BTEC HND Business: Management Accounting Systems and Techniques Report

This report provides a comprehensive analysis of management accounting, addressing its core principles, techniques, and applications within an organizational context. It begins by defining management accounting and detailing the crucial role of management accountants in planning, decision-making, and performance management. The report then explores the scope of management accounting, encompassing financial accounting, cost accounting, and various control mechanisms, highlighting its influence across different business functions. A key section differentiates between management and financial accounting, emphasizing their distinct objectives, target audiences, and approaches to information presentation. The report further examines different types of cost reports used in management accounting, such as budget reports, job cost reports, and performance reports, illustrating their significance in performance measurement and decision-making. The report also includes an analysis of income statements prepared under both absorption and marginal costing techniques, comparing their methodologies and implications. Finally, the report concludes with a detailed explanation of break-even analysis, a critical financial tool used to determine the point of profitability, including its calculation and its relevance in strategic decision-making.

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Management accounting

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Answer 1. Management accounting and management accountant role in an organization
Management accounting is the process which includes planning, decision making and
performance management systems and provide financial reporting and controlling to assist the
management to formulate and implement the strategies. In an organization, management
accountant plays a crucial role which includes collecting, record and reporting financial
information in the different business functions by observing and analyzing the budgets and helps
the organization in funds and allocating effectively. Management accountant requires
coordination with all the departments for making the analysis of the capital and availability of
funds (Taft, et al., 2013).
In budgeting, management accountant plays a vital role as a budget helps in ensuring to provide
coordination between the employees and management. It helps in forecasting future business and
making future plans. The system of management accounting helps in providing useful economic
and financial information. Management accountants played a significant role in installing,
developing and functioning the effective as well as an efficient management information system
(Azudin and Mansor, 2018).
Management accounting includes the procedure to prepare reports as well as accounts that help
in making effective decisions. It includes the scope of identifying the key performance for the
different business functions and collect the data for analyzing the current performance of the
organization. It helps in comparing the current performance with the expected performance.
The role played by management accountant includes the to Compare and report performance
against operational plans and standards and explain the results of operations to all management
and the owner of the business. This feature includes formulas and compilation of accounting
policy management and statistics records and special reposts as required. The management
accountant is responsible for administrating tax policies and procedures. They prepare and
supervise as well as coordinate for preparing the reports for government agencies (Azudin and
Mansor, 2018).
The management accountant main role is to help managers correct policy decisions and improve
operational efficiency. He performs staff functions and has direct authority over accounting.

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Answer 2. Scope of management accounting
The management accounting scope is to present information about accounting in an effective
way. The scopes of management accounting are financial accounting, cost accounting,
revaluation accounting, budgetary control, inventory control, taxation, and internal audit. In
financial accounting, it is required to rearranging the information which is provided by financial
accounting. Management is required to obtain full control and coordinating the operations by
designing the financial system. The functions of management accounting include planning,
organizing, controlling and making a decision. In each function of the business, management
accounting plays a crucial role in evaluating the accounting which ensures to maintain real-time
and profits. For the development of internal audits, the develoingt of a suitable internal system of
auditing is required for internal control (Taft, et al., 2013).
Financial accounting includes management accounting which helps in providing the information
which helps in planning and forecasting. Cost accounting help in providing the various
techniques for determining the manufacturing cost of products for providing services. In the case
of financial management, the planning and controlling of financial resources are included for
raising the funds and effectively utilizing (Kaplan and Atkinson, 2015).
Planning in business includes short term and long term plans, which requires the management
accounting for providing the information for making a decision. It helps the managers in
planning by analyzing the reports and estimating the effects of achieving the desired goals.
Management accounting helps in organizing with the provided reports and information for
regulating and adjusting the operations.
In the controlling function, management accounting helps in producing the reports of
performance and controls by highlighting the expected and actual performances. Management
accounting helps in making the effective decisions for the organization structure and actions to
be taken for the day to day operations (Lakmal, 2014). Management accounting helps in
assisting the management for structuring the problems of decisions. Qualitative information is
used by the management accountant for making the decisions.
Answer 3. Difference between management accountant and financial accountant

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Management accountant is responsible for all the reports which include the profits, product line,
customers and geographic region and financial accountant are responsible for the reports of the
entire business. In the case of efficiency, financial accountants reports included for the
profitability and management accountant reports included the causes of problems and fixing the
issues. Financial accountant focuses to prepare the financial statement for the organization for
providing financial information (Lambert and Sponem, 2013). The management accountant
provides the information for the managers for making the policies, plans, and strategies. The
objectives of a financial accountant are to design the supply of information by preparing a P&L
account, balance sheet for the external stakeholders. The management accountant is responsible
for designing the information of accounting for internal use. Financial accounting is considered
more objective whereas management accounting is subjective. Management accountant focuses
on the present for forecasting the future. Financial accountant focuses on the history and reports
of the past year.
Management and financial accounting are similar in identifying and measuring costs, allocating
them for different accounting period as well as allocating cost of different departments and
departments. The concepts and principles are used to cost accumulation and cost allocation in the
field of financial accounting may also apply to management accounting (Weetman, 2019). The
reports which are prepared in management accounting and financial accounting includes the
same data which are generated from the requirement of accounting and reporting of the financial
accounting.
Answer 4. Different types of cost reports
In management accounting, different types of cost reports are involved which are necessary for
planning, regulating, decision making and measure performance. According to the requirement,
the reports are generated with the help of accounting and bookkeeping.
Budget reports are produced in the management accounting which are vital to measure the
performance of the company. The budget list of the company will include the earning and
expenditure sources. The company must stay within the budget amount for achieving the goals
and mission (Langfield-Smith, et al., 2017).

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Accounts receivable aging reports include the managing of all the receivable of the company. the
invoices are segregated which includes the customer’s balances and from when they have been
owned. This analysis includes the credit policy which helps in reducing the bad debts and
maintains the liquidity (Nawaz, 2013). Job cost reports include the identification of costs,
expenses, and profits for seeing the opportunities for improving the performance.
The performance report is creating for reviewing the performance. In this report, all the
departments reports are generated and which are used by the managers for making the key
strategic decisions for the future. It helps in keeping the accurate measure of the implemented
strategy for achieving the mission. Other reports are project reports, competitors analysis and
cost managerial accounting reports (Popa-Paliu and Godeanu, 2017).
Management accounting helps in calculating the manufacturing items costs. The raw material
cost, overheads, labor and any added costs are included and which is divided by the number of
products. The report helps in providing the managers with the ability for achieving the material
cost and sales prices. These reports helps in estimating and monitoring the profit margins
because it provides all costs involved in producing or purchasing goods (Schroeder, et al., 2019).
These reports help in analysing the position as well as performance of the organization. It adds
the value of job costing, batch costing, inventory, and activity-based costing. Activity based
costing includes direct, indirect, fixed and semi variable costs.
Manufacturing costs include direct labor, direct materials, and manufacturing expenses, which
are significant factors that determining the profitability of the organziation. Direct labor consists
of works in production department who are involved in manufacturing products as they are paid
monthly or hourly. Direct materials are converted into finished product which is critical for
production. Manufacturing expenses include indirect materials, indirect labor, and plant
operating costs like utility fees and real estate taxes (Cafferky, 2010).
Answer 5. Income statement
Income statement as per absorption costing technique
Income statement as per Absorption costing

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Particular Working
Amount
in $
Sales 1500*30 45000
Les
s Cost of goods sold 1500*20 30000
Gross margin 15000
Les
s Selling and administrative expenses
Variable selling and administratice
expenses
(10% of
45000) 4500
Fixed selling and administrative
expenses 8000
Net operating income 2500
In the income statement, a total sale for the period is included. Next is the cost of selling goods.
To find the cost of goods sold, start with the dollar value of the opening inventory and add the
manufacturing costs for that period. The resulting number is a saleable product. Subtracting the
dollar value of inventory at the end of the period, the result is the cost of goods sold. The gross
profit margin can be calculated by subtracting the total sales amount from the cost of goods sold.
Subtracting sales expenses helps in getting the net operating income for the period (Chenhall
and Moers, 2015).
Income statement as per marginal costing technique
Income statement as per Marginal costing

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Particular Working
Amount
in $
Sales 1500*30 45000
Les
s Variable expenses
Variable production costs 1500*15 22500
Variable selling and administrative
expenses
(10% of
45000) 4500
18000
Les
s Fixed expenses
Fixed production overhead 12000
Fixed selling and administrative
expenses 8000
Net operating income -2000
Like in the absorption cost income statement, the marginal cost income statement is done by
calculating the total sales. Next it requires the calculation of variable sales cost as well as
expenses. In order to calculate the COGS, the inventory is required in which variable
manufacturing cost is added and ending inventory is subtracted. When the total variable costs are
subtracted from the total sales it helps in analyzing the profit margin. When the fixed
manufacturing expenses and fixed selling and administrative expenses are subtracted, it helps in
calculating the net operating income.
It is analysed that in marginal costing, fixed costs are written off and in absorption cost all the
costs are considered. In an organization, absorption costing technique may be used over marginal
costing technique (Clinton and White, 2012).
Answer 6. Break even analysis

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Break-even analysis is considered as a financial tool that helps in determining the position of the
company and determining the stage of profitability of the products. The calculation is done for
determining the products or services which are required to be sell for covering the costs like
fixed costs. It is a situation in which no losing and making money occurs and also covers all the
costs. Break-even analysis helps to study the relation between fixed and variable costs and
revenues. The break-even point of sale will be low for the company whose fixed costs are low.
Fixed costs also include the overhead costs which are interest, taxes, salaries, rents, and
depreciation costs (Garrison, et al., 2010).
Variable cost is the cost of increase or decrease that is proportional to output. These costs include
raw material costs, packaging costs, fuel and other costs which are related to productions .
Break-even analysis calculation
Break-even analysis= Fixed costs/ contribution per unit
Contribution per unit= Selling price per unit – variable cost per unit
It is important for the organization as once the break-even is reached, it provides the benefit of
determining the unused capacity for the problems. This will help show the maximizing the
profits for a particular product/service.
Source: (Garrison, et al., 2010).
It helps in determining the effect of change from manual to automation (fixed cost instead of
variable cost). With the change in the prices of the product, it can help determine changes in
profits. It helps in determining the number of losses you might suffer in the event of a decline in
sales.

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In addition, break-even analysis is beneficial for understanding the abilities of the company for
generating profit. For a company, the break-even point is close to the highest sales level, which
means that even in the best case, it is almost impractical to make a profit. The management is
responsible for monitoring the break-even point. The effective monitoring will help in reducing
the break-even point as much as possible (Šoljaková, 2012). It is important for the organization
as it helps for determining the units that are required to be sold. Break-even analysis helps in
setting the budgets and targets.
With the changes in prices of selling affects the break-even point. For example, increasing the
sales prices will reduce the unit numbers to break even. Also, if sales prices are low,
organziations are required to sell more products and services for the break-even point. Therefore,
with the help of breakeven analysis, managers can decide whether they need to modify the
selling price and developing the pricing strategy (Taipaleenmaki and Ikaheimo, 2009).
Answer 7
Income statement
Particular Amount in $
Revenue 100
Costs of goods sold 30
Gross profit 70
Operating expenses 15
Operating profits 55
Interest expense 5
Earnings before taxes 50
Tax expense 20
Net Profits 30
The calculation of net profits is significant for the management accountant for demonstrating
success and performance. Net profits support the management accountant in the process of
making decisions. Net profits help the businesses in measuring the profitability of the
organization. For the success of the organization, net profits are calculated by the management

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for determining the earning which can be distributed and used for further process. Net profits
helps the investors in looking for the history of the company in assessing the investment risks.
Net profits are considered in financial statements like balance sheet, income statements, Cash
flow statement and owner equity statement. The calculation of net profits is used by the
organization for driving the organizational objectives like decision of investments. Net profits
will help in analysing the requirement of resources (Tsorakidis, et al., 2011).
The net income of the organization is reviewed by the investors, creditors, and management as it
helps in providing the company’s financial condition and it supports in analyzing the ability for
managing the assets. It is known to investors that the investments made by them will help in
continuing in appreciating and company will able to pay the dividends. It is necessary for the
creditors to know the financial position and is the company is able to pay for the debt with the
help of successful operations. The company’s management is required to focus on the investors
and credits which includes that the company will be able to pay salaries and bonus.

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