Management Accounting Systems & Techniques: A Unit 5 Report

This report provides a comprehensive overview of management accounting systems and techniques. It begins with an explanation of management accounting, its essential requirements, and different types of management accounting systems, including cost accounting, inventory manageme...Read More

UNIT 5
Management Accounting Systems &
Techniques

Table of Contents
Introduction......................................................................................................................................3
P1. Explain management accounting and give the essential requirements of different types of
management accounting systems.....................................................................................................4
P2 Explain different methods used for management accounting reporting.....................................8
P3. Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs..............................................................................................10
P4. Explain the advantages and disadvantages of different types of planning tools used for
budgetary control...........................................................................................................................13
P5. Compare how organizations are adapting management accounting systems to respond to
financial problems.........................................................................................................................14
Conclusion.....................................................................................................................................16
References......................................................................................................................................17

Introduction
This project report consists about management accounting, its essential requirement for
company. It also discusses about management accounting reporting and its types. Difference
between marginal costing and absorption costing also been discussed with numerical examples.
In scenario 1; the role of management accountant has been discussed by considering self
as Trainee management accountant in medium sized financial consultancy organization having
client base of 50 small and medium-sized businesses. In scenario 2; report on behalf of Trainee
management accountant has been prepared by taking scenario 1 as a base.

P1. Explain management accounting and give the essential requirements
of different types of management accounting systems.
Management Accounting:
Management accounting is the way to prepare business activity reports that help leaders decide
on usual and long-term options. It allows companies to pursue their goals by identifying,
estimating, analyzing, validating and providing data to management.
Management accounting focuses on all accounting marking clear management of active
asset measurement. Use the data to identify the costs of items or administrations purchased by
your organization. Financial plans are regularly used to measure the choices made in operating
procedures. Act accountants use execution reports to identify variances between actual financial
plan results.
Difference
The main difference between management accounting and financial accounting is the accounting
related to cash, as well as the accounting information to do the function of the books to be
managed within a business exchange.
Principals of management accounting
1. Designing and Compiling
Accounting data, records, reports, explanations and other evidence of past, present or future
results should be designed and organized to address the specific business issues and also obvious
issue.
This means that the administrative accounting framework is designed to include relevant
information. As long as this is true, there is a need to understand a particular problem. In
addition, accounting data can be modified and adopted to meet the needs of executive officers.
2. Management by Exception
The status of dedicated executive officers is followed when data is submitted to the board. This
means that the budgetary control framework and standard costing strategies are maintained
within an administrative accounting framework.
In this sense, the show itself is compared and tested to find trends. The board is given a

vague account of what goes wrong. As far as this is concerned, the administration has invested
less energy to analyze and consider the data and more opportunities for migration.
3. Control at Source Accounting
Cost control is better at the focus areas where they are caused: look at source accounting.
Disclosure of individual employees, relevance of matters relating to materials and use and
administration of administrations, eg machinery, strength, repair and maintenance, vehicles and
so on, are established as quantitative and thematic data. Therefore, it is possible to control the
producers, products and tools they bring to the administration.
4. Accounting for Inflation
Benefits can only be purchased if the capital is kept unchanged. It means that financial
compliance is not sustainable. From this point on, it is important to evaluate the capital estimates
that entrepreneurs have worried about in terms of real money estimates by keeping revaluation
records. Therefore, the speed of expansion is believed to judge the real performance of the
sector.
5. Use of Return on Investment
The calculated profit is generally referred to as Return on Capital Employed. Production speed
shows the effectiveness of the industry concern. For this reason, the used capital is proven as far
as real money is concerned.
6. Utility
Accounting frameworks and associated structures should be used especially when filling with
ancillary purposes.
7. Integration
It means that all the essential data of the administration are included so that they can be used
quickly at the highest level and at the same time, the accounting administration is coordinated
minimum cost.

Importance and need of Management accounting in Capital Joinery Ltd.
Management accounting is a remarkable type of bookkeeping that emerges from accounting or
accounting. In any case, it is firmly related, yet it is more about furnishing budgetary information
to help with regulatory choices. This implies that authoritative bookkeeping goes past every day
tallying of records and zeros just as long haul business assessment and alternatives. Another
fundamental capacity of board bookkeeping is to help chiefs in choosing the expense of things,
giving all information on costs, market components and advantages. Also, activity bookkeepers
can help decide the existence pattern of existing things just as the discernment of new things.
Essentially, activity bookkeepers give key data that can enable an association's administration to
aggregate settle on a significant number of their decisions. They similarly keep up intra-
association portability by giving an abundance of budgetary and quantifiable information, upheld
by steady bookkeeping accounts.
Essential requirements of Management Accounting Systems in Capital Joinery Ltd.
Management accounting is a technique utilized by the association's top heads to determine
essential business data, for instance, with the goal that everyday working decisions can be made
according to the affiliation's spending setting. Otherwise called managerial bookkeeping, this
cycle consistently requires office supervisors to plan different reports and present that
information to the senior administration gathering. Not at all like other cash related reports, these
data’s will not unveiled to speculators, banks and other external associations.
The fundamental objective of the board bookkeeping data is to attract inward information
the executive’s information from different sources and to assist administrators with making the
information available to them. This information assists overseers with settling on fundamental
decisions about assessment, methodology, association, cost decrease, and so forth Nonetheless,
while executing regulatory bookkeeping procedures; chiefs ought to be aware of these essential
prerequisites.
1) Management style: the manner in which the organization follows the style of the officials
impacts the administration bookkeeping system. It is basic to follow a particular sort of card style
as it determines who and how the information will be dealt with to give a standard outcome.

2) Organizational structure: the structure of the affiliation demonstrates the extent of the
information mentioned by the head and the degree to which it gives the mentioned information.
3) Information: the main requirement for utilizing on-board bookkeeping is data. Soul is the
quantity of apparently essential decisions. Nonetheless, this information may need to have a few
credits to be substantial for its utilization.
Different Management accounting systems:
1. Cost Accounting Systems
A cost accounting system (also called product costing system or costing system) is a framework
utilized by organizations to gauge the expense of their things for advantage examination, stock
valuation, and cost control. Assessing the genuine expense of an organization is urgent. A
business should know which items are beneficial and which are not, and this must be resolved
subsequent to assessing the right expense of the thing. Likewise, the thing cost system causes
you assess the last gauge of stock of products, work in progress, and completed merchandise
stock with a definitive objective of spending synopsis settlement. A cost bookkeeping system
(otherwise called a thing costing or costing structure) is a system that organizations use to gauge
the expense of their things for efficiency examination, stock valuation, and cost control.
Assessing the genuine expense of a business is fundamental. A business should know which
items are beneficial and which are not, and this must be found in the wake of assessing the right
expense of the thing. Moreover, the cost structure of the things assists with assessing the last
gauge of stock, work in progress and arrangement stock finished with the last objective of the
spending synopsis settlement.
2. Inventory management systems
A Inventory management framework (or stock system) is the cycle through which products are
followed all through the whole adaptable chain, from buy and creation to definite arrangement. A
stock administration structure is a device that permits Capital Joinery Ltd. track results over the
business chain in an adaptable manner. Advance the full reach from mentioning a position with
the gathering purchaser to organizing transportation for your client, arranging a total visit
through something.

3. Job Costing Systems
An Job costing framework includes the way toward gathering information on the expenses
related with a specific creation or organization. This information might be needed to introduce
cost information to a client under an understanding where expenses are repaid. The Capital
Joinery Ltd. contrasts the expense of every activity and the pay expected to guarantee the
positions are beneficial. Some of the time the association may secure that a few positions are too
costly considering the costs they can cause.
4. Price Optimizing Systems
Value Optimization Models are mathematical activities that decide how request changes at
various degrees of significant worth, so, all things considered they join cost data and speculation
level information to diminish costs propose which benefits. Worth streamlining models need to
focus on three fundamental assessment segments: the valuation strategy, the thing gauge for both
the purchaser and the merchant, and methodologies that address all the segments that influence
profitability.
P2 Explain different methods used for management accounting
reporting
The following task covers the various methods use for management accounting reporting by
companies to produce accurate analyses of given information.
Management Accounting Reporting:
Accounting reports are a fundamental piece of ensuring you have a total image of how
your business is getting along. A bookkeeping report should be conveyed quarterly to give you a
diagram of your business accounts. This is particularly basic for business visionaries, who get
key experiences from these fundamental reports.
Management accounting reports show the current and current monetary status of an
organization. These reports extricate spending information from bookkeeping books and can
incorporate data, for example, exchange, working costs, thing advantages, and nearby
agreements. These reports are created to empower supervisors to decide business alternatives
learned. When associations are depending on assisting with keeping up the executives books,
they can gather information all the more effectively that will assist pioneers with directing the

organization towards accomplishing its objectives.
Types of Management Accounting Reports:
1. Job costing reports
In its most straightforward structure, it is a report that screens the continuous expenses of an
advancement organization. Some JC reports just incorporate finish of-business costs and this can
be useful in separating issues to get around future vocations. Nonetheless, it is unmistakably
better if the report screens work costs in a manner that is reliable with the objective that issues
can be distinguished and settled before they go frantic.
Exact Job Costing can just assist with separating issues during work and after it is done;
issues, for example, a blunder in computing the equipment will be relied upon to finish a specific
tallness or step lost during development.
2. Inventory management reports
An inventory report is a rundown of the measure of stock accessible to an organization at some
random time. The speculation report is a physical or electronic chronicle with numbers
discussing what you are presently prepared to sell, the stock you need, or the stock you
requirement for in-house business use.
Good inventory reports contain exceptional information with a decent arrangement of detail
and use pictures to feature the amount of a specific item you have. Record reports help you to
stop by request or unavailable when clients look for your items on the web.
3. Operating budget reports
An operating budget reflects the expansion in the association’s income and related expenses for a
long time to come, as a rule the next year, and is frequently remembered for the finance
arranging. Much of the time, the load up gets comfortable with the way for gathering the
budgetary arrangement before the beginning of every year, after which an update is made
consistently. A working monetary arrangement can incorporate an upset arrangement, kept in
detail to help everything about the spending plan.
4. Accounts receivable aging reports

Accounts receivable aging (classified by means of an aged receivables report) is a between time
report that requests bunch records to be accessible dependent on the astounding removal time. It
is utilized as a measure to decide the money related prosperity of an association's clients. On the
off chance that the accessible records show that gathering receipts are being gathered much more
slow than expected, this demonstrates that an organization could recuperate or that the
association is in decrease perceives that there is a more explicit proposition danger in their
economic deals.
5. Performance reports
Performance reports are incorporated to confirm the distribution of an association overall
similarly as any agent is close to the furthest limit of a term. Departmental execution reports are
additionally produced in enormous affiliations. Pioneers utilize these introduction reports to
discover key alternatives for the fate of society. Individuals are frequently allocated to their
obligations to the general public and illustrators are terminated or controlled varying. Execution
the board bookkeeping reports additionally give a point by point comprehension of how an
association works. In case you don't think you need to work inside a specific cutoff yet somehow
that won't occur, these connections can lead you to defects in the setup. The portion of the
execution report is essential for any association to keep up an immediate extent of their way to
deal with the primary objective.
P3. Calculate costs using appropriate techniques of cost analysis to
prepare an income statement using marginal and absorption costs
Month: May
Product A (Marginal Costing)
Unit price
(GBP)
Total
units
Amount
(GBP)
Amount
(GBP)
Selling price 250 100 £25,000
Less: COGS
Direct materials 60 100 £6,000
Direct labor 40 100 £4,000
Variable production overhead 20 100 £2,000
Variable sales commission@2% £500 £12,500
Contribution £12,500
Less: Periodic cost
Fixed selling £1,000

Fixed Administration £3,000
Fixed production £2,000 £6,000
Net Profit £6,500
Product A (Absorption Costing)
Unit price
(GBP)
Total
units
Amount
(GBP)
Amount
(GBP)
Selling Price 250 100 £25,000
Less: COGS
Direct materials 60 100 £6,000
Direct labor 40 100 £4,000
Variable production overhead 20 100 £2,000
Fixed Production overheads 20 100 £2,000 £14,000
Gross Profit £11,000
Less: Operating expenses
Fixed selling £1,000
Fixed Administration £3,000
Variable sales commission@2% £500 £4,500
Net Profit £6,500
Month: June
Product A (Marginal Costing)
Unit price
(GBP)
Total
units
Amount
(GBP)
Amount
(GBP)
Selling price 250 75 £18,750
Less: COGS
Direct materials 60 80 £4,800
Direct labor 40 80 £3,200
Variable production overhead 20 80 £1,600
Variable sales commission@2% £375
Less: Closing stock 120 5 £600 £9,375
Contribution £9,375
Less: Periodic cost
Fixed selling £1,000
Fixed Administration £3,000
Fixed production £2,000 £6,000
Net Profit £3,375
Product A (Absorption Costing)
Unit price
(GBP)
Total
units
Amount
(GBP)
Amount
(GBP)
Selling Price 250 75 £18,750
Less: COGS
Direct materials 60 80 £4,800
Direct labor 40 80 £3,200

Variable production overhead 20 80 £1,600
Fixed Production overheads 20 80 £1,600
Less: Closing stock 140 5 £700 £10,500
Gross Profit £8,250
Less: Operating expenses
Fixed selling £1,000
Fixed Administration £3,000
Variable sales commission@2% £375 £4,375
Net Profit £3,875
Reconciliation of profits
Net Profit from absorption costing £3,875
Less: Difference in closing stock £100
Less: Difference in Fixed overhead £400
Net Profit from Marginal costing £3,375
Calculation of material variances
Budgeted Actual Variances
Materials cost per unit £24 £18.67 £5.33
Inventory ledger record LIFO Method
Dat
e Description Sale/Purchases Balance
Unit
s
Cos
t Total
Unit
s
Tota
l
Jun-
01
Opening
Inventory 10 £35 £350 10
£35
0
Jun-
09 Purchases 15 £38 £570 25
£92
0
Jun-
15 Issued -12 £38 -£456 13
£46
4
Jun-
20 Purchases 10 £32 £320 23
£78
4
Jun-
23 Issued -10 £32 -£320 13
£46
4
Jun-
27 Issued -3 £38 -£114 10
£35
0
Jun-
30 Issued -2 £35 -£70 8
£28
0
Average cost methods
Dat
e Purchases
Unit
s
Cos
t Total
Jun- Opening 10 £35 £350

01 Inventory
Jun-
09 Purchases 15 £38 £570
Jun-
20 Purchases 10 £32 £320
Total 35
£1,24
0
Average cost of Inventory =
Total/Units
= 1240/35
= 35.42857143
P4. Explain the advantages and disadvantages of different types of
planning tools used for budgetary control
Budgets
Budget is a plan to show how much money an individual or society makes and how much they
ask for or can afford to spend. A spending plan is a cash agreement for a fixed period, often a
year. In the same way, it could include the size and income of agreed agreements, the amounts of
funds, the amount of expenses, resources, liabilities and income. It is used by organizations,
governments, families and various associations to communicate master plans or times of exercise
in measurable quantities.
A budget is the amount of money set aside for a specific purpose and the expected
spending pattern along with suggestions on how to meet them. It could involve overcharging,
providing money for future use, or a shortage where costs exceed pay.
Budgetary Control
Advantages Disadvantages
Interdepartmental initiative activities. A genuine issue will emerge when budgetary
plans are executed with exactness and
consistency.
Clarify the ground breaking strategies. They
decide the assets, pay and budgetary years
expected to make the vital game plans.
It can propel makers for absence of interest.
With the likelihood that top-down spending
plans won't be forced, agents won't
comprehend or zero in on the reasoning behind
arranged spending.

Give an exquisite rundown of progressive
activities.
It can de motivate employees.
Cost volume profit analysis
Cost volume profit analysis is a strategy for authoritative bookkeeping that quantifies the impact
of the size of an agreement and the expense of a thing on the business advantage of an
organization. Consider how changes in fixed costs, variable costs, cost of deals per unit, and a
business blend of at any rate two explicit components influence business productivity. The
investigation of most books accepts all costs that might be fixed or variable, the expense of uses
per unit and the expense per unit are both variable and fixed and all offer of all units made.
Cost volume profit analysis
Advantages Disadvantages
Simplicity is approximate, using a handful of
standard recipes; the numbers can be adjusted
to quickly determine changes in factors.
Accuracy - assume all costs are fixed but costs
are subject to change with creation.
Adjusting the break-even helps leaders assess
future spending and how creation affects
industry goals.
Accept offers that are durable, but interest in
an item may change over time.
Evaluation: Assist clan leaders by deciding the
cost of what they can and will offer more.
Consider just the set time after this period the
results can be unreliable.
P5. Compare how organizations are adapting management accounting
systems to respond to financial problems
Today affiliations are confronting numerous issues identified with cash, which can be recognized
in various ways, which are examined beneath:
Benchmarking: Benchmarking is a cycle of estimating the exhibition of an organization's items,
administrations, or cycles contrasted with those of another industry thought about the best in the
business, otherwise called high positioning. The motivation behind a model is to separate inside
open entryways for improvement. By thinking about high-performing associations, isolating

what makes such execution conceivable, and afterward contrasting these circles and how your
business functions, you can actualize changes that will achieve the essential updates; like for
example Creams ltd. has set benchmarking of achieving 25% of past arrangements pay. On the
other hand, Starbucks has set benchmark on the base of cost and variable expenses. It centers to
reduce wastage and lessening variable cost by 10% consistently.
KPI: Also known as key execution marker; Ratio checks are huge KPIs of any connection. It
logically ponders the adjudicator reliant on in any occasion two years of budgetary reports and
the market's standard extents and passes an explanation with respect to whether the affiliation
performs well. For example; Creams ltd. keeps up current extent of 2:1 as an ideal extent;
underneath this shows budgetary issue inside association. Moreover association has set worth
25% income driven edge. Underneath this standard exhibits budgetary issue. Of course;
Starbucks follows return on esteem, which is 9% picked by association; underneath this value
exhibits cash related issue.
Money Administration: This is the affiliation's fundamental structure to assess how a thing
chooses to amass maintain for the business. There are two exceptional ways to deal with fund-
raise; Liability and Value. Both require some cost to be paid by the business; A blend of two
costs known as the weighted conventional utilization of capital.

Conclusion
After analyzing whole report, it very well may be reasoned that; the norm of the
executives accounts are not made and never were. Most associations have defective structures to
encounter the genuine presentation of cash - in case they didn't, so, all in all they would have a
beginning stage, as opposed to simply dubious it is frequently disconnected. For instance, a
realtor with occupations in three urban areas - when asked what the profitable position was
among the work environments, the two proprietors had no information. They meant to zero in on
the circumstance. At the perfect time real authoritative records were totally dismissed, however
were viewed as severe heads.
Budgeting control is utilized as a change device to design and deal with the relationship
of assortment or offer of items or organizations, to advance coordination and correspondence
between offices, to propel pioneers and to accomplish assess. The Budget control is a sheltered
game plan of all parts of the affiliation's business to guarantee that the affiliation accomplishes
its objectives at a particular time later on; the different divisions must give an association and
pioneers on the objectives gave.

References
DRURY, C. (2015) Management and Cost Accounting. 9th Ed. Cengage Learning.
EDMONDS, T. and OLDS, P. (2013) Fundamental Managerial Accounting Concepts. 7th
Ed. Maidenhead: McGraw-Hill. HORNGREN, C., SUNDEN, G., STRATTON, W.,
BURGSTALHER, D. and SCHATZBERG, J. (2013) Introduction to Management
Accounting. Global Ed. Harlow: Pearson. (This text is available electronically and is
supported by access to an online course)
SEAL, W. et al (2014) Management Accounting. 5th Ed. Maidenhead: McGraw-Hill