Management Accounting Systems and Applications for Agmet Company

This report delves into the realm of management accounting, specifically examining its importance and applications within Agmet Company. It explores various types of management accounting, including cost accounting, inventory management, price optimization, and job costing, highlighting their significance in internal decision-making. The report details different management accounting reports such as segmental, performance, inventory management, accounts receivables ageing, and job cost reports, emphasizing their role in performance evaluation and financial control. Furthermore, it includes calculations for marginal and absorption costing, comparing their impact on the income statement, and provides a reconciled statement. The report also discusses the advantages and disadvantages of planning tools like zero-based budgeting, and how management accounting systems aid in addressing financial problems, thereby providing a comprehensive analysis of management accounting practices and their practical implications.

Management accounting
systems and its applications
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Table of Contents
INTRODUCTION...........................................................................................................................3
SECTION 1.....................................................................................................................................3
(P1) Discuss management accounting and enumerate various types of it...................................3
(P2) Types of management accounting reports...........................................................................5
(P3) Calculate marginal and absorption costing for the firm......................................................7
SECTION 2.....................................................................................................................................8
(P4) Advantages and disadvantages of planning tools................................................................8
P5) How management accounting system help to respond to financial problems......................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
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INTRODUCTION
Management accounting is useful tool for managers to take effective decisions in the best
possible manner. The present report deals with Agmet Company engaged in manufacturing
chemical products and selling goods to customers for maximising their level of satisfaction quite
effectively. The report discusses about importance of management accounting information and
company should implement this accounting so that it can achieve desired objectives and
maximise productivity in the best possible way. Moreover, various management accounting
techniques are discussed and managerial reports are explained which assists manager in taking
effective decisions quite easily. Various planning tools such as NPV, IRR and other tools are
discussed which assist management whether to invest in the project or not. Marginal and
absorption costing are explained and various accounting systems are discussed which help to
respond to financial problems quite effectively.
SECTION 1
(P1) Discuss management accounting and enumerate various types of it
Management accounting is helpful for organisation so that it may take internal decisions
with much ease. Top management is benefited by such information to take better and effective
decisions in the best possible way. This information is not provided to external users, as it is
purely available to management only (Nitzl, 2018). Financial accounting provide financial data,
which are then provided to management for taking decisions for the betterment of the company.
Management accounting is concerned with reducing costs in effective way so that management
may be able to take better decisions for the betterment of the company. Agmet Company is also
utilises management accounting as it provides them with useful insight to take into account
internal strength of the company whether internal operations are up to the mark or not. If there
are any weaknesses then, corrective actions are taken quite easily.
On the other hand, management accounting not only provides useful information to the
managers but also investors and creditors be benefited by it (Pratheepkanth, 2018). However, this
information is not available for other stakeholders but management takes effective decision
which eventually help investors and creditors to take decision whether to invest funds in the
company or not. Thus, it has several features and beneficial to company in all aspects to achieve
desired goals. In addressing this, various types of management accounting are listed below-
The different types of management accounting are as follows-
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1. Cost accounting-
This branch of accounting deals with controlling various costs and expenses which are
incurred in the production process or any other purpose. The recording and summarizing of costs
is carried out so that overall performance of company can be enhanced by reducing costs in
effectual way. The various types of costs, which are incurred in the production process, are
direct, indirect, fixed and variable costs which are allocated in that way so that these do not
exceed profit. Thus, management is benefited by such information and as such, it can take better
decisions so that costs can be controlled in a better manner. Cost efficiency is achieved by
management with the help of such much needed information. Thus, company becomes effective
and efficient to yield better results (Englund and Gerdin, 2018).
2. Inventory management system-
Inventory is important part of firm, as without it production process cannot be
accomplished by department. Stock requires to be maintain in appropriate quantity so that it may
fulfil requirement of production department in effective way. Overstocking may led to wastage
of scarce resources and management does not want to reduce profits by spoiling inventory. In
regards to this, inventory management system is established by organisation so that inventory is
not wasted and at the same time, need of production department is fulfilled eventually. Firm
places new orders on daily basis and as such, it is required that inventory may be managed in the
best possible way and customer demand may be fulfil.
3. Price optimisation-
Price optimisation is quite helpful for the company to take effective way. Agmet
Company also uses this technique to implement price in the best possible way. Price optimisation
is a mathematical analysis technique which help firm to set price in quite effective manner by
assessing consumer behaviour (Mueller and Trost, 2018). This implies that firm analysis demand
of customers which are ready to pay for the price, firm is willing to sell. If customers do not
prefer to buy commodity, then organisation quote price in accordance to their preferences. This
way company set prices by assessing demand of potential customers and quote similar price so
that they may not be driven away by the rivals.
4. Job costing-
Job costing is the major essence of the manufacturing sector. In relation to this, Agmet
Company also uses job costing so that it may be able to control upon various job expenditures in
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the best possible way. This implies that all manufacturing jobs are controlled in effective way so
that higher production may be achieved with much ease. This is required so that inefficient jobs
may be reduced in the best possible way. Manufacturing jobs are required to be controlled in
effective way so that firm may be able to garner good revenue by initiating higher production
and that too at lower operating costs (Dekker, Kawai and Sakaguchi, 2018).
(P2) Types of management accounting reports
There are various types of management accounting reports help company to prepare and
analyse effectiveness of them and to take enhanced decisions by the management. Various
reports are as follows-
1. Segmental report-
This type of report is prepared by the company which is based on operating segments and
the same information is disclosed in the financial statements. This is done so that investors,
creditors and other stakeholders may take decision on the basis of their interest in the financial
performance of the company. However, this report is not required to be prepared by the private
organisation as it is held for public firms only. The segmental report consists of type of good sold
by the segment, expenses and related to depreciation as well. Moreover, information is also listed
in the segmental reporting such as income tax expenditure and other non-cash items are included
in this report. This helps management and other stakeholders to take enhanced decisions with
much ease.
2. Performance report-
Performance report is another useful management accounting report for Agmet Company
to assess the performance of something related to the business. Generally, this report is prepared
for analysing the effectiveness and efficiency of the employees. In simple words, firm assess
performance of workers in that way which help company to take corrective measures to improve
employees’ productivity in the best possible way (Quinn and et.al, 2018). Thus, performance of
employees is assessed by the management with the help of this report. It is helpful for the
company to measure actual performance with the budgeted one and as a result, steps are taken to
improve performance in the best possible way.
3. Inventory management report-
Goods in the manufacturing industry cannot be produced without having adequate
amount of inventory on the warehouse of the company. This is much related to Agmet Company
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which operates in the chemical manufacturing of various products and as such, it requires
inventory in desired quantity to achieve demand of customers. Numerous orders are laced by the
customers on daily basis and as such, stocks are required. Id inventory is purchased in more
quantity, then it adds to handling costs to the company and as such, expenses increases. Thus, in
order to minimise the wastage pf inventory, management is provided with inventory report in
which desired stock quantity is listed in accordance to the need of production department. Thus,
production is achieved as management scrutinises report and order only required quantity to
meet production (Qian, Hörisch and Schaltegger, 2018).
4. Accounts receivables ageing report-
Sales are made by the company on the basis of cash and credit which is the normal course
of business. When goods are sold on credit, payment is made afterwards and not when customer
purchase goods. Thus in order to assess outstanding credit from customers, accounts receivables
ageing report is prepared. This report lists down all the unpaid credit invoices of customers from
payment is required to be availed by the company. This is required in due time so that firm may
be able to carry out operational tasks in the best possible manner. Thus report highlights names
of customers and money outstanding on the goods purchased by them on credit basis. Thus,
company calls for payment so that it may be achieved in due time. If credit outstanding is more
than Agmet Company should implement strict credit policies so that payment may be recovered
within stipulated time.
5. Job cost report-
Job cost report is another method of management accounting report which outlines each
cost of manufacturing jobs in the best possible way (Giovannoni, 2018). This report deals with
various costs, which are incurred while carrying out production in Agmet Company. This help
firm to have proper analysis of various expenses incurred on jobs so that inefficient jobs can be
reduced up to high extent. This report is prepared and provided to management, which assess the
same and take measures to control costs in the production process so that more production can be
achieved with much ease.
The benefits of management accounting are numerous to the organisation. Among this,
main benefit is that it helps in making better and effective decisions by analysing various reports
and as such, adequate decisions are taken to remove weaknesses. Moreover, stakeholders are
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benefited by enhancement of firm’s earnings as it becomes internal strong and they make
decision to provide funds to the company.
(P3) Calculate marginal and absorption costing for the firm
Income statement under absorption costing
Ab Q1
Sales 80000
COGS (Cost Of Goods Sold)
(78000*.85) 66300
Closing Stock of company
(12000*.85) 10200
COGS- Closing stock 56100
Gross Profit obtained 23900
Fixed expenditures 5200
Net profit 18700
Income statement under marginal costing
Q1
Sales 80000
COGS (Cost Of Goods Sold)
(78000*.86 67080
Closing stock of company
(12000*.65) 7800
COGS- Closing stock 59280
Gross Profit obtained 20720
Fixed expenditures 16000
Selling expenses 5200
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Net loss -480
Q2
Sales 74000
Less opening stock
(12000*.86) 10320
COGS (Cost Of Goods Sold)
(66000*.86) 56760
Goods available 67080
Less Closing stock
(4000*.86) 3440
63640
Net loss -10360
Fixed Cost 16000
Selling expenses 5200
Net loss -10840
B) The figures under both method are different as marginal cost takes into account variable costs
and inventory valuation is different from absorption costing. On the contrary, all manufacturing
costs are absorbed under absorption costing. Thus, both the methods have different profit/loss in
income statement.
C) Reconciled statement
Net loss under marginal costing -10840
Add Fixed cost of production 29540
Absorption costing 18700
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SECTION 2
(P4) Advantages and disadvantages of planning tools
There are various planning tools which help Agmet Company to evaluate new project in
the best possible way. The planning tools are discussed below along with advantages and
disadvantages-
1. Zero based budgeting-
Zero-based budgeting is prepared without reference to historical or past year figures. It
means that completely new figures are formulated and budget is easily prepared by analysing
requirements of departments (Lee and Herold, 2018).
Advantages
1. It is easiest way of preparing of budget as no historical numbers are indulged and
budget is prepared in accordance to the current requirements
2. It is cost-effective method as forecasting can be done with much ease and
complications are observed.
Disadvantages
1. It is not useful, as it requires lot of time while preparing budget from zero base.
2. It requires lot of manpower as entirely new budget is to be prepared which is the
tedious task for employees and as such, it is time-consuming process.
2. NPV
NPV (Net Present Value) is another useful planning tool as it evaluates new project on
the basis of profitability aspect. It is required in Agmet Company to assess effectiveness of
project.
Advantages
1. It is quite easy to calculate and easier to interpret outcomes as it evaluates project on
profitability.
2. NPV has the main advantage as it utilises concept of time value of money while
assessing attractiveness of project (Advantages and Disadvantages of Net Present Value (NPV)
2018).
Disadvantages
1. It is not useful for the company as it ignores when project will yield returns in terms of
period as it considers only profitability aspect of the project.
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2. It is not suitable when two projects are mutually exclusive in terms of time and size.
3. IRR
IRR (Internal Rate of Return) is another useful technique as it assess effectiveness of new
project by taking into account net present value of cash flows and investment becomes equal to
zero. It is a discount rate, which provides attractiveness of project.
Advantages
1. It is useful technique as it takes into account time value of money and assess
effectiveness of new project in the best possible way.
2. It takes discounting rate while assessing project, which provides correct profitability of
project with much ease (Advantages and Disadvantages of Internal Rate of Return (IRR), 2018).
Disadvantages
1. It is not suitable when two projects are mutually exclusive. It gives inaccurate results
when two projects differ in terms of size and time.
2. It is hard to calculate discounting rate and moreover, results obtained through IRR are
not always accurate to rely on.
P5) How management accounting system help to respond to financial problems
Benchmarking
Benchmarking is quite useful in the company so that it may be able to improve upon its
operational activities in the best possible way. It is simple technique in which one company
compares itself with industry’s best organisation so that it may apply tactics of the same in
achieving goals in effective manner. Agmet Company can easily compares itself from the best
manufacturing firm and can make necessary improvements. This in turn help to respond to
financial problems as improvement is made which affects overall financial health of the
company. Thus, benchmarking is useful management accounting system, which eradicates
financial problems of organisation by implementing well-structured tactics to achieve efficiency
in the best possible manner.
Balanced Scorecard
Balanced scorecard is another technique, which help to respond to financial problems of
Agmet Company quite easily (Salvatore and Gesso, 2018). Balanced scorecard is the
performance measurement technique, which was developed by Kaplan and Norton. The balanced
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scorecard technique has four perspectives such as financial, customer, internal process and
learning and growth perspectives, which is used to strengthen internal operations. This help
management to respond to financial problems and as such, performance of employees can be
strengthen in the best possible manner. Financial health can be easily improved and resulting
outcomes can be attained with much ease.
Budgetary Target
Budget is a financial goal which Agmet Company prepares for the coming period in
effective way. Budgetary target is the management accounting system which is used to plan and
make budget for various departments so that these all units may perform well and carry out daily
operational activities in the best possible way. Budgetary target is required so that business may
achieve desired goals in accordance with the stated targets and as such, objectives can be
accomplished in desired way. Moreover, it help to control upon expenses in effectual way and as
a result, budget help to respond to financial problems in effective manner. It help to forecast
activities and as such, if there exists any variances, then corrective action is taken to improve the
situation. Thus, budgeted results can be easily matched with actual outcome to take effective
steps to remove deviations (Ahmetshina, Vagizova and Kaspina, 2018).
KPI (Key Performance Indicators)
KPI is another useful management accounting system used to measure performance of
employees, departments so that improvement can be done in the event of any deviations.
Strategic goals should be achieved and as such, performance of employees is measured with
much ease. KPI’s are useful as it provides clarity to company whether it is performing as per set
standards or not. Thus, it is helpful for evaluating effectiveness of performance and in the event
of any deviations observed; corrective actions are taken so that efficiency can be maintained in
the best possible manner. Thus, KPI is useful performance measurement technique to assess
productivity of various departments in the best possible manner (Hiebl and Richter, 2018).
CONCLUSION
Hereby it can be concluded that management accounting is effective branch of
accounting which help management to take enhanced decisions in the best possible manner.
There are various managerial reports which provides clarity to management to assess financial
health of organisation in effectual way. Moreover, planning tools also help managers to assess
effectiveness of the project whether to invest in the same or not. In addition to this, marginal and
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absorption costing are useful method of assessing cost and prepare income statements in the best
possible way. Moreover, management accounting system are useful tool in responding to
financial problems.
REFERENCES
Books and Journals
Abernethy, M.A. and Wallis, M.S., 2018. Critique on the'Manager Effects' Research and
Implications for Management Accounting Research. Journal of Management Accounting
Research.
Ahmetshina, A., Vagizova, V. and Kaspina, R., 2018. The Use of Management Accounting
Information in Non-financial Reporting and Interaction with Stakeholders of Public Companies.
In The Impact of Globalization on International Finance and Accounting (pp. 433-439).
Springer, Cham.
Dekker, H. C., Kawai, T. and Sakaguchi, J., 2018. The Interfirm Contracting Value of
Management Accounting Information. Journal of Management Accounting Research.
Englund, H. and Gerdin, J., 2018. Management accounting and the paradox of embedded
agency: A framework for analyzing sources of structural change.
Giovannoni, E., 2018. ENROAC-European Network for Research on Organizational and
Accounting Change (Doctoral dissertation, University of Groningen, The Netherlands).
Hiebl, M. R. and Richter, J. F., 2018. Response Rates in Management Accounting Survey
Research. Journal of Management Accounting Research.
Lee, K.H. and Herold, D.M., 2018. Cultural Relevance in Environmental and Sustainability
Management Accounting (EMA) in the Asia-Pacific Region: A Link Between Cultural Values
and Accounting Values Towards EMA Values. In Accounting for Sustainability: Asia Pacific
Perspectives (pp. 11-37). Springer, Cham.
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