Detailed Report on Management Accounting System and Financial Issues

This report delves into the multifaceted world of management accounting, exploring its core functions and various accounting systems, including cost accounting, inventory management, job costing, and price optimization. It examines different methods of management accounting reporting, such as cost accounting reports, inventory reports, and performance reports, providing a comprehensive overview of their purposes and applications. The report also analyzes the advantages and disadvantages of planning tools like budgetary control, comparing organizations and demonstrating how management accounting can resolve financial issues, ultimately contributing to organizational success. The report provides a detailed examination of the subject matter, including practical examples and real-world applications, making it a valuable resource for students studying finance and accounting.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................3
PART (A).........................................................................................................................................3
1. Explanation of management accounting..................................................................................3
2. Role of management accounting system along with various kind of accounting systems......4
3. Different method of management accounting reporting..........................................................6
4. Evaluation of management accounting system is integrated with the organisation................8
5. Evaluation of benefits of management accounting system......................................................8
6. Conclusions that reflect about the application of management accounting system.................9
PART (B).........................................................................................................................................9
(a) Advantages and disadvantages of different kind of planning tools of budgetary control......9
(b) Analysis of use of various planning tools and their application for preparing and
forecasting the budgets..............................................................................................................10
(c) Comparison of two organisations to resolve the financial issue by adapting the
management accounting system................................................................................................10
(d) Management accounting system to solve the financial issue that leads to organisational
success........................................................................................................................................12
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is an accounting system which provides financial and non
financial information to the managers to make internal decisions (Arnaboldi, Lapsley,
Steccolini, 2015). In other words, this accounting system is related to the collecting, preparing,
summarising and interpreting the monetary and non monetary information. Herein, the project
report management accounting system and its types are mentioned as well as different method of
management accounting reporting are also described. Apart from it, advantages and
disadvantages of planning tools of budgetary control is also described along with role of
management accounting in solving the financial issues. To understand in detail about the
management accounting system, TPG processing company is selected that operates in
manufacturing sector.
PART (A)
1. Explanation of management accounting.
Management accounting system is an accounting system, that provides necessary and
needed information to the managers for internal management of the organisations (Sisaye,
Birnberg, 2012). Herein, some definition of management accounting system are mentioned
below:
According to the IMA (Institute of management accountants), “The management
accounting can be defined as a kind of profession that includes partnering in the management
decision making, planning, performance management and expertise in financial reporting”
(Jakobsen, 2012).
Comment- As per the above mentioned definition it can be comment that management
accounting system is very crucial for management of the organisations. On this accounting
system, managers can relay for decision making. Like in the TPG processing company, this
accounting system can be very beneficial for them in making planning and strategies for future.
According to the CIMA (Charted institute of management accountants), “ The
management accounting system can be defined as a process of measuring, accumulating,
preparing and communicating the information to managers so that they can take important
decisions” (Gibassier, 2017).

Comment- As per the above mentioned definition of CIMA, it can be comment that this
accounting system contains a wide and detailed process of presenting the financial and non
financial data. On the basis of this analysed information, companies take many important
decisions. Same as in the the TPG processing company, the management accounting system can
help them in making effective plans and policies for further decision making related to the
manufacturing system.
2. Role of management accounting system along with various kind of accounting systems.
The management accounting system plays an important role for management of the
companies (Schaltegger and Zvezdov, 2015). Due to this accounting system, organisations can
make further plans, policies and strategies. Herein, the context of TPG processing company, the
management accounting system is very important. This is why because, they are operating in the
manufacturing sector and various kind of accounting system helps them. Herein, some function
of the management accounting system are mentioned below:
 Planning- This is the first and important function of the management accounting. In this
all needed information and authentic data is collected for planning. For example, in the
Starbucks company, they make planning related to the manufacturing of the products and
services which helps in important decision making.
 Controlling- In this function of the management accounting system, it is being ensured
by the manager of the organisation that all available resources are effectively allocated or
not. Such as in the Starbucks company, their managers use this function of management
accounting in controlling the use of various kind of resources.
 Cost accounting- As the name assists, this function of management accounting helps to
the organisations in controlling and predicting the future cost of different kind of
activities (Soltes, 2014). Like in the Starbucks company, they can use this function in
forecasting the cost of manufacturing.
 Financial management- This is the function of management accounting which is related
to the collecting, analysing and managing of the financial information. With the help of
this function, the accountant of the Starbucks company manage all the financial
transactions effectively.
 Auditing- This function of the management accounting is very important for the
companies. It is related with the inspection of the various kind of financial statements. In

the Starbucks, they can check the efficiency of the prepared financial statements by this
function.
So these are the main function of the management accounting system. Apart from it, various
types of management accounting system are mentioned below:
 Cost accounting system- It is a kind of accounting system that provides a detailed
framework for estimating overall cost of products and services (Evans and Guthrie,
2013). On the basis of this accounting system, organisation can analyse about which
activities are consuming higher costs and which ones are not. So it is essential for
calculating overall cost that occurs due to different activities and operations. Along with
it is important in the better allocation of costs so that companies can find out about each
activity's cost separately. Herein, the context of TPG processing company this accounting
system can help them in computing the cost of manufacturing of different products.
 Inventory management system- As the name assists, this accounting system is related
with the management of available stock in the organisation. In broad sense, this system
tracks the available quantity of raw material and finished goods in the stores. So it is
essential for making decisions regarding to the purchasing of raw material and
manufacturing of products. In the TPG, processing company they are involved in the
manufacturing sector so this accounting system can help them in making suitable
decision related to the production of new stock. Apart from it, this accounting system
includes various kind of methods to valuation of the stocks such as LIFO, FIFO etc. On
the basis of it organisations can decide about how much quantity of raw material is
needed to buy. If there is enough available stock in the warehouses then they will not
produce in higher quantity as well as if there is lack of goods in the store then they will
manufacture. So overall, it depends on the inventory management system. Job costing system- The job costing system is a kind of accounting system which tracks
the cost of revenues by specific job and provides reports on profitability by job (Morillo,
J.G., Díaz, J.A.R., Camacho, E. and Montesinos, 2015). In other words, this accounting
system provides detailed information about the cost by analysing cost associated with the
particular job. Eventually, the job costing system contains three types of information
which are as follows:

Direct material- This costing system, tracks the cost of material which is being used
during the course of job.
Direct labour- The job costing system evaluates the cost of labour that is used on a job.
Overhead- This costing system allocates the cost of overhead to different kind of cost
pools. After the end of the accounting period, the total cost of all cost pools allocated to
each involved job.
So the job costing system includes above mentioned information as well as on the basis
of it each involved job's cost is calculated separately. Basically, this accounting system is
essential for the companies in allocating each cost to septate job as well as to compute the total
cost of job. In the TPG processing company, this costing system can play an important role in the
proper management of the cost by assigning each job's cost separately.
 Price optimisation system- The price optimisation system is an important part of the
management accounting system. This accounting system provides a kind of framework
which helps in determining the right pricing of the products and services. As well as on
the basis of this accounting system, companies can evaluate customer's reaction on
different pricing and accordingly they can fluctuate the prices. The big advantage of this
accounting system is that it determines pricing level at a level which is suitable for both
to the customers and company. Eventually, the price optimisation system is essential for
the companies in assigning the price at accurate level. In the TPG processing company,
this accounting system can be very crucial because with the help of this, they can fix their
manufactured product's price. As well as they can evaluate their customer's reaction on
different pricing stages and can modify accordingly.
So these are the types of management accounting systems which have their own benefits. As
well as in the TPG processing company, this system helps them at various stage of the
manufacturing process.
3. Different method of management accounting reporting.
Management accounting reporting- The management accounting reporting is different
from the financial accounting reporting. This kind of reporting consists both financial and non
financial information which becomes useful for the internal stakeholders. There are different

kind of accounting reports that have multi-pal purposes. In the TPG processing company, they
prepares various kind of reports which are mentioned below:
 Cost accounting reports- These reports are being prepared with the use of cost
accounting systems (ieckhof, Bergmann and Guenther, 2015). Under the cost accounting
reports detailed information related to the various kind of costs of different activities
includes. On the basis of these reports, companies can get needed information regarding
to the overall cost and take important decision about the cost control and management.
Eventually, in the absence of these reports, it becomes difficult for the companies to
estimate about the actual cost. The main purpose of this report is to get knowledge and
information about the cost of various operations and activities. The cost accounting
reports are prepared after the completion of an accounting period. For TPG processing
company, this accounting system can be very beneficial and useful because they are
operating in the manufacturing sector and it is necessary for a manufacturing entity to
have information about the cost. With the use of this accounting system, they can control
those activities which are consuming higher cost.
 Inventory reports- The inventory reports includes the information regarding to quantity
of available raw material and finished goods at the warehouses. Due to this report
companies can manage the quantity of material as well as can take suitable decisions.
Apart from it, these reports also useful in providing information related to the cost of
inventory such as ordering cost, storing cost etc. The main purpose of this report is to
helping companies in taking decisions related to the purchasing of new raw material
according to the available stock in the stores. Eventually, this report is prepared as per the
need of organisation or at the end of month. Like in the TPG processing company, these
reports can help them in effective management of the available raw material and finished
products.
 Performance report- As the name assist, the performance reports are those reports
which consists information regarding to the performance of various kind of activities. In
these reports, the actual profits and costs are compared with the budgeted profits and
costs. If actual income is more then budgeted income then performance will be rated as
good and vice versa. So basically, main purpose of this report is to provide actual
information about the performance. This report is prepared as per the end of budgeted

time period. In the TPG processing company, this report can be useful in providing
information about the actual performance of their. Due to this report they can evaluate
about how much profit they are earning from different activities and they can make
suitable changes accordingly.
 Budget reports- The budget reports are those reports which are being used by the
companies to compare the actual performance number with the budgeted projection
(Derchi, Burkert and Oyon, 2013). This report's concept is similar to the performance
report. The difference is that in this report both the data includes budgeted and actual.
While in the performance report only information related to the comparison of actual and
budgeted activities includes. So the main purpose of this report is to provide detailed
information regarding to the actual and budgeted performance. This type of report is
prepared after the end of budgeted time period. In the TPG processing company, this
report can be useful for the making further decision on the basis of comparison between
actual performance and budgeted projection.
 Account receivable ageing report- It is a kind of report which provides detailed
information about the unpaid debtors by date range. Eventually, this report is suitable for
those companies who deals in credit basis. With the help of this report companies can
keep the record about their unpaid debtors. The main purpose of this report is to helping
the companies in collection of payment from the creditors. In the absence of this report, it
will be difficult for the accountant to remember about the creditors with date. Basically,
this report is prepared at the end of an accounting period. In the TPG processing
company, their accountant can collect the cash easily with interest from the buyers.
4. Evaluation of management accounting system is integrated with the organisation.
The management accounting system is aligned with the different activities and operations
of the organisations. This is why different types of management accounting systems like cost
accounting system, inventory management system etc. help in managing the functions. Such as
in the TPG processing company, they use inventory management system for the managing the
stock and raw material. As well as cost accounting system is aligned with the controlling of
different costs. So overall, management accounting system is linked with the different functions
of the organisation.

5. Evaluation of benefits of management accounting system.
Accounting system Benefits
Cost accounting system This accounting system is useful for the
companies in controlling and reducing the total
cost of different activities. Same as in the TPG
processing company, it is beneficial in
providing detailed information related to the
cost of different activities so that they can
manage the cost.
Inventory management system This accounting system is useful in the
effective management of the raw material and
finished products. Like in the TPG processing
company, they use this accounting system in
making decisions about the purchasing of new
material and production.
Job costing system It is beneficial in providing information about
the cost which is allocated in different jobs
separately. Same as in the TPG processing
company, they take the benefit of this
accounting system in getting detailed
information about the cost of various job
assigned for different activities.
Price optimisation system As the name assists, the accounting system
helps in the assigning the price of products and
services. In the TPG processing company, this
accounting system is useful in the determining
the accurate price of their manufactured
products.

6. Conclusions that reflect about the application of management accounting system.
The management accounting system is an compulsory part for the companies because this
is aligned with all necessary element of the organisations. Herein, above mentioned information
about the management accounting it can be concluded that various types of management
accounting system plays an important role in the TPG processing company. Their manufacturing
activities can be managed in a better way with the help of this accounting system.
Calculation of income statements:
Marginal costing method (Year 1)

Marginal Costing method (Year 2)
Item Number of units£ P.U. Amount (£) Amount (£)
Sales 41000 70 2870000
Marginal Cost of sales
Opening Stock 3100 48 148800
Add – Variable production Cost
Direct Material 48100 12 577200
Direct Labour 48100 16 769600
Variable expenses48100 20 962000
Total Variable Cost A 2457600
Less – Closing stock – end of year 1 B [opening stock units + Units produced – units sold]10200 48 489600
Marginal cost of sales (A-B) 1968000
Fixed indirect production cost 64000
Gross profit: (Sales – MCOS – Fixed production cost )838000
Selling and distribution overheads 10500
Admin Overheads 15000
Profit before interest & tax (PBIT) 812500
Interest expenses 1250
Profit before tax [PBIT – Interest] 811250
Tax @ 19% 154137.5
Net profit: Profit before tax – tax 657112.5
Marginal Costing method (Year 3)
Item Number of units£ P.U. Amount (£) Amount (£)
Sales 61000 70 4270000
Marginal Cost of sales
Opening Stock 10200 48 489600
Add – Variable production Cost
Direct Material 51100 12 613200
Direct Labour 51100 16 817600
Variable expenses51100 20 1022000
Total Variable Cost A 2942400
Less – Closing stock – end of year 1 B [opening stock units + Units produced – units sold]300 48 14400
Marginal cost of sales (A-B) 2928000
Fixed indirect production cost 64000
Gross profit: (Sales – MCOS – Fixed production cost )1278000
Selling and distribution overheads 11000
Admin Overheads 15000
Profit before interest & tax (PBIT) 1252000
Interest expenses 1500
Profit before tax [PBIT – Interest] 1250500
Tax @ 19% 237595
Net profit: Profit before tax – tax 1012905
Absorption Costing method (Year 1)

Item Number of units£ P.U. Amount (£) Amount (£)
Sales 37000 70 2590000
Absorption Cost of sales
Opening Stock
Add – Absorption production Cost
Direct Material 40100 12 481200
Direct Labour 40100 16 641600
Variable expenses40100 20 802000
Fixed indirect production cost 64000
Total Variable Cost A 1988800
Less = Closing stock – end of year 1 B [opening stock units + Units produced – units sold]3100 48 148800
Absorption cost of sales (A-B) 1840000
Gross profit: (Sales – MCOS) 750000
Selling and distribution overheads 10000
Admin Overheads 15000
Profit before interest & tax (PBIT) 725000
Interest expenses 1000
Profit before tax [PBIT – Interest] 724000
Tax @ 19% 116660
Net profit: Profit before tax – tax 607340
Absorption Costing Method (Year 2)
Item Number of units£ P.U. Amount (£) Amount (£)
Sales 41000 70 2870000
Absorption Cost of sales
Opening Stock 3100 48 148800
Add – Absorption production Cost
Direct Material 48100 12 577200
Direct Labour 48100 16 769600
Variable expenses48100 20 962000
Fixed indirect production cost 64000
Total Variable Cost A 2521600
Less – Closing stock – end of year 1 B [opening stock units + Units produced – units sold]10200 48 489600
Absorption cost of sales (A-B) 2032000
Gross profit: (Sales – ACOS) 838000
Selling and distribution overheads 10500
Admin Overheads 15000
Profit before interest & tax (PBIT) 812500
Interest expenses 1250
Profit before tax [PBIT – Interest] 811250
Tax @ 19% 154137.5
Net profit: Profit before tax – tax 657112.5
Absorption Costing Method (Year 3)