Management Accounting Report: Cost Analysis, Methods, and Systems

This report delves into the realm of management accounting, examining its core concepts and essential requirements. It explores various management accounting systems, including inventory management, cost accounting, and price optimization, highlighting their benefits. The report analyzes different management accounting reporting methods such as performance reports, budget reports, and accounts receivable reports. Furthermore, it provides a detailed cost analysis, utilizing both absorption and marginal costing techniques to prepare income statements. The merits and demerits of planning tools used for budgetary control are discussed. Finally, the report assesses how management accounting systems can address and resolve financial challenges encountered in business operations, with a focus on Next Plc.

Management Accounting

Table of Contents
INTRODUCTION
TASK 1
P1 What do you mean by Management accounting and explain briefly essential requirements of
their systems.......................... .................................................................................................1
P2 Types of methods used for the purpose of management accounting
reporting................................................................................................................................. 4
TASK 2
P3 By implementing different costing techniques ascertain cost ............................................. 5
TASK 3
P4 Explain merits and demerits of planning tools used for task budgetary control................ 10
TASK 4.................................................................................................................................... 13
P5 Discuss in detail how management accounting systems helps to solve the financial issues that
exist at the time performing business operation?
................................................................................................................................................. 15
CONCLUSION
REFERENCES

INTRODUCTION
Management Accounting is the activity where all the important transactions
as well as organisation internal financial information are recorded so it become
possible to take most appropriate and effective decision with the intention to make
betterment of business entity. Management Accounting provide support to the
outsiders like merchant bankers, underwriters, shareholders, financial institutions
as it helps to analyse current financial status of the company. On the basis of this
important investment decisions are taken into consideration. In the organisation
whether it is big, medium or small size M.A. plays an important significant role in
the business. The business entity that was selected under the respective report is
Next Plc. In retailing sector the brand operate their business. In clothing, food,
groceries it deals. It is one of the largest supermarket having so many branches in
different locations of the country. In the projects various topics are discussed in
context to management accounting such as define the meaning of management
accounting along with their essential requirement of types of MA system, discuss
the methods adopted for management accounting reporting, With the help of using
suitable technique perform cost analysis to prepare income statement by using the
concept of absorption and marginal costing. In the second part of the assignment
merits and demerits of planning tools used for the purpose of budgetary control are
discussed. And at last evaluation is done with regards to how company can
adapting and implementing Management Accounting system to handle and respond
to different financial issues (Badolato, 2014)
PART 1
TASK 1
P.1 Explain the concept of management accounting and provide essential
requirement of various types of management accounting system?

Management Accounting: it involves a process in which various activities such as
identification, measurement, analysis, accumulation, preparation, interpretation as
well as communication of financial information are tends to be done so that
business entity run their business activities smoothly. The another name of
Management accounting system is cost accounting as it helps to achieve objectives
and gain competitive advantage. In different companies such as public, private,
government, management accountant perform all these activities. As equilibrium
Assets management supports the business entity Next plc to conduct it all regular
basis so it become possible for staff members of finance team to make calculation
as well as measure actual performance of business (Bryson, 2014)
Origin: with regards to earlier industrial industrial revolution , management
accounting was emerged as most important activity. After performing and
analysing financial accounting it leads to be originated. This concept is commonly
adopted by next plc company for smooth functioning of business.
Management Accounting system: to track the record of financial as well as
operational department this respective system is commonly adopted by company.
For the objective to provide support to outsiders or stakeholders, the organisation
Next plc adopts this following system. With the help of this company’s actual
financial position and status are tends to be determine in most appropriate way.
Description of M.A. system – To analyse organisation current financial position,
various different management reporting are to be perform under this. By
implementing this system in the organisation all the working capital requirements

are tends to be analyse and meet by taking important decision making by managers
so that regular business can not interrupt and working can be done with ease flow.
Comparison between financial as well as management accounting
Financial accounting- All the concepts and principles are adopted by company to
perform the activity financial accounting. All the provisions as well as standards
are followed in the organisation so that it can show fair and true business position.
F.A. is most crucial element to business because with the help of this only
important financial information and actual financial status of company are analyse.
It gives financial information which helps outsiders to take decision making
regarding investments. On the basis of that stakeholders decide whether to deploy
their funds in that particular project or not. How much risk and return are also
analysing with it. It tends to show the actual business financial position in terms to
money or revenues. It is narrow concept as compare to Management accounting .
Management Accounting- to do management accounting there is no need to
follow specific principles or standards. It is perform with out adopting any
particular concept (Chantal, 2015)
Management accounting is done in the business to give information to
internal people of the organisation. So that they can take important decisions and
make arrangement of working capital to meet day to day activities of business. In
this ascertaiment of cost of product is also perform so that to control cost by

eliminating unnecessary expenses. This concept is broader as compare to financial
accounting.
Types of Management Accounting system
As various different types of activities are perform in the organisations to
operate the business smoothly so there is need to adopt various M.A. system. Few
example of systems are explain in detail in the below mentioned paragraphs such
as discuss as follows -
Inventory management system: This system is followed to make control
over the inventory as this system is commonly adopted by the those organisations
who manufactures the product. All the detailed information in terms to outflow and
inflow of cash are get with the help of this system. Organisation Next plc adopt
this system with the intension to track stock. There are various method to maintain
inventory such as HIFO( highest in first out), LIFO( last in first out), FIFO (first in
first out), weighted average method. Next Plc maintain their stock in their stores
and clear their inventory by following FIFO method so that to avoid the issues
related to obsolesce. In this the stock which is purchase first are give preference
first to sell (Kaplan, 2015)
Cost accounting system: to analyse product cost this system is adopted
as manufacturing industry adopt this method to identify the actual cost of product.
On the basis of this cost apportionment can be perform . Through this method Next
Plc company analyse involving all overhead cost as well as indirect cost and
direct cost. Specific product costing can also be analyse by organisation Next plc
through implementing the system of cost accounting. After analysing the cost

unnecessary expenses can tends to be reduce. cost accountant of manufacturing
company are responsible to follow cost accounting system so that they can take
effective decision in terms to fixation of product price on the basis of all the cost
that was incurred at the time of production of item.
Prise optimisation system: Organisation Next Plc follow this sytem, to fix
the product prices in such a way at optimum level as it leads to add value to the
organisation because it support to analyse such prices which is fixed by company
for their product as well as to give surety that whether the expectations of
customers are tends to be satisfied or not.
Job order costing system: this system is adopted by company to fix the cost
of manufactured item. In this manufacturing of product are done as per the
specification of customers so the features of all the products are differ from each
other because these products are develop according to the demands to clients.
Direct material as well as labour cost are traced to individual jobs and also
production overhead is allotted. As the Job order may be relates contract or t o
single order. This system is commonly adopted in advertising company,
engineering workshops, furniture company, foundaries, printing etc. To produce
and to fix different cost to each product this job order costing system is followed
by Next plc company (Lindholm, 2017)
Benefits of M.A.S.
Management Accounting system Their benefits
Cost accounting system  It helps to determine per unit cost

of product.
 Apportionment of cost become
possible
 Bifurcate direct and indirect cost
separately.
 Helps to manage and eliminate
unnecessary expenses related to
costing.
Price optimisation system  Helps to fix suitable price to
manufactured item
 Tends to satisfy the expectation of
customers.
 Fix that cost which provide
maximum satisfaction
 Beneficial for business to increase
revenues and leads to raise the
chances of business survival and
growth.
Inventory management accounting
system
 Helps to avoid losses in terms to
obsolesce

 Tends to avoid the issues related
to over and under stocking.
 Helps to manage inventory in
most appropriate manner
 Supports to analyse economic
order quantity and eliminates
unnecessary carrying cost as well
as ordering cost.
Job costing system  Support to create a product as
according to desires of customers
and by meeting their demand give
satisfaction to them.
 Ascertainment of product cost can
be done easily because every
items have unique costing
 In this cost sheet is prepared and
as per this each job cost is tends
to be determine.
 With the help of cost where cost
are incurred can easily be analyse.

P.2. Briefly describe different method used for management accounting reporting?
Different methods of management accounting reporting are described below in
detail:
Performance report: This report are tends to be prepare with the intention
to maintain track record of performance of the organisation all the operations
activity. To give bonus to staff members of company it is most commonly adopted.
With the help of these reports only employees incentives are tends to be fixed or
set. On the basis of their efforts to achieve tasks which are allotted to them
remuneration of workers are decided. This respective report is very significant to
the company as it tends to generate effective strategies for the purpose to increase
performance as well as to achieve competitive advantage (Maas, 2016)
Budget report: this is consider as internal report which are used by business
entities to assign budget to various different areas of Functional as well as to
operational department of thecompany. Next Plc managers use budget report to
make comparison between actual and standard spending’s so it become possible to
measure their performance. As it is consider very important for the organisation as
it leads to support to execute all the business activities in allotted budget. With the
help of it, organisation can tends to be determine that, is they are capable to satisfy
the projections which was previously made.

Account receivable report: It tends to be create to maintain the detailed
records of debtors who purchase the product on credit. In this information
regarding collection period along with amounts and date are tends to be recorded.
This helps to analyse the credit worthiness of company.
It is commonly prepared by those organisations which are offering products on
credit to their end users and clients. It is very much beneficial to the organisation
as it tends to helps business entity to determine actual unpaid amount by
customers, enterprise can tighten its credit policies on the basis of these reports
only so that late payment situation from customers can tends to be ignored.
There are so many different management accounting systems as well as
reports that are integrated with organisational process. Accounting receivable
reports are used to tighten credit policies through observing total owed amount of
various different customers (Melnyk, 2014)
TASK 2
P.3. calculate cost using most appropriate technique of cost analysis to prepare an
income statement with the help of using marginal as well as absorption costing?
Cost is the monetary value of product which is incurred at the time of producing
specific item. It includes all type of cost such as fixed cost, variable cost, cost of
material, overhead expenses after that it ascertain cost of finished product. There
are various type of cost that are incurred in business as these are explaining as
follows:

Direct cost: Cost which is directly related to/identified with/ attributable to cost
centre, for example, cost of basis raw material used in the finished product, wages
paid to site labours in construction contract etc.
Indirect cost: It is such cost that’s not directly or easily identified with cost centre.
Respective costs are apportioned over different cost centres using appropriate
basis. Like , factory rent incurred over various different department.
Fixed cost: This is the cost that remains constant at various levels of production as
it is not to be affected by volume of production e.g. Insurance, factory rent. Fixed
cost per unit vary inversely with volume of production.
Variable cost: this is the cost that tends to be vary or change in relation to volume
of production. It increases in total as production increases and vice versa such as
cost of raw material, direct wages etc. However variable costs per unit are mostly
constant for every unit of the additional output.
Cost analysis: it is the process of apportionment of cost according to different
activity as in this identification; analysing, assessing and allocation are done to all
the functional department. For respective purpose cost sheet are tends to be prepare
in the compay.
Marginal costing: It is defined as the ascertainment of marginal cost by
differentiating between fixed and variable costs. It is used to ascertain effect of
changes in volume or type of output on profit. It is a toll of decision making on