Management Accounting Systems and Techniques Report - Finance

This report examines management accounting systems and techniques, focusing on Capital Joinery Ltd, a medium-sized business. It explores the definition and importance of management accounting, including various systems like cost accounting, price optimization, and inventory management. The report details different reporting methods, such as budget reports, accounts receivable aging reports, cost managerial accounting reports, performance reports, and inventory management reports. It delves into cost analysis techniques, including marginal and absorption costing, along with material variances. The report also covers the advantages and disadvantages of planning tools used in budgetary control and compares how different organizations apply management accounting to address financial problems. The analysis includes calculations, reconciliations, and a discussion of inventory valuation methods, offering a comprehensive overview of management accounting principles and their practical applications.

Management
Accounting Systems &
Techniques

Table of Contents
INTRODUCTION ..........................................................................................................................3
P1Meaning of management accounting and the requirement of various type of management
accounting systems .....................................................................................................................3
P2The different methods used for management accounting reporting.......................................5
TASK 2............................................................................................................................................6
P3 Calculation of cost by using appropriate techniques in cost analysis....................................6
TASK3.............................................................................................................................................9
P4The advantages and disadvantages of different types of planning tools used in budgetary
control.........................................................................................................................................9
TASK 4..........................................................................................................................................12
P5 Comparison of application of management accounting system by different organisations to
respond financial problems.......................................................................................................12
CONCLUSION .............................................................................................................................14
REFRENCES.................................................................................................................................14
Books and Journal.....................................................................................................................14

INTRODUCTION
Management Accounting is a process under which the records are maintained that helps
the organisation to achieve its long term as well as short term objectives. It is a process by which
the goals of the organisation are identified, measured, analysed, interpreted and communicated to
the managers of the company. It is used as the information is better understood and the decision-
making is done effectively. Management accounting is different from financial accounting in the
sense that the information is used only by the internal team. The report is based on Capital
Joinery Ltd, which is a medium sized business and makes a variety of doors, windows and
joinery (Abdusalomova, 2019). The organization is working from last 20 years and has its
operations in West London. The report discusses about the understanding of management
accounting system along with the methods used make reports in management accounting. The
report is about the techniques used for cost analysis. These is discussion about the merits and
demerits of various tools used for budgetary control. Also there is comparison about how
different organizations are using management accounting to solve their financial problems.
TASK 1
P1Meaning of management accounting and the requirement of various type of management
accounting systems
Management Accounting also called managerial accounting is a process used by internal
management to make decisions with the help of analysing the reports and operations to achieve
the business goals in time. It is a task that converts the data and info4rmation into reports that are
useful for the organisation in decision making process. It is important to use different types of
management accounting systems as they help to formulate the financial strategies that help the
company to achieve the financial goals effectively as well as efficiently. They help to monitor
expenses and make budget for the organisation that will lead proper use of financial resources.
The profitability is also dependent on the methods used by the organisation and how effectively
they have implemented those methods (Rikhardsson and Yigitbasioglu, 2018). In relation to
Capital Joinery Ltd. the different management accounting methods that should be used by them
are as follows:
 Cost accounting system: It is a method used by organisations to analyse the cost of its
products and services that will be delivered to the customers. It is important to estimate

the right cost for any product and to know which product is profitable and not. Capital
Joinery Ltd should decide the cost of the product by doing analysis and then decide the
cost so that is good for the organisation and increases the profitability. They must check
the raw materials, work in progress and finished goods to make the financial statements
(Burritt,et. al., 2019). This is helpful for management as it helps to reduce unnecessary
expenses by the organisation.
 Price optimisation system: It is a m,mathematical method that is used by companies to
evaluate the relationship between demand and price of the products and services that are
sold by the company and then decide the cost that is acceptable by the customers. It is a
important method used by Capital journey Ltd. To attract more customers and satisfy
them by offering at the price they expect the products at. It is done by top executive level
of the organisation and should be implemented in a good way. This methods helps the
organisation to achieve the customer satisfaction that it the most essential part of any
organisation.
 Inventory management system: This system is used by organisations to manage the
inventory and it is an vital part in an organisation as the production process of the
organisation depends on how effectively the inventory is managed. It is a process used by
organisations to track the inventory in through out the supply chain that is from
purchasing for production to the end sale of the product. Capital journey Ltd also needs to
manage its inventory to complete the production process faster so as the sales of the
organisation are more and that will directly impact the profitability of the organisation. It
is important to know and have record of inventory by an organisation to order the
inventory as when required (Hiebl and Richter, 2018) . There are three methods under
inventory management:
LIFO: It is the method by which the stock that is purchased at last is sold first and is called last
in first out.
FIFO: This is called first in first out method as the name says the produ8cts that are p[purchased
early are sold first.
AVCO: The goods are sold on the basis of average cost for business, and the name of the
method is Average Cost Method of inventory management.

These are the three methods of inventory valuation and Capital journey Ltd uses FIFO
method to manage its inventory as it is the most logical method and this method helps is
generating high gross profit.
Management Accounting is important for organisation and the essential requirement of
following various types of management accounting are as follows:
 Relevancy of information: By making various reports it is easy for the organisation to
make decisions and rely on the information as it is made after following the set
procedures.
 Accuracy of information: As the data is collected in a wise manner and the reports are
made accordingly so the information is accurate and helps to make strategies based on the
information gathered.
 Reliability of information: To rely on the information it is essential that the data should
be accurately collected and the reports made are fare. With the help of management
accounting the company can rely on the information and make further decision base on
the information.
There are two ways in which data can be collected that are internal and external. Internal
source includes credit, debit note etc. and that in external source inbclude gathering information
of competitors, customers etc. Above mentioned point sahows the importance of management
accounting and the information is not only useful for employees but other stakeholders like
investors that have interest in business. The information is required time to time to take wise
decisions and for success of organisations by making strategies that are required.
P2The different methods used for management accounting reporting
 Management accounting reporting: These are the reports that are made by
businesses on a continuous basis and according to the requirements. The reports
prepared are useful for business in the sense that they help in taking decisions also
to monitor the expenses. All the small details are recorded under these reports and
is useful for small and medium sized businesses to monitor the performance of the
company. These reports are prepared by the employees and submitted to the
managers. The various types of management accounting reports are discussed
below:

 Budget Reports: Budget reports are basically made by small business to
critically measure the company's performance. The budget is created by almost
every organisation and is made on the basis of previous experience, a good budget
can carter the unforeseen circumstances. The budgets are used by the organisation
to give incentives to its employees so kit is important to form the budget report
(Maas, Schaltegger, and Crutzen, 2016) . All the expenses and incomes are are
listed. It is easy for company to achieve its goals and missions by following the
budget so it is critical for Capital journey Ltd to make the budget reports.
 Account Receivable Aging Reports: The companies that give credit on regular
basis are required to maintain the Account Receivable Aging Reports as it helps
the company to know about the defaulters, the time when payment would be
received and makes the collection process easier. Capital journey Ltd should
maintain the report and keeps eye on the people whom they owe so that they
receive the amount on time and the company has no bad debts which is beneficial
for the organisation and increases the chances of timely receiving the cash.
 Cost Managerial Accounting Reports: This report has details about the cost of
manufacturing raw materials, the cost associated of overheads and labour. All
these costs are added and then divided by the amount of units made. This is
helpful for the organisation as it helps to check the cost price and selling price.
The capital Journey Ltd uses this to check the margins and to know the clear view
of the costs that are associated while production and procurement of material. As
every thing is noted there is optimal utilisation of resources.
 Performance Reports: To analyse the performance within the organisation
Performance Reports are prepared. It tells the performance of each department
and also the employees. This helps the organisation to take the strategical decision
and is beneficial for the organisation. In Capital journey Ltd these reports give
full insights into the working of the company. These reports tell the things of
improvements to the organisation. In relationship to Capital journey Ltd they
should make this report as it helps to achieve the mission of the organisation by
following the strategies (Quinn and Hiebl, 2018).

 Inventory management report: This is a report that covers detailed information
about the goods and services that are required by organisations to perform
operational activities. In
 Above mentioned are the reports that are used for management accounting
reporting and are required to be prepared to make strategies and accomplish the
set targets successfully.
TASK 2
P3 Calculation of cost by using appropriate techniques in cost analysis
Marginal costing: It is a technique that is used to determine the marginal profit by an
organisation. It is incurred when each unit is produced. It is overall change when he buyer
increases the amount purchased by one unit.
Calculation of marginal profit for Capital journey Ltd is done below:
marginal costing
Particulars May June
Sales 25000 18750
Less: Variable costs
Sales commission 500 375
Manufacturing cost 2000 1500
Direct material 6000 4500
Direct labour 4000 3000
Total cost 12500 9375
Contribution 12500 9375
Less: Fixed cost
Fixed selling 1000 1000
Fixed production overhead 2000 2000
Fixed administration 3000 3000
Net profit 6500 3375
Absorption costing: It is a managerial accounting method that is used for capturing all the costs
associated with production of products. All the direct and indirect cost are associated in its

calculation (Armitage, Webb and Glynn, 2016). Fixed overhead cost is allocated no matter the
product is sold in that period or not.
Calculation of absorption profit for Capital journey Ltd:
absorption costing
Particulars May June
Sales 25000 18750
Less: Cost of goods sold
Variable sales commission 500 275
Variable manufacturing cost 2000 1500
Direct material 6000 4500
Direct labour 4000 3000
Fixed production expenses 2000 2000
Gross profit 10500 7475
Less: Selling and distribution costs
Fixed selling 1000 1000
Fixed administration 3000 3000
Net profit 6500 3475
reconciliation statement
Particulars May June
Profit/ loss under marginal costing 6500 3375
Less: Profit under absorption costing 6500 3475
Add: closing stock 8000 6400
Overabsorpiton 8000 6300

material variances
Particulars Amount
Material cost variance
Standard cost 24000
Actual cost 22400
Result 1600
Material price variance
Standard price 12
Actual price 9.3
Actual quantity 1000
Result 2700
Material usage variance
Standard quantity 2000
Actual quantity 2400
Standard price 12
Result -4800
reconciliation statement
Valuation of stock by using LIFO method:
DATE RECEIPT Issue balance
quantity unit cost amount quantity unit cost amount quantity unit cost amount
01/06/2
0 balance 10 35 350
01/06/0
9 15 38 570 15 38 570
01/06/1 12 38 456 3 38 114

5
10 35 350
01/06/2
0 10 32 320 3 38 114
10 35 350
10 32 320
01/06/2
3 10 32 320 3 38 114
10 35 350
01/06/2
7 3 35 105 3 38 114
7 35 245
01/06/3
0 2 35 70 3 38 114
5 35 175
27 951 8 289
Valuation of stock by using weighted average method:
AVERAGE COST METHOD
Date
Receipts Issue Balance
Quantity
Unit
cost Amount Quantity
Unit
cost Amount Quantity
Unit
cost Amount
01-06-20 Balance 10 35 350
01-06-09 15 38 570 25 36.5 912.5
01-06-15 12 36.5 438 13 36.5 474.5
01-06-20 10 32 320 23 34.25 787.75
01-06-23 10 34.3 342.5 13 34.25 445.25
01-06-27 3 34.3 102.75 10 34.25 342.5
01-06-30 Closing balance 2 34.3 68.5 8 34.25 274

TASK 3
P4The advantages and disadvantages of different types of planning tools used in budgetary
control
Budget: It is a statement that is formed by company to forecast expenses and incomes
and requirement of money with the help of past experiences. Budgets are prepared by individual,
group, business, government bodies that make and spent money. In Capital journey Ltd the
budget is formed to execute all the operational activities to achieve the objectives of the
organisation (Endenich and Trapp, 2020). As it helps in forecasting it is important for an
organisation to form budget and helps to maintain its activities effectively.
Budgetary control: It is kind of control system that is formulated by organisation to check its
performance by comparing past and current situations. After comparing the deviation can be
found out and the measures can be taken to take corrective measures. It is important for Capital
journey Ltd to make budgets and use budgetary control as it helps the organisation to know the
differences and form the strategies that can benefit the organisation. The advantages and
disadvantages are mentioned below:
Advantages:
 It provides specific aim and helps in maximisation of profit.
 These helps to monitor the performance by comparison and helps to achieve the goals.
 When the performance is below the target it help to suggest the strategies.
Disadvantages:
 As the budgets care set for the future date and future is uncertain so this is the upset of
budget.
 It is just a management tool and can not replace the management decision-making.
 The success of budgetary control is in the hands of top management and if they do not
cooperate then it is a thing of problem.
The various tools that are used in budgetary control along with their advantages and
disadvantages are mentioned below:
Zero-Based Budgeting: It is a technique under which the next yeas budget is set as nil. This
can only be done when their estimated expenses are equal to estimates expenses and the
difference between both of the zero (Doktoralina, and Apollo, 2019) . And if this is not the case
then adjustment is done to make it zero. It is one of the popular technique of budgetary control.

The technique should be used by Capital journey Ltd. To illustrate if the estimated revenues are
exceeding the expenses then they are adjusted in the next estimated budget. Under this technique
managers think before spending each money.
Advantages: Disadvantages:
 The managers have to justify each and
every dollar spent. It also justifies the
operating expenses and then revenues
generated.
 It helps to increase the communication
as well as coordination among the
department which helps the
organisation to achieve success
(Szychta,2018) .
 It helps the organisation to accomplish
the desired results and also leads to
achievement of targets more
effectively.
 It is time consuming for an organisation
to make zero based budget (Mitterand
Hiebl, 2017).
 This can be done with the help of
higher management and if they do not
cooperate then it is a thing to problem
for the organisation.
 Making this requires a lot of manpower
and that may not be available in small
and medium sized businesses.
Activity based budgeting: It is a system that helps in recording, research and analysing the cost
of a company. It adjusts the previous budgets and that helps in business development. By using
Activity based budgeting the companies can reduce cost and make more profits. In relation to
Capital journey Ltd the organisation should use this budget as it helps to become more profitable.
As all the unnecessary costs are eliminated so it increase the sales of the organisation. It helps to
bring efficiency in the organisation and The three steps under activity based budgeting are as
follows:
1. Firstly identify all the relevant activities.
2. Find out the number of unit made under each unit.
3. Delineate the cot per unit of each activity and then multiply it with activity level.
Advantages: Disadvantages:
 This method eliminates all the  This budget required of various