Management Accounting Systems and Reports: Detailed Analysis

This report provides a comprehensive overview of management accounting, encompassing various systems, reporting methods, and planning tools. It begins by defining management accounting and its significance within organizations, emphasizing its role in decision-making, planning, and control. The report then delves into specific management accounting systems, including inventory management, price optimization, cost accounting, and job order costing, illustrating their applications with examples like IKEA. It explores different types of management accounting reports, such as budget reports, accounts receivable reports, and cost managerial accounting reports, highlighting their components and benefits. Furthermore, the report examines costing methods, including marginal and absorption costing, and their impact on income statements. It analyzes the advantages and disadvantages of planning tools used for budgetary control and their application in preparing and forecasting budgets. Finally, the report investigates how organizations respond to financial problems, emphasizing the role of management accounting in achieving sustainable success through appropriate planning tools and strategic financial management.

Management Accounting

Contents
INTRODUCTION...........................................................................................................................................4
TASK 1..........................................................................................................................................................4
Management accounting systems............................................................................................................4
Management accounting reporting..........................................................................................................6
Evaluation of accounting systems and management accounting reporting that are integrated within
organisational processes..........................................................................................................................8
TASK 2..........................................................................................................................................................8
Preparation of income statement by using marginal or absorption costing method.................................8
Application of wide range of management accounting techniques and production of appropriate
financial reporting documents...............................................................................................................16
Financial reports which helps in interpreting business operational activities.........................................17
TASK 3........................................................................................................................................................17
Explain Advantage & disadvantage of different type of planning tools which is used for budgetary
control...................................................................................................................................................17
Analyze the use of different planning tools and their application for preparing and forecasting budgets
...............................................................................................................................................................19
TASK 4........................................................................................................................................................19
Compare the organizations and evaluate that how they responds to their financial problems................19
Analyze how, in responding to financial problems, management accounting can lead organizations to
sustainable success................................................................................................................................21
Evaluate that how planning tools used appropriately to solving financial problems to lead organizations
to sustainable success............................................................................................................................21
CONCLUSION.............................................................................................................................................22
REFERENCES..............................................................................................................................................23

INTRODUCTION
In order to achieve the set objectives, management accounting is characterized as the
process of providing specific decisions inside an entity. In market situation, the mechanism by
which the inner director of the organization gathers, analyzes, documents and reports valuable
financial information through final cost is known as management accounting. Management
consulting collects, shows, amount, mechanizes and explores the compound content that assists
them in making policies and practices for the purpose of flourishing (Berry, Broadbent and
Otley, 2019). This is a system that is controlled for different economic issues that may occur
inside an entity by the management. By helping to achieve the long term goals, genuine, precise
and accurate data which means filled choice is reached. Throughout this task, they described the
significance of multiple management accounting systems and reports with their important
components. The report also covers costing methods including such marginal methodologies and
costing for absorption to compute net profit over the course of this year. The study explains
besides this particular preparation method and their significance to the business and how
businesses follow various accounting structures in order to solve money difficulties.
TASK 1
Management accounting systems
Management accounting: Management accounting, also known as management
accounting or standard costing, is the method for assessing capital expenditures and procedures
for maintaining corporate financial statements, documents, and bookkeeping to economic burden
in pursuing corporate targets.
As per the CIMA, “Accounting research is the implementation of operational and finance
planning concepts to develop, protect, maintain and improve value for shareholders of
government and business business-profit and non-profit enterprises”

According to Institute of management accountant, “The method of defining, evaluating,
gathering, reviewing, planning, interpreting, and transmitting account statements that
organizations implement to prepare, analyze, and monitor within about an entity, as well as to
ensure effective usage responsibility for its assets. It involves preparing audited financial
statements for non - supervisory entities, along with shareholders, lenders, government regulators
and tax authorities”.
Role of management accounting
 Developing management accounting system: The financial manager develops the
expense and financial accounting system and reporting for daily operating and financial
decisions.
 Steward partnership: Management accountant plays a vital role in predicting potential
trade and corporate developments for creating succession growth i.e. long-term plans,
reporting knowledge planning, business strategy development, market analysis etc.
 Long term and short term planning: The actually absorbs and also long-term decision-
making reviews are submitted to managers and leaders to implement appropriate action in
order.
 Control: Accountant management analyzes reports and analyzes data for monitoring, e.g.
regular expenditures, expenditures, variability presentation and reporting, cash and cash
flows management, cash management, performance appraisal and accountability etc.
 Participating in management process: Accountant management has a key role within
the organization. He serves a personnel role which also has direct control in his
department and over accounting as well as other workers.
 Decision making: Management accountant offers the requisite management with
information to take short-term decisions such as optimal product offerings, start making-
or-buy, rent or purchase, inventory levels, discontinuation of a service, etc., and lengthy-
term decisions such as financial analysis, capital budgeting, infrastructure projects, etc.
Management accounting system: Management accounting system is a mechanism that
requires the prompt reporting and documentation of economic scandals to relevant data that
company managers and key regulators use for appropriate budgeting process, decision-making,
and also contains organizational performance assessments. The main objective of accounting

management is to maintain ownership and controlling costs and provide a true picture of the
organization's amount of profit (Biswas, 2018).
Inventory management system: It requires total inventory or inventory control, it
process will start from purchasing the raw material and then further involves processing the
materials and turning them through finished goods. The accountability for inventory
management system lies with mannerly warehouse operations, handling along with storing from
each substance (raw and also completed). They maintain a raw material-related reasonableness
between production and consumption, and help mitigate waste of material. IKEA uses the
structure of process which is inventory management to track focus placed and ensuring proper
delivery of raw materials only with structures. IKEA handles products such as munitions,
defense electronic components and land electronics. The basic feature of the program is that the
product entering or exiting the company is constantly managed (Boddy, McCalman and
Buchanan, 2018).
Essential requirement: The essential requirement of this system to track the record of all the
material that use by the company at every stage. In this system contain various types of
techniques that use to sell out the inventory to customers such as:
LIFO: In this technique company sell out those products that come in last in the company.
FIFO: According to this technique company sell first out products that come first in the
company.
AVCO: There are conduct technique in average basis after that set the price of the each unit after
that sell out the products in the market.
Price optimization system: This technique is used to estimate a device's most favored
market value that would provide the correct mix between selling price and revenue percentage.
Unless the price set becomes too large for a consumer, the quantity of revenue will be reduced
and if the management on financial performance is too low, the volume of income will be
reduced. Therefore product price has to be determined or fixed through proper customer
examination react for various sales volumes. IKEA is delivering its goods at different locations
in order to draw more consumers and then at the same time earn enough income.

Essential requirement: The essential requirement of this system to set effective price structure
of every goods that sells out by the business. This system require to collecting all the historical
data to set the effective price structure. In historical data contains product volume, product
availability, economic conditions, fixed and variable cost details. Thus this system is required to
set the framework of the price.
Cost accounting system: It is a system or method used to estimate product costs that
companies need to assess their productivity properly. It includes average value of ending
inventory or storage, research ongoing along with final finished product that is important and
very helpful in preparing financial statement. IKEA managers use cost accounting tool to
determine the specific product categories and forms with that they will operate. This
management accounting method is ultimately necessary because it provides adequate calculation
and cost overview of multiple commodity, therefore valuable in choosing the most successful
business. This accounting system categorized into five parts such as:
 Input measurement basis: In this part contains of different types of overhead that based
on the input basis such as, historical, fixed, indirect cost and many others.
 Inventory valuation method: To valuation of the inventory require to use different types
of costing method such as marginal and absorption.
 Cost accumulation method: In this method focus on the customer’s jobs, batches,
orders, departments and processes.
 Cost flow assumption: To analysis the cash flow of the inventory use different method
such as, FIFO, LIFO and AVCO.
 Capability of recording: capability of recording of stock cost at different stages.
Essential requirement: The essential requirement of this system to analysis the cost of each unit
product by the company in production house. With the help of this method analysis the cost of
each job.
Job order costing system: It is a method connected to accounting that is being used
differently to measure and calculates the production costs of a single product. The method is
primarily utilized whenever a company deals with multiple types of goods and has a major cost
impact. Generally, this process is utilized by supervisor to maintain an accurate documentation

of the volume of expenditure produced on a given item by maintaining a specific list of job costs
on each product or object. This accounting is also used by IKEA because it provides its
customers a wide range of defense electronics, land protection systems and weapons.
Essential requirement: The essential requirements of this system to set job order to maintain
expenditure of business. It is essential because analysis the performance of job, analysis labor &
material and many others.
Management accounting reporting.
Management accounting report: Management accounting reports provide any
applicable written document that an entity collects and prepares to keep a record over its week
and-to-day operation in the form of financial statements or budget reports. IKEA also produces
detailed updates and other reports with a view to understanding its cost-effectiveness and real
productivity. Some of the profitable segments management reports consist of the following
components:
Budget report: This is the most important and vital study used to equate predictions
made to specific corporation's results (Braam and Peeters, 2018). The projected revenue and
expenses constitute a portion of the economy which is subsequently compared to real
information to test the governing body's main acts and role. IKEA also has the habit of producing
a proper report on the budget to start comparing its actual performance with predictions
produced. The budget report applies mostly favorable variation, showing strong efficiency and
business strategy.
Accounts receivable report: These are beneficial in providing knowledge about the
consistency of unpaid accounts receivable. This report includes a thorough overview of
outstanding company payment and unavailable control account with the relevant range of dates.
This report provides alphabetical order organized account details with details about another
client's purchase orders immediately under their name that is specifically ordered by date or
delivery order. This document is also important in estimating projections of prospective
consumer debt based on records of uncollectible debts not accepting funds on. IKEA apply its
daily client with delayed payments facilities or credit facilities, and it is important for them to

maintain accurate records of this business in order to achieve loan repayments from others
(Booth, 2018).
Cost managerial accounting report: The study demonstrates and estimates overall
production costs and all the material characterization in the manufacture and distribution of a
material. This covers expenses related explicitly or implicitly to the manufacturing extraction of
the raw material, labor, overhead or some other cover (Ferguson, 2019). This contains a
description of all the dissertations that a supervisor requires to make a decision an author's sales
price. It also gives information about quantity of stock waste in the manufacturing process,
weekly employment-coats as well as other overhead cost and therefore also assists in resources
optimization. IKEA apply this study to set the best price for the product and reducing overall
waste production in the production process.
Benefits of management accounting system and their application within an organisational
context
Kinds of management
accounting system
Benefits for IKEA
Cost accounting system The systems are implemented in ideal destination to accurately
assess the prices of their various goods. This allows us to calculate
and boost company's productivity through estimating every
manufacturer's cost properly.
Inventory management
accounting
Detailed records of stocks that try to enter facilities are kept top of
the operation of the program at the management team. It allows the
correct quantity of raw materials in conformity, which could lower
the cost of the storeroom as well as raising the chance of stock lack
of access that hampers the manufacturing system (Franco‐Santos
and Otley, 2018).
Job costing systems The method is implemented to calculate the income gained from a
particular job or from goods according to the costs assigned to

them. This offers support in measuring the source of revenue
received by this company on specific products or personalized
hold.
Price – Optimising
Systems
It is implemented at IKEA to evaluate the demands of stakeholders
and to produce additional goods as per their requirements. It
promotes the collection of best pricing approaches to strike a
balance between commodity request and gross profit.
Evaluation of accounting systems and management accounting reporting that are integrated
within organisational processes
Proper documentation and written record also promote a stronger accounting
management system. Like the material planning provision in the sales planning report and
expenditure organization of IKEA is being used to examine historical history on the grounds of
which potential amounts of raw material bought from one period are calculated. Therefore it is
important to fully incorporate all processes and monitoring to maintain efficient and consistent
function and process technology efficiency.
TASK 2
Preparation of income statement by using marginal or absorption costing method
Cost: Price is referred to as the numerical interest used in the production and distribution
of goods. Organizations such as IKEA are making significant investments to buy raw materials,
laboratories and facilities. It requires the sum of cash, which is provided up for money.
Marginal Costing: According to this method variable cost in this system is known as the
cost of the product and the fixed cost is fraction of the price of the time. This approach is used to
set the sales price and to pick the best combination of goods. The measurement of Net Profit for
BAE Systems Corporation can be seen underneath using the preceding statement of financial
position which is computed with absorption and marginal methodologies (Hariyati, Tjahjadi and
Soewarno, 2019).
Year 1 (Marginal costing method)
Item Number of £ P.U. Amount (£) Amount (£)

units
Sales 3000 92 276000
Marginal Cost of sales
Opening Stock
Add – Variable production
Cost
Direct Material 3600 11 39600
Direct Labour 3600 17 61200
Variable expenses 3600 7 25200
Total Variable Cost A 126000
Less – Closing stock 600 7 4200
Marginal cost of sales (A-
B) 193200
Fixed indirect production
cost 84000
Gross profit: 82800
Selling and distribution
overheads 5700
Admin Overheads 10500 16200
PBIT 66600
Interest expenses 1200
Profit before tax 65400
Tax @ 19% 12426
Net profit 52974
Year 2 (Marginal costing method)

Item
Number of
units £ P.U. Amount (£) Amount (£)
Sales 4000 92 368000
Marginal Cost of sales
Opening Stock
Add – Variable production
Cost
Direct Material 4100 11 45100
Direct Labour 4100 17 69700
Variable expenses 4100 7 28700
Total Variable Cost A 143500
Less – Closing stock 700 7 4900
Marginal cost of sales (A-
B) 224700
Fixed indirect production
cost 84000
Gross profit: 143300
Selling and distribution
overheads 7500
Admin Overheads 10500 18000
PBIT 125300
Interest expenses 1450
Profit before tax 123850
Tax @ 19% 23531.5
Net profit 100318.5