Management Accounting Report: Costing and Reporting Methods

This report provides a comprehensive overview of management accounting, focusing on various systems and methods. It begins by explaining the essential requirements of different management accounting systems, including cost accounting, job costing, process costing, and throughput accounting. The report then delves into different management accounting reporting methods, such as job cost reports, budget reports, and sales and profit reports, highlighting their importance in business operations. Furthermore, it explores the calculation of costs using appropriate methods and analyzes the advantages and disadvantages of different planning tools used for business control. Finally, the report examines how organizations can adapt management accounting systems to respond to financial problems, providing a holistic view of the subject.

MANAGEMENT ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION....................................................................................................................................................................................................... 4
TASK 1........................................................................................................................................................................................................................ 4
P1 Management accounting system and essential requirements of different management accounting systems.......................................................4
P2 Different method use for management accounting reporting..............................................................................................................................9
P3 Calculation of cost using appropriate methods.................................................................................................................................................11
P4 Advantages and disadvantages of different planning tools used for business control.......................................................................................13
P5 Way in which organization adapt management accounting systems to respond to financial problems.............................................................16
CONCLUSION......................................................................................................................................................................................................... 17
REFERENCES.......................................................................................................................................................................................................... 18

INTRODUCTION
Management accounting is the one of the important area which has significant importance for the business firms. In the current
report, management accounting systems are explained in detail in terms of their essential requirements and suitability. Apart from this,
in the report reporting systems are explained in detail and along with this marginal and absorption costing method are explain in detail.
At end of the report, different ways that can be adopted to respond to financial problems are explained in detail and in this way entire
research work is carried out in research report.
TASK 1
P1 Management accounting system and essential requirements of different management accounting systems
From: Budgeting officer
To General manager of White elephant restaurant
Subject: Management accounting system
Management accounting is the domain that encompasses varied tools and approaches that are used for calculation of cost in
proper manner. It is basically an important tool that is used to compute overall cost of production in the business and measuring
firm performance in terms of cost control in the business. Business managers use number of techniques of management
accounting in their business so as to control cost in the business. Usually it is observed that firms face lots of difficulty in
controlling cost in their business (Zainun Tuanmat and Smith, 2011). There are number of reasons behind this and one of them is
that fluctuation remains consistently in the business and due to this reason it becomes very difficult task to control cost in the
business. In order to solve this problem there are number of tools and methods that can be used in the business. One of these
methods is variance analysis and budgeting. Under budgeting method some of important parameters are determined and firm
target to make its real expenditure within these determined standards. By doing so it is ensured that cost will remain in control in

the business. Apart from this, there is another method variance analysis by using which it is identified whether firm perform well
good or bad in its business. In case performance is good there is no issue by performance is bad then in that case management
take in to consideration situation very seriously and take action on time. By doing so situation is improved in the business. Varied
management accounting systems are given below with their requirements. Cost accounting system: Cost accounting system is one under which cost of each and every department is done
separately. Means that cost accounting system is different from other accounting system. This is because in this there is no
specific parameter by considering which accounting is done in the business. Wired retail can use this accounting system in
its business and under this it can collectively compute cost of all products and can segregate them in class of fixed,
variable and semi variable expenses (Fowzia, 2011). By adding all sort of expenses cost of product can be computed.
Importance of this costing system can be estimated from the fact that in this cost is computed for each department
separately and then same is added to compute total business cost.

Figure 1Cost accounting system
(Source: Fowzia, 2011 )
Apart from department classification on the basis of characteristics also cost classification is done like fixed expenses,
variable expenses and semi variable expenses. Means that under this accounting system all expenses are taken in to
account and then they are separately classified in to category of fixed expenses, variable expenses and semi variable
expenses. All these expenses are then added to compute total cost of production in the business. This cost amount is
divided by number of units produced in order to identify per unit cost. It can be said that it is the one of the important

costing system that is available to the business firms. Mentioned technique is employed by lots of firms in their business.
Wired retail can also use cost accounting systems in its business and for logistics, marketing and finance department
costing can be done separately. Reporting of same can be done time to time which will help business firm in analyzing
cost of its business operations. Apart from this, values of fixed, variable and semi variable expenses is computed and
reporting of same is done which help managers in identifying that at what rate variable expenses are increasing in the
business. In case growth rate is high then steps are taken on time to control cost in the business. Job costing system: Job costing system is one under which for each product line individually costing is done separately.
In the business there may be multiple products that firm is producing in its business. In case of Wired retail for each
product line cost can be computed separately and by doing so cost for overall business can be calculated in easy and
effective manner. For each product separately costing is done in order to identify trend in which expenses are incurred in
the business (Abrahamsson, Englund and Gerdin, 2011). It can be said that there is huge importance of job costing for the
business firms. This is because closer eye is kept on rate at which expenses are incurred in the business. Managers come to
know about product line in which at fast rate by higher amount expenses are made in the business. They also get an
information about product line where there is strict need to control expenses in order to prevent negative variance. It can
be said that there is huge importance of job costing system for the business firm. Wired restaurant can also use above
mentioned costing system in its business (Cokins, 2013). This is because under this it can do costing separately for each
edible item and can identify which product cost is very costly in the business and accordingly sales price of product is
determined. Process costing system: Process costing is quite popular method of costing for the business firms. Under this method, cost
of product is computed by taking in to account process by which product is produced in the business. In this method each
and every component costing is done individually and then same is added to calculate cost of the product. Thus, it can be
said that there is very high significance of process costing for the firms. Production related firms usually use this approach

for costing of their products. This is because under this for each stage of production costing is done separately and
manager comes to know about specific stage of manufacturing where cost of product is high. Managers by taking steps
like process re engineering can evaluate entire production process of specific stage and by doing so cost can be reduced in
the business and wastage can be eliminated. Thus, it is one of the important stages of production and it is very important
to make use of mentioned accounting system in the business. Throughput accounting system: It is the one of the accounting system which is totally different from other systems. Few
years earlier this costing system was developed by Israeli businessman and from that times period this accounting system
become more popular among business firms (Gond and et.al., 2012). It can be said that this accounting system have due
importance for the firms. This accounting system mainly main aim is to reduce waste in the business and by doing so main
attempt is made to control cost in the business. Thus, it can be said that this accounting system has significant importance
for the business firms and must be widely used by them in their business. Reduction in wastage is the one of the important
feature of this method that makes it most popular among firms. Thus, it can be said that this accounting system have due
importance for the firms.
P2 Different method use for management accounting reporting
From: Budgeting officer
To General manager of White elephant restaurant
Subject: Management accounting reporting
Reporting is the one of the most important technique that is used by most of business firms. Reporting may be related to
anything which may be cost or anything in the business. Varied methods that can be used for management accounting reporting are

given below. Job cost report: Job cost report is the one of the important method of costing and under this for each product line separately
costing is done. Managers always like to know about way in which cost is moving across different product lines so that
actions can be taken on time in case it is identified that cost is increasing rapidly in specific product line. Job cost report is
prepared by most of business firms so that standards that are determined in the budget can be meet up on time. Hence,
through this reporting managers easily identify point where they need to take action. On right time steps are taken to control
expenses in the business (Dosch and Wilson, 2010). There are many other positive points of job cost report for the firms. It
is the reason due to which most of business firms periodically prepare job cost report. It is noted that mangers specially
demand job cost report when new product is launched in the market or any new product order under specific specification is
received from any client. This reflects that there is huge importance of job cost report for the business firms. Budget report: It is another reporting approach that is quite popular among people. In this method results of different sort of
budgets are reported. In report standards in respect to different expenses are clearly mentioned and actual values are
mentioned in front. By doing so performance is measured and it is determined whether firm is performing better or worst in
specific time period. It can be assumed that budget report have due significance for the firm because it can be prepared for
each and every month and on basis of comparison it can be identified that in which month for specific variable budget was in
surplus or in deficit. There are different sort of budget that can be prepared by the business firms like increment budget and
fixed budget etc. All these budgets have their own benefits and limitations. Main importance of budget report is that it help
firm in making best use of its resources in the business. It is usually observed in the business that funds are limitedly
available in the business and it is very important to make best use of funds that are available in the business. In this regard it
is necessary do close monitoring of expenses in the business so that less cash used in business and it can be used in best
manner. All these things are possible to do if budget report is prepared in the business (Libby and Lindsay, 2010). This is the
reason due to which at end of each month budget report is prepared in the business.

 Sales and profit report: Sales and profit report is very important in the business. There is huge importance of sales and
profit report in business because it helps managers in tracking direction in which sales and profit are moving. Interesting fact
is that it is not necessary that always if sales are increasing then profit will also elevate. This is because many times heavy
amount of indirect expenses are made in the business. Due to this reason even sales increased in the business profit amount
decline in business. This reflects that there is importance of both sales and profit report in the business. Under sales and
profit report per month sales and profit trends are revealed and apart from this classification of sales is done which reflect
sales that is made through different product lines. Thus, this report helps mangers in identifying those product lines which
are very high or moderately profitable in nature.

P3 Calculation of cost using appropriate methods
Figure 2Absorption costing method
Table 1Marginal costing method
Particulars Amount Amount
Sales 21000
Less: Cost of production 11200
Less: Cost of goods sold -1600
9600
Less: Over absorption of fixed expenses -100

Production cost of sale 9500
Gross profit 11500
Less: Variable overhead 600
Less: Fixed cost administration expenses 700
Selling cost 600 1900
Net profit 9600
There are number of ways of computing profit in the business and it can be observed that firms according to suitability select any
specific method of computing profit in the business. Usually, in cost accounting there are two methods namely absorption and
marginal costing that are used in the business for computing profitability in the business. There is big difference between both costing
methods and one of them is consideration of expenses in the business. It can be observed that in marginal costing method only
variable expenses are taken in to account but in case of absorption cost both fixed and variable expenses are taken in to account. On
this ground it can be said that there is big difference between both costing methods. It can be observed that in marginal costing there is
high amount of profit which is 9600 but in case of absorption costing profit of only 9300 is earned. It can be said that in case of
marginal costing method higher amount of profit is earned relative to marginal costing method. This happened because in marginal
costing method main focus is only on variable expenses and fixed expenditures are not taken in to account.
On other hand, in case of absorption costing method both fixed and variable expenses are taken in to account. This is the
reason due to which low amount of profit is observed in case of absorption costing method. There are number of benefits of using
marginal and absorption costing method in the business because each of these methods evaluates firm profitability from different
angles. It is right approach to only select variable expenses in calculation. This is because fixed expenses are not made in the business
each and every year. Thus, from this point of view inclusion of fixed expenses in calculation process cannot be justified. On other
hand, in absorption costing method both expenses are taken in to account. It can be said that this approach reflect overall net profit
after considering all sort of expenses in the business. Thus, accurate amount of profit is computed by using absorption costing method
in business. It can be said that there is significance of both methods and it depend on managers that which of these they find more