................................................14
M3: Analysis of planning tools...............................................................................................................15
TASK 4........................................................................................................................................................16
P5: Comparison of organizations in adapting to management accounting systems to solve financial
problems................................................................................................................................................16
M4: Analysis of organizations dealing with financial problems.............................................................17
D3: Evaluation of planning tools............................................................................................................17
CONCLUSION.............................................................................................................................................17
REFERENCES..............................................................................................................................................19

INTRODUCTION
Management accounting refers to the use of financial provisions, data and information
effectively and efficiently by the managers in order to help in decision-making process
(Alawattage, Wickramasinghe and Uddin, 2017). It is a technique which helps the managers to
take the required decisions at the right time for the enterprise. It helps the managers to better
inform themselves before they take the required decisions which can impact the operations of an
enterprise both in the short-run as well as the long-run. Thus it is quite a helpful tool for the
managers. This report is based on Creams Ltd. which sells ice-creams, doughnuts and waffles in
the market. In this project, specific focus will be made on demonstration of understanding of
management accounting systems, application of a range of techniques. Additionally, analysis on
use of planning tools and comparison of ways in which firms can use management accounting
data will be analyzed.
TASK 1
P1: Explanation of management accounting and the essential requirement of its
systems
Management accounting refers to use of various types of techniques in order to help in
taking of various types of decisions for the benefit of the management of the enterprise
(Alsharari and Youssef, 2017). It is used by the managers of Creams Ltd. in order to help them in
raising the overall efficiency, effectiveness and productivity of the enterprise.
Management accounting systems-
Cost accounting system- Cost accounting system is used for identification of various
types of costs which can incur within an organization such as fixed costs, semi-variable costs and
variable costs. The managers of Creams Ltd. can make use of this system to identify and
segregate their costs in order to reduce it. This will help them in maximizing their level of profits
and achieving their short-term and long-term objectives in the future.
Essential requirements-
 Cost accounting system must be able to identify various types of costs which are
incurring within an enterprise.
 Cost accounting system must be able to identify the overheads and should be able to
provide different techniques to absorb them.
 Cost accounting system must identify the different types of requirements which the
organization may have regarding costs and the style which they can adopt to meet them.

 Cost accounting system should be able to work according to the organizational structure
of the company. In this way it will be able to provide the solution to the problems which
are being faced by the organization.
Inventory management system- Inventory management system is used for the purpose
of management of items in the inventory of the enterprise. It can be used by the managers
of Creams Ltd. to better track the stock items and properly manage them so that there is
no mismanagement of stock occurring within the organization. The managers of Creams
Ltd. can make use of this system so that the stock can be effectively managed within the
organization.
Essential requirements-
 Inventory management system should be able to facilitate better management of
inventory.
 Inventory management system must be able to facilitate the use of techniques like LIFO,
FIFO etc. which help in tracking of inflows and outflows of stock items.
 Inventory management system should use the inventory information which is available so
that the correct techniques can be used for management of inventory.
 Inventory management system should identify the requirements of the information in the
organization so that the correct decisions can be taken.
Job costing system- Job costing system is used in order to maintain a track record of job
orders received and job orders given within the enterprise (Alsharari, 2019). It is most
commonly used by manufacturing organizations. As Creams Ltd. deals in manufacturing
it can use this system. This system will help the company to properly manage its job
orders. By proper management of job orders and tracking those from starting till
completion the company can raise its efficiency, effectiveness and productivity level in
the future.
Essential requirements-
 Job costing system should enable checking of status of job orders from receiving the
orders till their completion.
 Job costing system should enable to maintain a proper track of the job orders received in
the company.

 Job costing system should identify the number of times a particular information is
required to be given to the management. In this way it will help the organization a lot as
it will ensure smoothness of operations.
 Job costing system needs to identify the sources of information to be used within the
organization. This will help it in providing reliable information.
Price optimization system- Price optimization system is used in order to facilitate the
setting up of the right price of a product or a service within the organization. It can be
used to revise the strategies related to pricing. The managers of Creams Ltd. can make
use of it in order to set a right price.
Essential requirements-
 Price optimization system must facilitate setting up of a right price.
 Price optimization system should be able to identify the change in price so that profits
can be maximized by changing price.
 Price optimization system needs to forecast the changes which can be made within the
prices on the basis of demand prevailing in the market.
 Price optimization system should make sure that it is not so costly to be used. This will
not only save the costs of the company but will lead them towards attaining more
efficiency and effectiveness.
P2: Management accounting reporting methods
There are plenty of methods which can be used for management accounting reporting
(Aouni, McGillis and Abdulkarim, 2017). The managers of Creams Ltd. make use of the
following methods which are explained as follows in the context of the company-
Job cost reports- These reports can be used for identifying the various types of costs
associated with the job orders. These reports are prepared on the basis of job costing accounts
within the organization. These reports summarize the overall job orders on the basis of orders
received and orders given. The managers of Creams Ltd. can use these reports to identify
whether excessive expenditure is being done in completion of job orders in the enterprise. If
excessive expenses are being incurred rectification steps can be taken with the help of these
reports so that the level of profits can be maximized within the organization.
Departmental reports- In a big company there are different types of departments and
segments such as production, finance, HR, marketing, sales etc. These reports are prepared in

order to identify the problems which are there in different departments of an enterprise.
Segregation of departments becomes quite essential for preparation of these reports
(Arunruangsirilert and Chonglerttham, 2017). The managers of Creams Ltd. can make use of
these reports which will help in raising the level of efficiency, effectiveness and productivity in
the departments. This will lead to increase in the profits of the company and will provide it with
strategic advantage against its various competitors in the market. Thus these reports are quite
useful from the point of view of management of an organization.
Performance reports- Performance report is an important activity in project
communication management. It involves collection of information and dissemination of
information, utilization of resources and forecasting of future data (Project Management
Concepts: Defining Performance Reporting, 2019). The managers of Creams Ltd. can make use
of these reports which will help in measurement and comparison of performance to identify the
deviations and variances which are occurring in the performance of the organization. This can
help in quickly taking of measures to improve the overall performance so that strategic
advantage which is gained by the company can be maintained.
Product/service profitability report- Product/service profitability report can be used in
order to identify the prospects of earning of profits on a particular product or a service (Bolt-Lee
and Monte Swain, 2016). This is especially very helpful when a firm has to earn higher profits in
the future by innovating new products and services. This report can be used by the managers of
Creams Ltd. to identify the prospects of launching a new product or a service within the market.
It can be used to identify the problems or issues which are related with launching a new product
or service. Thus if the company is able to use this report effectively then it will allow it to
innovate in the market which gives it an excellent opportunity for maximizing its level of profits
in the future time period.
M1: Benefits of management accounting systems
Management accounting systems have their benefits. Cost accounting system is
beneficial as it helps in reducing the excessive costs. Inventory management system helps in
better tracking of stock items in the inventory. Job costing system helps in better tracking of the
job orders within the organization. Price optimization system helps in setting of the right price in
the organization so that the profits can be maximized. Thus the managers of Creams Ltd. can
benefit from using each of these systems.
D1: Critical evaluation of management accounting systems
The management accounting systems can be effectively used within the organization.
Cost accounting system can be used for monitoring and controlling of costs. Inventory
management system can be used to track the movement of inventory within the organization. Job
costing system can be used for the purpose of management of job orders. Price optimization
system helps in choosing a right price for the products and services. Thus all of them can be
effectively used by the managers of Creams Ltd.

TASK 2
P3: Application of various techniques of management accounting

Marginal costing- Marginal costing is a technique in management accounting which is
used in order to identify the impact of variable costs on production level as well as the profits
(Englund and Gerdin, 2018). It helps in the determination of break-even point which is a point at
which a company neither earns profits nor incurs loss. The management of Creams Ltd. has
made use of this technique in its calculations as stated above.
Advantages-
 Marginal costing is quite effective in controlling of various costs within the organization.
Thus by controlling the costs the profits of the enterprise can be easily maximized.
Therefore in this manner this technique is highly useful for the management of any
organization.
 Marginal costing is quite helpful in maximizing the outputs of the production process and
enhances the companies to make use of their full capacity. Therefore, in this manner this
technique is quite helpful for the managers of an organization. It can help in maximizing
the overall level of profits which leads to strategic advantage over competitors.

Disadvantages-
 Marginal costing fixed overheads in a separate category which is disadvantageous for an
organization. This is so because their controllability is reduced. This can create problems
as this will lead to increase in the overheads of the company.
 Marginal costing technique is not as effective as standard costing and budgetary control
in controlling of costs. Thus it many not result in as effective outcomes in controlling of
costs as compared to standard costing and budgetary control.
Absorption costing- Absorption costing is a technique which is used in
management accounting which leads to calculation of the overall costs being incurred
within an organization (Ghasemi and et.al., 2016). This leads to absorption of different
overheads which are incurring within a company. The managers of Creams Ltd. have
made use of this technique which has led to absorption of different overheads of the
company.
Advantages-
 Absorption costing takes into account all the costs which are related with the production
unlike marginal costing. Thus it becomes quite advantageous for the organization.
 Absorption costing helps in absorption of different overheads within an organization.
This helps a lot in determination of the exact level of profitability within the organization.
Disadvantages-
 Absorption costing can skew the profitability level of a company and thus is not very
useful if the management has to perform a detailed analysis on the level of profits of the
company.
 Absorption costing does not help in comparison purposes. Thus it can be quite
disadvantageous for an enterprise if the managers have to compare the data of the current
year with the previous year for comparison. This will lead to creation of problems and
issues within the organization for the management.
Justification- Both the techniques of marginal costing and absorption costing can be
used by the management of the organization. The managers of Creams Ltd. have used