Management Accounting: System, Reports, and Financial Analysis

This report provides a thorough examination of management accounting, focusing on its systems, reports, and applications within a business context, specifically using ABC Ltd as a case study. It delves into various management accounting systems, including inventory management, price optimization, job costing, and cost accounting, highlighting their benefits and essential requirements. The report also analyzes different management accounting reporting methods such as budget reports, accounts receivable aging reports, performance reports, and cost managerial accounting reports. Furthermore, it discusses the advantages of these systems, like cost control, improved decision-making, and better inventory management. The report includes an evaluation of management accounting systems and reports, and it also examines planning tools for budgetary control and the comparison of companies using different systems to respond to financial problems. The report concludes with an analysis of financial problems and how management accounting can lead to organizational success. Finally, it explores how organizations adopt different management accounting systems.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Management accounting and different types of management accounting system.......................3
Different methods of management accounting reporting............................................................4
Benefits of management accounting system. ..............................................................................6
Evaluation of management accounting system and reports........................................................7
TASK 2............................................................................................................................................7
TASK 3..........................................................................................................................................10
Explain Advantage & disadvantage of different type of planning tools which is used for
budgetary control.......................................................................................................................10
Analyse different planning tools and it's applications..............................................................12
TASK 4..........................................................................................................................................12
Comparison of companies with use of different system to respond financial problems...........12
Analysis of financial problem in respect of management accounting which lead the
organisation for the success.......................................................................................................13
Evaluate how organisation system adopt different management accounting system................13
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is refers to process of examining, collecting, reporting and
recoding of important financial information related to company that support internal manager to
make meaningful decision in order to increase profitability and productivity (Bedford, 2015). In
managerial accounting, they uses the provision of accounting standard that support them with
better information to decide matter in an organisation so that overall performance can be
improved. In general, the process of forming management accounts and reports that deliver
faithful and suitable information so that evaluation can be done. To better understand the concept
of management accounting ABC Ltd has been selected which is a medium sized enterprises in
the manufacturing sector.
In this report, various management accounting system and report are discussed. Report
also shows costing system calculate net profit, assorted planning tool that support in budgetary
control process, compare ways in which organisation could use various system to solve financial
problem.
TASK 1
Management accounting and different types of management accounting system
It is a process of maintaining reports and accounts which help the organisation to identify
actual and accurate information related to business transactions. In the management accounting,
manager have to manage daily activities which is related to operations and other related
functions of management. It will further help the manager to take their decision on the basis of
available accounting information.
Different type of management accounting system and their essential requirements:
Management accounting system include managerial accounting which contain the
information regarding their finances and make it confidential report for internal users such as
manager, owner, R&D etc. Basically this system majorly focus on cost of product & services and
build strategies to reduce their product cost. There are four type of management accounting
system which help the manager to take their decision according to it.
Inventory management system: - With the help of inventory management accounting
system organisation can track their whole supply chain. It will help the manager to make it
update about the availability of stock in their business. Because if it is not working in effective

manner it can affect inventory in term of shortage as well as wastage of raw material. For
example: ABC Ltd face operational issues due to the shortage of stocks and it will affect the
production level as well as profitability of the organisation. Inventory management system
provide a proper process to maintain their supply chain and also identify the requirement of stock
at the time of production (Kastberg and Siverbo, 2013).
Price Optimization system: - Price optimization help the manger to calculate demand
and how it is vary according to different price level. It is a mathematical tools for the
organisation which provide information regarding inventory and cost of the product. This
process help the ABC Ltd to set their product price and meet with organisational objective. Price
optimisation system help the business to perform well in the market and for the competitive
advantage. It is a formal structure follow by the manager to meet with the requirement of
consumers willingness to pay on a particular product. Manager of ABC Ltd follow this system to
improve their price policy and quality of their work.
Job Costing system: - Job costing system help the manager to accumulate each product
unit cost. This method used by the organisation when they produce products in variety and all
items are different from each others. They required separate costing for each product and then
manager find a way to reduce each unit cost for the more productivity or profitability. Job
costing system include three type of information such as direct material, labour or overhead.
Manager of ABC Ltd follow this job costing system in the organisation it will help the business
to improve their production and profitability.
Cost accounting system: - It is a management framework which help the organisation to
estimate each product cost for the identification of profitability analysis, cost control and
inventory valuation. This accounting system help the manager to find accurate cost of each unit
which affect the profit margin of company. Manager of ABC Ltd follow this costing system to
reduce cost and increase profit.
ABC Ltd follow different type of management accounting system in the business which
help them to analyse and identify accounting information. It will help the manager at the time of
taking any decision regarding operations.
Different methods of management accounting reporting
It is an accounting report which contain various confidential or non-confidential
information of the business and it also called cost accounting. Management accounting use the

information which received from financial accounts. This report can prepare every quarterly or
yearly and it will provide holistic view to the manager. These reports include the various
information regarding invoices, income & expenses, cash flow and financial position of the
organisation. There are some different type of accounting reports such as:
Budget Report: - Budget report prepare by the manager for the comparison of their
estimation with the actual performance (Kolk and Perego, 2015). It will help the organisation to
achieve their business targets and goals by making budget. This report include the estimated
expenses of an particular project or task and also include the profit. Budget report generate by
the manager in advance and then perform their duty according to plan. Size of budget report
depend upon the size of business and the level of production. It will help the manager to take
their decision according to budget and also affect the profitability or productivity of an
organisation. Manager of ABC Ltd prepare budget report so they can perform their task
effectively and follow strategies which help them to achieve their business goals & objectives.
Accounts Receivable Ageing Report: - This report is prepare for the creditors like when
any business done credit transaction so it will be recorded in the account receivable report. When
payment is not done by the customer at the time of purchase than organisation generate invoices
and keep records in this book. Account receivable ageing report generally maintain by the large
organisation because they mostly done their transaction in credit. Manager of ABC Ltd maintain
account receivable report which provide a reminder for the future recovery of money. Because
single person is not able to recognise each and every credit transaction.
Performance Report: - Performance report help the manager or management to evaluate
performance of organisation as well as single employee. It provide help to the manager in the
decision making process which include reward, incentive policy and promotional benefits.
Manager major the individual performance and analyse it, if performance was good than
appreciate staff members or if performance was not good than need to identify reason for
lacking. Manager of ABC Ltd evaluate each employees performance and motivate them through
various reward policies and help to enhance their skills by providing proper training regarding
their work.
Cost Managerial Accounting Report: - This report show the cost of each products at
the time of production and than compare with generated profit. It include the each and every
detail about the product such as cost of raw material, labour rate per hour, overhead cost and

other manufacturing expenses which incurred at the time of production. All the expenses listed in
this report and than compare with generated profit so manager will take further decision
according to result such as it is beneficial or not for the organisation. Manager of ABC Ltd
prepare cost report and than analyse is whether it profitable or not. If not than take steps to
reduce their cost which increase the price of product and it is helpful in comparison for next
costing report (Mahesha and Akash, 2013).
These accounting reports help the manager to maintain their information and prepare
budget for the further operations in the organisation. It will help the manager to take their
decision according to this report and it also helps in comparison between the results and
performances.
Benefits of management accounting system.
Business firm such as ABC Ltd uses different types of management accounting system
and their application in order to improve the overall functioning of different business operation.
System Benefits.
Cost accounting system  It help to control cost and make useful decision such as make
or buy raw material, continue or shut down projects.
 This is also helpful for management of ABC Ltd to prepare
budgets for future on past happening and determine
unprofitable activities
Job costing system  This method used by the organisation when they produce
products in variety and all items are different from each
others.
 Job costing system include three type of information such as
direct material, labour or overhead. It emphasis to manage
the different types of cost so that profits can be maximize.
Price optimisation system  The direct financial benefits has associated with a price
planning and optimisation solutions.
 This system is useful for the company to manage the price of
products so that maximum profits can be generated as per the

requirement (McLean, McGovern and Davie, 2015).
Inventory management
system:
 It support in better utilization of available stock and provides
a check against loss of material.
Evaluation of management accounting system and reports
Management accounting system has adopted by companies to manage its accounts in
effective manner and helpful in pertaining management decision making, devising planning &
performance management system. It is integrated with the organisational process because by
using it company can follow effective system which support to the management accounting.
Management accounting reports are beneficial to provide essential information in context to
financial position of business as a result management can take important decisions for the growth
of company. So it is integrated with the organisational process because it provide useful
information about the business of corporation and the working.
TASK 2
Absorption costing: It is a managerial accounting cost method of expensing all costs
associated with manufacturing a particular product and is required for external reporting. This
method of costing is used for valuing inventory (Miller and Power, 2013). All the cost of
manufacturing a product including both fixed and variable are absorbed under this costing
method. Absorption costing is also known as full costing and is a conventional technique of
ascertaining cost. Cost per unit as per absorption costing method is same when output remains
same but when output changes then cost per unit of the product changes because of presence of
fixed cost element in it.
Marginal costing: It is the cost of one additional unit of output. The increase or decrease
in the total cost of production run for making one unit of output. Marginal costing accounting
system is one in which variable cost are charged to cot units and fixed cost of the period is
written off in full against the aggregate contribution. This method is important to analyse break-
even-point of an organisation. In this method fixed cost is recovered from contribution and
variable cost is charged to production (Zoni, Dossi and Morelli, 2012). It is useful in profit
planning and helps in determining profitability at different level of production and sale.
1. Calculation of Net profit through marginal costing:
Total Production cost

Budget – Absorption costing technique January
Production cost per
unit
Total
Direct Material 10 18000*10 180000
Direct Labour 20 18000*20 360000
Variable overhead 5 18000*5 90000
Fixed overhead 5
40 18000*40 720000
Total Cost of sales (January)
£
Cost of production 720000
Opening inventory 0
Closing inventory -80000
Cost of sales 640000
Absorption costing– Actual profit or loss statement Jan 2019
PER UNIT TOTAL
£ £ £ £
Sales 50 800000
Cost of production
Direct Material 10 190000
Direct Labour 20 380000
Variable Overhead 5 95000
Fixed Overhead 5 95000
40 760000
Opening inventory 0

Closing inventory -120000
Cost of sales 40 -640000
Standard profit 10 160000
Adj. For under absorption -5000
Budgeted profit 155000
Variable Costing - Actual profit or loss statement Jan
PER UNIT TOTAL
£ £ £ £
Sales 50 800000
Cost of production
Direct Material 10 180000
Direct Labour 20 360000
Variable Overhead 5 90000
Fixed Overhead 35 630000
Opening inventory 0
Closing inventory -70000
Cost of sales 35 560000
Contribution 15 240000
Fixed overhead production -100000
Budgeted profit 140000
Variable Costing - Actual profit or loss statement Jan
PER UNIT TOTAL
£ £ £ £
Sales 50 800000
Cost of production
Direct Material 10 190000

Direct Labour 20 380000
Variable Overhead 5 95000
Fixed Overhead 35 665000
Opening inventory 0
Closing inventory -105000
Cost of sales 35 560000
Contribution 15 240000
Fixed overhead production -100000
Budgeted profit 140000
Financial Report
BUDGET ACTUAL
£ £
Fixed overhead charged to production cost 90000 95000
Under fixed overhead charged to profit or loss account 10000 5000
Fixed overhead charged in the month 100000 100000
Fixed overhead transferred through closing inventory to
next month February 10000 15000
Fixed overhead charged 90000 85000
TASK 3
Explain Advantage & disadvantage of different type of planning tools which is used for
budgetary control
Budgetary control process- This system help managers sets financial goals and
performance goals with help of budgets and after that compare the actual performance with pre
set performance goals. Herein advantages and disadvantages of budgetary planning tool is
discussed below:
Budget- It is an estimation of income and expenses for future period of time. Budgets
are also known by financial plan. They reflects the future financial condition of organisations.
Budgets sets the financial goals for future and organisations follows those financial goals.
Budget can be made for a person, organisation and also for a country. ABC ltd makes budget to

match the actual performance with budgeted performance and also for estimation of income and
expenses.
Advantages-
 Performance evaluation- It is helpful in performance evaluation because it compares
actual income or revenue with that income which is mentioned in budget.
 Funding planning- Budget helps in planning of funding for a company. It makes a plan
which gives advantage to companies in future. This make a proper plan of funds that
divides funds for each activity (Neubauer and et.al, 2012).
 Control over money- This helps in making control over money. Companies can make
effective use of money.
Disadvantages-
 Estimation- With the help of budgets an estimation of income and expenses are made but
it does not provide accurate result.
 Costly- Budget making process is an expensive process for small organisations. It is
suitable for big organisation.
 Consider only for financial outcomes- It is not suitable for non financial activities.
Flexible budget- This is also known by variable budget. It is the budget which can be
change according to organization's needs. This budget is made for different level of activities.
Changes in this budget depends on changes in volume and activity. ABC Ltd can make this
budget for those activities which are variable.
Advantages-
 Accurate budgeting- Flexible budget is helpful in making accurate budget because it is
made for each different activity separately (Padovani, Orelli and Young, 2014).
 Brings coordination- This type of budgeting makes coordination among all the activities.
 This budget is helpful in reducing cost of different activities.
Disadvantage-
 Confusing- Flexible budget sometimes become confusing and complex because it is
made for each activity and it does not remain fix.
 Enables cheating- Flexible budgeting enables cheating because in this budget future
estimation can easily change because of this inefficient workers performance can be hide.
 Can't estimate tax- This budget fails to estimate about the taxes.

Zero based budgeting- It is a budget which is not based on the previous data and
activities, this budget starts from zero and each activity is justified before including in official
budget. In addition, under this budget each function is analysed for its need. ABC Ltd can use
this budget for those activities which are important for them in order to increase profit.
Advantages-
 It is situational- This type of budget is situational in nature. It does not allow the budget
maker to follow any past activities. This focus on current activities.
 Ensures care full planning- Zero based budget insurers that budget is planned carefully
because in this budget each activity is entered after justify (Watts and McNair-Connolly,
2012).
 Profit centred- It focus on those activities which are profitable for organisations.
Disadvantage-
 Increase in paper work- It increase in paper work because in this budget, activities are
entered after rightly justified and due to this paper work increase of many activities.
 Time consuming- Zero based budget takes too much time in budget preparation. This
type of budget is prepared under justification of each activity and because of this it
consumes too much time in budget making.
Analyse different planning tools and it's applications
It has been analysed that for forecasting and preparing budgets planning tool support to
make accurate strategies by considering organisational standards and roles. Manager of ABC
Ltd, uses Zero based budgeting in order to prepare accurate budgets in a specific manner that
support to increase the performance. With the help of flexible budgets useful and accurate
decision are made as various budgets are made for each different activity separately (Soudani,
2012).
TASK 4
Comparison of companies with use of different system to respond financial problems.
Financial problems are the negative situations for the organisations in which they suffer
from lack of money. Financial problem can be solve by effective planning. These problem can
also solve by different management accounting systems. Financial issues and solution of two
different companies are given below:

ABC LTD XYZ LTD
ABC Ltd is involved in manufacturing and
company is facing the issue of proper stock
management because there is no proper system
of checking stock availability. Due to this
company is facing various problems like they
are unable to know that how much quantity of
prepared goods is available in warehouses, low
production turnover, lack of visibility etc.
These all problems are resulting in low sales
and in low profit, which is effecting financial
condition of company (Storey, 2014.). Their
problem can be understand by a situation of
company like they are producing products
continuously but don't have knowledge of
available stock in warehouses. This will result
in excess of prepared goods and as well as
higher stock maintain cost.
XYZ Ltd is the company which is involved in
manufacturing of electronic products like
television, computer etc. Company is facing
the problem of cost calculation of different
products at different stage. They don't have any
suitable system for cost calculation of
products. Due to this they have problem of
right price assigning because price is directly
linked with cost and they don't have right
method of cost calculation. Their problem can
be understand by an example they are
producing televisions in a manufacturing house
but they are not calculating cost of production
at different stage of production (Strauß and
Zecher, 2013). This is resulting in problem of
cost calculation in the end of production and as
well as becoming financial issue for company.
Solution- In the case of ABC Ltd there is
problem of stock management. This problem
can be overcome through “Inventory
management system”. It is the system which
tracks the movement of goods in all process of
supply chain as well as it checks the
availability of finished goods available in the
warehouses. Due to this system company will
be able to solve all the issues regarding to the
stock management. In addition this system will
help company in improvement of inventory
orders, save time and money and many more.
Solution- XYZ Ltd is having problem of cost
assigning method. Their problem can be
overcome with help of process costing system.
It is the technique which tracks the cost of
production at each stage of production. This
method calculates costs when row material
goes in production and calculates till finished
goods. This method will surely help XYZ Ltd
in the problem which they are facing. Their
problem is about cost calculation at various
stage of production and this method will help
company in cost calculation. Herein one

So financial issue of ABC Ltd can be resolve
by Inventory management system.
important thing is that right implementation of
process cost method is must without right
implementation this method will not work
effectively. So financial issue of XYZ Ltd can
be solve with process cost method.
Analysis of financial problem in respect of management accounting which lead the organisation
for the success
It has been analysed that management accounting is key for all kind of organisations.
This accounting system consists various systems which works on different situations. Major
importance of management accounting is that it helps in solving financial issues. In addition, it
gives shape the strategies and policies of an organisation in a way, which helps in goal achieving.
This system keeps an extra set of eyes on different activities of company and if any problem
occurs then it helps in solving (Takeda and Boyns, 2014).
Evaluate how organisation system adopt different management accounting system
Planning tools are very important in the context of organisations. These tools helps in
proper management of accounting activities which helps in profitability. Planning tools also help
in preparation process of budgeting because these tools are linked with the organisation's plans
and policies. In addition, planning tools helps in checking that what is the financial problem and
as well as what would be its solution. With the help of planning tools an organisation can
manage their future activities and reduce the risk of future's uncertainty.
CONCLUSION
It has been concluded that, management accounting is an important integrated process
that help in maintaining financial information accurate and appropriate so that useful judgement
are made to improve any circumstance. Manager uses different system in order to ease the
functioning of business operation. With the help of various report manager are able to analyse
the overall performance such as performance report use to record and analyse performance of
each employees so that problems can be resolved. There are various costing method such as
absorption and marginal techniques used by internal accountant of company in order to ascertain
the net profit for an accounting year. It is also concluded that with the use of assorted planning
tool such as flexible budgets, zero based budgets etc. management of ABC Ltd are able to

evaluate performance of company and show actual situation. System are also use by management
in order to resolve various types of financial problems so that business activities can be managed
and run in effective manner.