Management Accounting: Systems, Methods, and Financial Reports

This report provides a comprehensive overview of management accounting, encompassing various systems such as cost accounting, job costing, price optimization, and inventory management systems. It delves into different reporting methods, including budget reports, cost managerial accounting reports, performance reports, and accounts receivable reports. The report also includes a critical evaluation of management accounting statement and reporting integration within organizations. Furthermore, it presents calculations using both absorption and marginal costing methods for a case study involving TSR Pvt Ltd, and analyzes the application of planning tools for budgetary control, comparing the adaptation of management accounting systems to respond to financial problems and lead to sustainable success. The report concludes with an evaluation of the use of planning tools to address financial issues effectively.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
P1 Explaining the management accounting and presenting essential requirements of different
types of management accounting system....................................................................................1
M1 Evaluation of the benefits of management account systems and their application in
business.......................................................................................................................................2
P2 Explaining different methods used for management accounting reporting...........................3
D1 Critical evaluation of management accounting Statement and reporting integration in
organisation.................................................................................................................................4
P3 Calculation of the cost by use of absorption and marginal costing method for TSR Pvt Ltd.
.....................................................................................................................................................4
M2 Application of range of management accounting techniques and producing appropriate
financial reporting documents.....................................................................................................6
D2 Producing financial reports that accurately apply and interpret data for a range of business
activities......................................................................................................................................7
P4 Explaining advantages and disadvantages of different types of planning tools for budgetary
control.........................................................................................................................................7
M3 Analysing the use of different planning tools and their application.....................................9
P5 Comparing the adaption of management accounting system to respond to financial
problems......................................................................................................................................9
M4 Analysing the fact that with responding to financial problem organisation can lead to
sustainable success....................................................................................................................10
D3 Evaluation of use of planning tools to respond appropriately to solving financial problems
to lead organisations to sustainable success..............................................................................11
CONCLUSION..............................................................................................................................11
REFERENCE.................................................................................................................................12

INTRODUCTION
Management accounting is the branch of accounting which deals with both statistical as
well as financial restrict pertaining to a business organization. It presents and analysis the
business activities to the internal management and aid them in decision making process. In the
present report a detailed discussion related with management accounting, is different systems
and reporting is done. Along with unit cost of the products is determined with marginal as well
as absorption costing method. Moreover, the application of planning tool is done and it is defined
that how the management accounting system helps in identification and solving of financial
problems and lead business to sustainable success.
P1 Explaining the management accounting and presenting essential requirements of different
types of management accounting system
Management accounting: is a process of analyzing the costs and operations of the
business for preparation of internal financial report, records and accounts to assist the
management in decision making process to achieve the business goals and objectives (Maas,
Schaltegger and Crutzen, 2016). It is an act of making the sense out of the financial and costing
data by translating it into the useful information for the managers and officers of the
organization.
As per the institute of Cost and Management Accountant London it is defined as
application of professional knowledge and skill for preparing the accounting information in such
which can assist the management in formulating the policies and in planing and control of the
operations of the business.
Management Accounting System: is that system that deals with both financial as well
as statistical information which can be used to reach different decisions of the organization
which are related with costing, controlling the price, managing the inventory (Management
Accounting – Meaning, Advantages & Functions, 2018). It system consist of internal
information that is used by the organization to measure and evaluate the process for the
management. There are different types of accounting systems:
Cost accounting system: the cost accounting system is a framework that is used by the
organization to estimate the cost of their various products which assist in analysis of profitability,
valuation of the inventory and controlling the cost. The essential requirement of this system is to
estimate the accurate cost of the products which is critical for operating under profits. All the
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accurate information must be there to evaluate the cost and to determine that which product is
profitable and which one is not. This includes two other system which are job order costing and
process costing.
Job costing System: includes the process of accumulation of all the information related
with the cost which is associated to the specific production or service job. Under this system the
cost related with direct material, direct labour and overhead is accumulated. This meet the need
of the consumers. The cost related with particular job is determined with identification of all the
elements of cost separately (Quattrone, 2016). The essential requirement for this system is
detailed information regarding each cost elements.
Price optimization system: is related with the mathematical programs which calculate
the demand variations at different level of the prices for the same product. This combines all the
data with information related with cost ans inventory level and recommend the prices at which
the profits can be improvised. The essential need of this system is that it typically requires
information related with three critical pricing elements which are pricing strategy, value of
products for both buyer and seller and the tactics to manage all the elements having impact on
profitability.
Inventory management system: woks by tracking two main functions of the inventory
and the warehouses these are to keep information regarding receiving the inventory incoming of
the supplies and the shipping that is out going. The main objective of this system is to know
what is the current level of inventory and to manage the situation of under and over stock.
The essential requirement of this system is desktop software, barcod scanner, bare code
printers and the mobile devices to streamline the management of the inventory of the
organisation. The inventory includes goods, consumables, supplies and stock.
M1 Evaluation of the benefits of management account systems and their application in business
Cost accounting system:
 This system assist in clustering the revenue and expenses with the cost objective such as
product line and distribution channel.
 Costs can be tracked on a trend line to discover expense surges that may be indicative of
long-term trends.
 An effective cost accountant not only locates problems within a company, but also drills
down through the data to determine the exact cause of the issue
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Job costing System:
 It allows the mangers to calculate the profits earned on the individual jobs which assist
them in ascertain that which jobs are desired to be pursued in the future.
 The mangers can track the individual job ans team performances to control the cost,
efficiency and productivity.
Price optimization system:
 This system helps the business in determining the initial prices of the products which are
launched for the first time (Bromwich and Scapens, 2016).
 It identifies the promotional prices at which the costumers is attracted to by the products.
 This also defines the markdown or discounting prices of the product to attract consumers
and without affecting the profitability of the business.
Inventory management system:
 It helps in activating the efficiency and productivity in the operations.
 With this system the cost on inventory is minimized and maximise sales and profits.
 This integrates the whole business with automation of the manual task and maintain the
happiness of the consumers.
P2 Explaining different methods used for management accounting reporting
Under the management accounting the emphasis is given on the inside information
received through the financial as and the managerial accounting reports which used for planning,
regulating and decision making with measuring the performance. The reports are generated on
regular intervals throughout the income year. These reports are of key importance as some
crucial decision depends no it. The reports under the management accounting are:
Budget Report: are responsible to measure the performance of the company. In the
organisation an overall budget is prepared to create an understanding of the overall objective and
gaol of the business. The provides information about the sources of incomes and expenditure.
The tries to achieve its goals and mission while staying in the budgeted amount (Modugno and
Di Carlo, 2019). Moreover, this reports guide the managers to offer better employees incentives,
cost cutting and negotiating the terms with the suppliers.
Cost managerial Accounting report: is responsible for computation of the cost of
products and commodities that are manufactured by the organisation (TYPES OF MANAGERIAL
ACCOUNTING REPORTS, 2018). The data related with material, labour and others cost is
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considered in this report. The total cost is divided by the units of goods produced. This reports
give the synopsis of all the cost related information. The mangers are assisted in comparisons
the cost and the sales price of the goods so that a good profit margin can be ascertained.
Performance report: are created with a view to critically review the performance of the
company as a whole as well each employee within the firm. Managers use these performance
reports to make key strategic decisions about the future of the organization. Individuals are often
awarded for their commitment to the organization and under performers are laid off or dealt with
as required. Performance-related managerial accounting reports also offer deep insight into the
working of a company.
Account receivable report: gives the information regarding the money extended on
credit and this report plays a vital role for business involved much in this activity. The managers
break down the information about the balances due from the clients and the time allowed to them
to make the repayment (Budgetary Controlling Techniques, 2018). The reports outline those who
can be defaulter and with this company can make the return policy more strict and tighter by
revising the credit policy.
D1 Critical evaluation of management accounting Statement and reporting integration in
organisation
The management accounting system is crucial for the organisation and different systems
are integrated in the organisation as determine the unit cost of the product to know the expenses
incurred to produce a single unit of the finished goods with identifying all the elements of cost.
Moreover, the systems are used by the management to determine which product is profitable or
nor and to determine the prices as which consumer is willing to buy the product with managing
the inventory in and out flow (Jermias, Gani and Juliana, 2018). The management accounting
reports plays a vital role in evaluating the performance of the business with setting the path to
reach the golds of the business. The overall and individual performance is evaluated to mitigate
any gap in the desired performance. The budgets set the target for the company to achieve the
mission of company within stipules funds only for which decision are taken on how it can be
done in effective manner.
P3 Calculation of the cost by use of absorption and marginal costing method for TSR Pvt Ltd.
Margin costing: is that method of the costing where the variable cost is charged to the
unit cost of product where the fixed cost is charges as the period cost. This means the fixed cost
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is completely written off against the contribution. It includes direct material, labour and direct
expenses and variable overheads. The marginal cost implies the fact that the addition la cost
incurred to produce an extra unit of output.
Calculation of the cost of each unit of Radiator
Marginal costing
Amount Units Per unit
Price per unit 25
Direct material 50000 10000 5
Direct labour 30000 10000 3
Variable mfg overhead 20000 10000 2
Variable Selling and adm o/h 30000 10000 3
Total variable cost 13
Contribution per unit 12
cost per unit 10
Absorption costing:
Cost per unit using absorption costing
Variable cost 13
Fixed cost
Fixed production O/h 40000 10000 4
Fixed S and A exp 30000 10000 3
cost per unit 14
Income statement using marginal costing
Sales 250000
less: variable cost
Direct material 50000
Direct labour 30000
Variable O/h 20000
variable S and A 30000
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total variable cost 130000
Contribution per unit 120000
less fixed cost
Mfg o/h 40000
S and exp 30000
total fixed cost 70000
Profit 50000
Income statement using absorption costing
Sales 250000
less: variable cost
Direct material 50000
Direct labour 30000
Variable O/h 20000
variable S and A 30000
total variable cost 130000
less fixed cost
Mfg o/h 40000
S and exp 30000
total fixed cost 70000
total cost 200000
Profit 50000
M2 Application of range of management accounting techniques and producing appropriate
financial reporting documents
Marginal costing method
Sales 250000
Cost of sales 100000
production Contribution margin 150000
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variable S and A 30000
Contribution margin 120000
less fixed cost
Mfg o/h 40000
S and exp 30000
Profit 50000
Absorption costing method
Sales 250000
Cost of sales 140000
production Contribution margin 110000
less fixed cost
Mfg o/h 30000
variable S and A 30000
Profit 50000
D2 Producing financial reports that accurately apply and interpret data for a range of business
activities
Labour price variance
Budgeted price – actual prices) * Actual hours
(5-5.20)*3400
-680
Unfavourable
Labour usage variance
Budgeted hours– actual hours) *budgeted price
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(3000-3400)*5
-2000
Unfavourable
material price variance
Budgeted price – actual prices ) * Actual hours
(10-9.5)*2200
1100
favourable
Material usage variance
Budgeted hours– actual hours) *budgeted price
(2000-2200)*10
-2000
Unfavourable
Flexible budgets
5000 units 10000 units
Sales 125000 250000
cost of sales 50000 100000
prod contri margin 75000 150000
Variable S and A 15000 30000
net contribution margin 60000 120000
Less: total fixed cost 40000 40000
Fixed mfg o/h 30000 30000
Fixed S and A -10000 50000
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P4 Explaining advantages and disadvantages of different types of planning tools for budgetary
control
Zero based budget:
The advantage of this budget can be described as it insures that mangers are creditable for
spending every penny of the organisation and also force them to justify al the operating expense.
This budgeting assist in prevention of misallocation of the resources when done correctly
(Boiral, 2016). The disadvantage of this planning tool are that it rewards the short term thinking
by allowing the shift of the resources to that area of the company which can generate good
profits in coming financial year which results in non tiding to the long term revenues. Moreover,
this is resource intensive which means it takes more effort and time to review and justify the
elements of budgets.
Cash budgets:
The benefits of cash budget can be outlined as this aids in determination of the fact that
whether the cash balance with the organisation is sufficient or not to regulate its operations with
limited liquidity position. This budgets identify the amount of cash required to meet the
immediate obligation of the business (The Advantages and Disadvantages of Using Cash
Budgeting, 2018). The drawback of this budget can explained as it causes distortions and the
cash inflows do not match with the profits. Cash inflows resulting from security deposits, fines,
the sale of capital assets, or any other one-off, non-sustainable activity do not necessarily
represent reliable ongoing sources of revenue.
Sales budgets:
The pros of the sales budgets can be defined as this is planning oriented and the process
of cretin the budgets takes the management away from its short term and day to day management
and force it to think for the log term objectives and goals of the business. The con of this budget
is that it controls the expenditure on all the resources including money, materiel, facilities and
people and makes it difficult to reach the forecasted sales target.
Fixed cost budgets:
The advantages of fixed budget is that it is easy to implement and to follow and this do not
require regular updates in accounting period (Maas, Schaltegger and Crutzen, 2016). This allows
the organisation to see the area do over and under estimation of the expenses and revenues so
alternation can be made timely. The disadvantages of this budget can be stated as it does not
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consider the flexibly approach and do not considerer the change in the level of sales and
increased volume. This is based on earlier data so it is difficult to establish and implement it.
M3 Analysing the use of different planning tools and their application
The budging is the formulation of the plans for the given future period in the numeric
terms. The organisations establish different budgets for the units, departments, job, division or
for the whole organisation. The budgets are used as planning tools they serve various purposes
for them manager in the controlling and measuring the performance of the organisation. The
various king of planning tools used in budgetary control are:
Zero based budget: is a method of budgeting where all the expanses are justified for
each new period. In this all the expenses are determined form zero level and no reference or
increment form the part budgets is taken (Zero Based Budgeting, 2018). This is useful for the
organisation to determined the actual cost and expenses incurred in the business pertaining to a
single accounting year. Budgets are then built around what is needed for the upcoming period,
regardless of whether each budget is higher or lower than the previous one.
Cash budgets: are responsibly for forecasting the cash receipts and the disbursement of
cash against the actual cash expenditure. It gives essential control to the organisation by breaking
down the inflow and out flow of the cash on monthly, weekly and yearly basis. This budget
make sure that the organisation is able to meet its current obligation by remaining in the
stipulated by budgeted funds.
Sales budgets: have direct focus on the income of the business which is expects to
receive from the normal and regular operation of the organisational activity. It is essential for the
firm as it assist the manager in understanding of the facts that at what financial position business
will be.
Fixed cost budgets: are those which ascertain the expenses which the business is
required it incurs whether the business activities are operating or not. The budgets include the
expenses related with salary and wages, rent, maintenance cost of plant and machinery,
electricity bill.
P5 Comparing the adaption of management accounting system to respond to financial problems
Identification of the
financial problem
Method 1 Method 2 Conclusion
The business is faced KPI: A Key Another option For this issue the
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