Capital Joinery Ltd: Management Accounting Systems & Techniques Report

This report delves into the realm of management accounting, focusing on systems and techniques applicable to businesses like Capital Joinery Ltd. It examines various management accounting systems, including cost accounting, inventory management, job costing, and price optimization, outlining their benefits and applications. The report further explores different methods of management accounting reporting, such as job costing reports, performance reports, and inventory reports, highlighting their roles in organizational processes. Additionally, it analyzes planning tools for budgetary control, comparing activity-based budgeting and zero-based budgeting, and discusses their advantages and limitations. The report also covers the integration of management accounting systems and reporting in organizational processes, emphasizing their impact on decision-making and performance improvement. Finally, the report includes a comparative analysis of management accounting systems used by different organizations, providing insights into adapting to financial challenges.

Unit 5 Management Accounting
Systems & Techniques

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
SCENARIO 1.............................................................................................................................3
Management accounting system and its essential requirements............................................3
Different methods of MA reporting.......................................................................................5
Benefits and the limitation of different planning tools for budgetary control.......................7
SCENARIO 2.............................................................................................................................9
Application of different types of management accounting techniques..................................9
Comparing ways companies are adapting management accounting systems for responding
to financial problems............................................................................................................12
CONCLUSION........................................................................................................................14
REFERENCES.........................................................................................................................15
APPENDIX..............................................................................................................................16

INTRODUCTION
Management accounting (MA) refers to the accounting system which assists the
business entity in gathering important business-related information which is being utilized by
the internal management team and is different from the financial accounting. The major
reason behind using MA is to undertake managerial decisions pertaining to cost and other
operational activities. In this report, Capital Joinery Ltd is taken as an organization, which is
into broad range of joiners, windows and the mad to measure doors and so forth. This report
states about the different types of MA systems along with its benefits and application. Along
with this, it throws light on the various types of MA reporting with the techniques which is
being utilized by the business entities. It covers the pros and cons of the planning tools for
building up the budgetary control and along with carrying out a comparative analysis of eth
MA systems being used by the two large organizations.
SCENARIO 1
Management accounting system and its essential requirements
As per the IMA, London, management accounting refers to application of the
professional skills and knowledge in the preparing of the crucial reports which result into
providing support to the management in regard to the formulation of the policies and the
other strategic plans and implementing control.
There are various types of management accounting systems which can be used by the
business organization for meeting with its operational requirements. A detailed analysis of
the various MA system is stated below.
Cost accounting system
This MA system is being utilized by the entities in order to determine or estimating
the cost of the its products. This system is also used for the purpose of valuation of inventory,
exercising cost control and in carrying out the profit analysis. It mainly designed for keeping
track of the flow of the stocks from the different stages of the production. For instance, if the
material A transferred from one process to another (Hasyim and Jabid, 2019). It will be
updated automatically in the system. This approach is mainly used by the manufacturing
organization in order to determine how much inventory is put under the different stages. The
essential requirement of this system, is in regard to recording the cost of every transaction
that takes place which assist in establishing the control as well.
Benefits:
 This system assists in identifying the activities which are profitable in nature.

 The information gathered through it provides support to organization n undertaking
decision making.
 This can be used in calculating the profit/loss pertaining to the product on a periodic
basis.
 It can be utilized in establishing cost control in regard to inputs and supplies.
Application
The cost accounting system is used by the manufacturing concerns for appropriately
recording the cost in association with the production of the good.
Inventory management system
This system is mainly implemented for effectively measuring and monitoring the
inventory of the goods in whichever form they are like work in progress, just raw material or
the processed finished product. For the large organizations having complex supply chain, this
system is very much useful (May, Atkinson and Ferrer, 2017). This is very crucial for all
businesses which assist in systematically managing the inventory related problems. This
system is essential in determining the proper time for the placing a new order and the size of
it along with the cost associated with holding it.
Benefits:
 This MA system is effective in overcoming the situation of under or over stock of
goods.
 It provides assistance in identifying the right time to place order.
 It can be further utilized for forecasting eth future requirement and trends.
Application
It can be used by Capital Joinery Ltd for the purpose of managing its stocks of
materials and the business supplies.
Job costing
This type of system is being used when the products are created as per the
specification provide by the client. This system actually incorporates the cost which will be
incurred for completing the given job (Alami and ElMaraghy, 2020). This helps the entity in
putting price of the good which is reasonable in terms of profit. It takes into consideration all
types of cost whether direct or indirect cost. This approach is essential for the firms which are
producing multiple products which are different from one another.
Benefits:
 Through this system, cost is being analyzed from different side which results into
increasing the operational efficiency of the firm.

 In this the cost recorded are very accurate which can be used in comparing budgets
with the actual outcomes so that cost can be controlled.
 The cost sheet created one’s can be further for costing the other similar job which
might come up in future.
 It can be utilized for figuring any type of defects or spoilage associated with the
production system.
Application
This method is applicable to Capital Joinery Ltd as it can use this system for
identifying the profits in respect to various products being produced by it.
Price optimization system
This MA system is basically the mathematical program which is being utilized for
deciding the price of the item. It is mainly based upon the demand and supply of the good sin
the market (Simchi-Levi, 2017). It takes into account the willingness of the clients pertaining
to buying that product. This helps in achieving the maximum profitability. It is essential for
the purpose of determining the right price for the product according to demand and customer
willingness.
Benefits:
 The price is decided as per the demand of it which various according to the
willingness of the customers.
 Helps in enhancing the profits of the organization.
 It assists the entity in gaining an insight into the market pattern.
 It involves optimizing of the entire process which results into reducing the manual
task and risk.
Application
This MA system will support Capital Joinery Ltd which will help in undertaking
business decisions through analysing the price.
Different methods of MA reporting
Job costing
It is mainly utilized by the management for the purpose of evaluating the cost
pertaining to the project in accordance with the standards set. This report provides an analysis
of the total cost that will be incurred in a particular job as against the expected return.
Through this, the profitability in relation to the different jobs can be determined and decision
can be taken to put more focus on the jobs which are more profitable instead of wasting time
and efforts in in the less profitable jobs (Blanchfield, Acharya and Mort, 2018). This report

provides an insight in analyzing the expenditure in time so that corrective actions can be
taken on time.
Performance report
This report is prepared for analyzing and reviewing the performance of the individuals
and the departments. In the large business concerns, the division wise report is being
prepared. These reports are valuable for the association to take vital business choices
regarding the future of the association. In view of this report, the workers are rewarded for
their responsibility towards work and the association while the under performers are either
laid off or managed in alternate manner (Kim, Watkins and Lu, 2017). This report gives
profound knowledge about the working state of the organization dependent on its exhibition
as for the specific rules. It demonstrates any imperfection in the framework which is limiting
it for accomplishing ideal performance level. Hence, the function of this report is
fundamental for any association in getting precise information of the strategy for
accomplishing the objectives.
Account receivable aging report
It is an important report which is being utilized by the management in case if the
goods are sold on credit to the customers. This report gives the total breakdown of the clients
remaining balance. This report is significant as it enables the administration in distinguishing
the any issue in the organization's collection system (Ndebugri and Tweneboah Senzu, 2017).
Aside from this, it likewise permits management in recognizing the defaulters. In view of this
report, arrangement is made for defaulters and if any adjustment in the credit strategy is
required, the equivalent is additionally done.
Inventory report
This report gives the synopsis of existing stock of the business. It gives total insights
concerning the how much stock is there, which item is selling quicker, different criteria based
performance of the item. It includes total record keeping of every single exchange separately
and monitors each exchange of stock. In light of the data given in the report, helps the
business associations in creation projections about the future necessities. It likewise helps in
recognizing the any wastage of the stock and depicts the areas of progress. Therefore, it
prompts ideal usage of resources.
Integration of management accounting system and reporting in the organizational
process
The integration of MA system and reporting will assist the management in
accomplishing the required goals and targets. It will support the entity in effectively handling

the operational activities and tasks in an appropriate way with the available amount of
information. This will assist the organization in determining the areas where further
improvement and focus is required which will help in enhancing the performance and
profitability of the company. The integration will support the organization in undertaking the
right decision for undertaking the effective and right planning.
Benefits and the limitation of different planning tools for budgetary control
The budget prepared assists the business in gaining knowledge pertaining to the
expected future income along with the usage of the same in a business organization. This
helps in distribution of the resources across the various business-related tasks. The various
tools that can be used by the Capital Joinery Ltd are described below.
Activity Based Budgeting
It is the planning strategy where the association gets ready spending plans based on
the activities as opposed to the organizational divisions. The spending plans are set up based
on forecasted figure of assets to be utilized and profitability produced under each activity.
The planning method don't utilize the financial plans arranged for earlier year for the
readiness of current spending plan (Klimenko, 2019). It helps the entity in recognizing the
cost and the expenses related with every action being acted in the production cycle of the
undertaking. The activity based financial plan will help the Capital Joinery Ltd in recognizing
the loopholes of expenses and wastages and agreeing to which the organizations take
remedial measures. Following are the advantages and disadvantages of it to Capital Joinery
Ltd:
Advantages
 This method is very easy to actualize as it is not a time-consuming process.
 It provides support to the business in identifying the errors in the production
procedures.
 This tool does not take into account the previous year’s budget.
Disadvantages
 This tool requires highly experienced professional with the relevant skills and ability.
 This might be costly for implementing it in the business.
Zero based Budgeting
It refers to the planning procedure that don't think about the financial plans of earlier
year in the readiness of financial plan for current year. The whole financial plan is set up after
legitimate examination and investigation identified with the spending plan. In this financial
plan, the chances of blunders and any mistake of the past financial plans are not conveyed

forward in the financial plans for current (Lobodina and et.al., 2020). This helps the Capital
Joinery Ltd in outlining more exact spending plans with least fluctuations as everything is
begun from the new. The justification isn't needed to be given for each thing like the
conventional planning technique as each thing is embedded after research and its impact. Its
advantages and disadvantages to Capital Joinery Ltd are stated below:
Advantages
 It does not consider past year’s budget plan.
 Proper investigation is being carried out before putting an item into budget.
 It is relevant for the businesses which faces frequent changes.
Disadvantages
 This tool requires lot of time and efforts.
 It is expensive enough to be implemented in the small businesses.
Operational budget
Operational financial plan accounts to the spending plans arranged for the operational
tasks of the association. It includes determining the future pay and costs of the venture
dependent on the past patterns (Sulindawati, Yudantara and Musmini, 2019). The operational
financial plans studies about the spending plans of a year ago for getting ready spending
plans for current year. It helps the Capital Joinery Ltd in legitimate assignment of assets
between the various divisions and different business tasks. Its pros and cons are given below
to the Capital Joinery Ltd.
Advantages
 This tool is easy to understand by the individuals having interest in it.
 It provides assistance to the management in timely and appropriate distribution of the
resources.
 The planning tool can be utilized for the purpose of establishing control over the
operational expenses.
Disadvantages
 It is dependent on the last year’s financial plan which might increase the chance of
making the mistakes.
 Through this tool, the estimation made might not be accurate which results into
undertaking wrong decision.

SCENARIO 2
Application of different types of management accounting techniques
There are various types of MA techniques which can be utilized by the organization
for the purpose of cost analysis. The most widely used techniques are stated below.
Marginal costing
It is the most significant method for the cost analysis and decision making. In this
framework, variable expense is considered to the unit cost. It is a basic procedure to examine
the cost data and its impact on the productivity as for change in the degree of production. The
fixed expense for the particular time frame totally written off against the total contribution
(Jagtap, Zagade and Khairnar, 2020). In UK, this technique of costing is extremely used. It
additionally helps in deciding the break-even point for various degrees of exercises. It decides
the ideal production level with the least cost pertaining to the production.
Absorption costing
This strategy accounts all the costs that are brought in association with the expense of
production and are consequently incorporated as the cost of production independent of
whether it is fixed expense or variable expense. Nonetheless, in this technique the extent of
fixed overhead expense is dispensed to every unit of the item like variable assembling cost.
This methodology is broadly utilized since it is needed for the external reporting purpose, for
example, Generally Accepted Accounting Principles (GAAP) and International Financial
Reporting Standards (IFRS).
Break-even point analysis
This analysis is being used by the management in order to identify the point where the
business will be at no profit and no loss situation (Kampf, Majerčák and Švagr, 2016). This is
mainly useful for the businesses which are planning to expand their business or bring new
product in the market.
Income statement as per Marginal Costing
Particulars May June
Sales Revenue (100*250) 25000 (75*250) 18750
Marginal Cost of Sales
Direct Materials (100*60) 6000 (80*60) 4800
Direct Labour (100*40) 4000 (80*40) 3200
Variable sales commission (25000*2%) 500 (18750*2%) 375
Variable Production Overheads (100*20) 2000 (80*20) 1600
12500 9975
Add:

Opening Stock 0 0
Less:
Closing Stock 0 (5*120) 600
12500 9375
Contribution 12500 9375
Fixed production overheads 2000 2000
Fixed selling cost 1000 1000
Fixed administration cost 3000 3000
Net Income 6500 3375
Income statement as per Absorption Costing
Particulars May June
Sales Revenue (100*250) 25000 (75*250) 18750
Cost of Sales
Direct Materials (100*60) 6000 (80*60) 4800
Direct Labour (100*40) 4000 (80*40) 3200
Variable Production Overheads (100*20) 2000 (80*20) 1600
Fixed production overheads (100*20) 2000 (80*20) 1600
14000 11200
Add:
Opening Stock 0 0
Less:
Closing Stock 0 (5*140) 700
14000 10500
Gross profit 11000 8250
Fixed selling 1000 1000
Fixed administration cost 3000 3000
Variable sales commission (25000*2%) 500 (18750*2%) 375
Net Income 6500 3875
Reconciliation of profit figures
May June
Profit under absorption 6500 3875
Difference in units of inventory * fixed production
overhead p/u 0 (20*20) 400
Profit under marginal costing 6500 3475

Interpretation: It can be said that the profit under the absorption cost is higher than that of
marginal costing which is because it incorporates the fixed expenses while determining the
cost of production. Along with that, absorption costing is recommended for the external
reporting purpose as well.
Variance analysis
CALCULATION OF VARIANCES:
i) Material Price Variance = Standard Price - Actual Price
= (Std Price - Actual Price) x Actual Qty)
(£12 - £9.3) * 2400 kg
6480 (Fav)
i) Material Usage Variance = Standard Usage - Actual Usage
= (Std Qty - Actual Qty) x Std Price)
(2000 kg - 2400 kg) *£12
-4800 (Adv)
Inventory record
Inventory ledger record using LIFO method
Date Goods purchased
Cost of goods
sold Inventory balance
Jun-
01 Beginning Balance
£350 (10 units *
£35)
Jun-
09
15 units *£38 =
£570
£570 (15 units
*£38)
Jun-
15 £456(12*£38)
£350 (10 units *
£35)
£114 (3 units *£38)
Jun-
20
10 unit * £32=
£320
£350 (10 units *
£35)
£114 (3 units *£38)
£320 (10 unit * £32)
Total 23 units £784
Jun-
23 £320 (10 * £32)
£350 (10 units *
£35)
£114 (3 units *£38)
Total 13 units £464

Jun-
27 £114 (3*38)
£350 (10 units *
£35)
Jun-
30 £70 (2*35) £280 (8 units * £35)
Inventory ledger record using Average Cost method
Date Goods purchased
Cost of goods
sold Inventory balance Average cost
Jun-
01
£350 (10 units *
£35) £35
Jun-
09
15 units *£38
=£570 25 units £920 £36.8 (920/25)
Jun-
15
£441.6(12*£36.8
) 13 units £478.4
Jun-
20
10 unit * £32 =
£320 23 units £798.4
£34.7
(798.4/23)
Jun-
23
£347 (10 *
£34.7) 13 units £451.4
Jun-
27 £104.1 (3*34.7) 10 units £347.3
Jun-
30 £69.4 (2*34.7) 8 units £277.9
Interpretation: The closing inventory valuation under the LIFO method is £280 (8 units *
£35) while in case of average cost method is 8 units amounting to £277.9 as it takes the
average of total cost divided by the number of units.
Comparing ways companies are adapting management accounting systems for responding to
financial problems
It is very crucial for the business organization to understand that by identifying the
areas which might pose as a big threat on the performance of the company. Thus, it is
important for the organization to impose various types of strategies for effectively handling
the business’s performance level. Some of them stated below.
Benchmarking