Management Accounting Report: Systems, Reporting, and Analysis

This report provides a comprehensive overview of management accounting, focusing on its role in organizations, particularly Equilibrium Assets Management. It explores different types of management accounting systems, including finance management, management information systems...Read More

Management Accounting

Table of Contents
REPORT..........................................................................................................................................2
FROM: MANAGEMENT ACCOUTNING OFFICER..................................................................2
TO: GENERAL MANAGER..........................................................................................................2
INTRODUCTION...........................................................................................................................2
TASK 1............................................................................................................................................2
P1 Management accounting and different types of management accounting systems..........2
P2 Explain different methods used for management accounting reporting...........................4
TASK 2............................................................................................................................................6
P3 Techniques of cost analysis to prepare an income statement using marginal and absorption
costs........................................................................................................................................6
TASK 3............................................................................................................................................8
P4 Advantages and disadvantages of different type of planning tools used in budgetary control
................................................................................................................................................8
TASK 4..........................................................................................................................................10
P5 How organisations are adapting management accounting systems to respond to financial
problems...............................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................12
1

REPORT
FROM: MANAGEMENT ACCOUTNING OFFICER
TO: GENERAL MANAGER
INTRODUCTION
Management accounting is considered as managerial accounting which used at
management level of any organisation (Otley and Emmanuel, 2013). It is a system which help in
managing operational departments, administration department and functional departments. It is a
systematic format of keeping records of performance of employees and departments. This is one
of the technical management system which used in decision making process and strategic
planning. Scope of management accounting is found at various management level as strategic
management, performance management and risk management. This report present the
importance of management accounting in budgetary control (Tucker and Lowe, 2014). Different
types of management accounting system are explained subject to decision making and budgetary
control process in organisation. Cost accounting systems as marginal costing, absorption costing
and cost volume profit analysis are the methods which are used in general management
accounting system.
There is a company named as Equilibrium Assets management which is small scale
organisation in UK. Company is engaging in providing wealth management serves, financial
planning, investment management in terms of new assets under management regions.
Management accounting concepts and methods are explained in above mentioned organisation.
TASK 1
P1 Management accounting and different types of management accounting systems
Management accounting
Management accounting is one of the aspect which is becoming more essential and
important in terms of effective management and operations. This is the accounting system which
helps to correlate the data and information provided by the various departments of the
organisation. These information remain essential for managers, senior level authorities and
higher level management. With the help of summarised information managers become eligible to
make impressive strategies and plans for sustainable growth of the organisation.
2

As per definition provided by Institute of Management Accounts (IMA), “ management
accounting is considered as a profession which utilized in partnering in management decision
making, performance management system and financial reporting. This is the management
system which support in various management process and departments (Parker, 2012). Role of
management accounting become more vital and important in making budgets and controlling the
cost. It is an analysis of future events, which are prepared according to requirement of business.
Cost accounting also a part of management accounting system. This process is operated to
translate and estimate the further cost to be implemented in manufacture, production and
operational departments. This is the process used to support and guide decision making process.
Scope of management account is found in various fields:
Strategic management – Plans, strategies, decisions are taken in this management
process. By using the methods and technologies of management accounting best options and
strategies are find out.
Performance management – Efficient and skilled employees are the base of any
organisation (Qian, Burritt and Monroe, 2011). It is important to achieve fluency and accuracy in
manufacturing and production process. Management accounting help in getting the informations
and data from all departments of organisation and help in analysing the performance of
organisation.
Risk management – This management approach is considered as beneficial in respect of
analysing the estimated risk and events, which remain responsible to attain aims and objectives
of organisation.
Different types of management accounting systems
According to present scenario accounting and management scope has become vast and
dynamics in organisational context. Different types and nature of organisations are found in
business environment. Accounting and management systems have been designed as per the type
and nature of organisation. Organisation's management department have multiple options of
accounting and management system as per nature and structure of business. Below are different
type of management accounting systems are explained :
Finance management – Financial reporting and finance management are the two major
tasks for management department of organisation (Shah, Malik and Malik, 2011). Financial
reporting help in analysing the market position and capital share of company. Financial
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statements of company reflect the capital and equity strength to investors, finances, stakeholder
and directors of company. There are certain guidelines and regulations are made by GAAP
(Generally Accepted Accounting Principles) which are followed while using financial
accounting.
Management information system (MIS): this is computer based accounting system
which is dramatically used by the IT sectors and information providing organisation and in
artificial intelligence. It helps to sort out the issues and the conflicts in terms of It also help in
effective organisation control and make the process more fluent and accurate. It is also used in
forecasting, budgeting and planning. Information which is provided under this accounting system
remain beneficial to the managers in order to make investment plans, making capital structure
and in decision making process.
Cost accounting system: Cost accounting is one of the part of management accounting
that is used to control the cost and enhancing profitability. Analysing the cost of production,
evaluation of profit and identify the profit margin are the main aspects covered which are
considered in cost accounting system. With the help of these accounting system managers helps
to analyse the cost of product and prime cost (direct labour, direct materiel and direct expense).
This management accounting system helps the organisation to control the cost of production and
deciding the sale price and profit margin.
There are some internal factors and sources remain involved in decision making and
strategic planning. Management accounting it is basically used with in the organisation.
Information which are provided by internal sources are beneficial to make an external report
which is provided to investors and financiers.
Below are some other accounting tools and system are used by the firms. This are also
considered as industry specific accounting system
Governmental accounting – This is one of the accounting system which is used in public
sector. This accounting is know as public accounting or federal accounting (van der Steen,
2011). This accounting system was formed to bifurcate the accounting of public and private
sector. Aims and objectives remain different that why the need of federal accounting come
across. This accounting system helps in presenting the financial position, performance level of
public sectors.
4

Tax accounting – This accounting system is related to management and adjustment of
tax related matters and incidents. As per GAAP there are guidelines are given to prepare records
and accounts to adjust provisions regarding taxes. Tax accounting is based upon accounting
principles and concepts primed by GAAP. This accounting system is used to ascertain tax
liability of company and tax planning purpose.
Forensic accounting – it is an management accounting system which used in accounting,
auditing, investigation in case of litigation or disputes. This accounting help in criminal disputes,
conflicts and financial representations etc. Information and sources which provided by this
accounting system are taken as witnesses and evidences to solve the cases.
Project accounting – To track and record financial progress of organisation project
accounting is used in systematic manner (Zimmerman and Yahya-Zadeh, 2011). Project
accounting is a vital component of project management. This management system remain
focused upon financial success of organisation.
Social accounting – Corporate social responsibilities reporting and sustainable
accounting are the main aspects which used by management of organisation. This accounting
remain centralised around social accounting and environment reports. Social accounting is one of
the primarily form of environmental report which is published in annual reports.
P2 Explain different methods used for management accounting reporting
Management reports are the sources which help in assigning goals and objectives of
organisation (Ward, 2012). Reports and informations are gathered from different department of
organisation like production department, administration department, finance and accounts
departments. Below are some methods and type of management reporting are discussed below
which are considered essential in final reporting and decision making.
Operational Cost reporting method– Manufacturing, production and service providing
organisations prepare cost reports to analyse the cost of product and service (Albelda, 2011).
Managerial accounting helps in calculating the cost of per product or service. There are various
factors and resources considered while analysing cost of product. Labour, raw material,
overhead, factory cost, direct expenses are the type of cost which directly impact the cost of
product and services. Cost reports include the data and informations regarding the requirement of
raw material, labour and finance to operate direct expenses. All these information are provided in
simple and summarised way to management department of company. Cost reports allows
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managers to use their skills and knowledge to control extra cost and expenses which are incurred
in manufacturing the products and services. By cost analysation experts become eligible to set
profit margin in respect of coost of goods sold.
Budgetary reporting method – Making budgets and plans are also main elements of
management accounting or managerial accounting (Caglio and Ditillo, 2012). This is the process
of estimation of upcoming situations and conditions on the basis of past results. Prior records,
information, sources are taken to form an estimated budget plans. It is a process of future
projection which contains previous budget plans, cost reports, management reports and other
reports. This reporting method provide an estimated path subject to organisation goals and
objectives. Income and expenditure retain big criteria in making budget plans and projects. This
reports are considered useful in respect of managers, investors, financiers, stake holders,
directors.
Performance reporting method – There is a performance charts and graphs maintained
by leaders and managers in respect of each functional and operational departments. This method
is considered as a internal part of reporting method to analyse the performance of various
departments. There is a use of graphical information and presentation tools are used to form the
reports. These graphical informations are integrated in single column to find out overall
performance of organisation (Chenhall and Smith, 2011). There are actual revenues and
expenditures evaluated in respect of budgets. The difference which come out from the evaluation
are used for further reporting and budgetary process. These reports are prepared by the
organisations annually, monthly and quarterly basis to analyse the performance of entity.
Inventory management reporting method – this technique helps the manager to mange
the inflow and out flow of inventory and stock with in the organisation. This reporting tool
contains the rules and principles to record the transactions and details. LIFO , FIFO and overall
weighted average method are the used in order to manage the inventories.
Other reports – These reports are called as subsidiary reports. There are some subsidiary
reports are made in managerial accounting. Newspapers, business magazines, business reports
are the sources which used in framing subsidiary reports (Christ and Burritt, 2013). Order
information report is a type of subsidiary reporting in which various type of orders are compared
in respect of managing departments of organisation. This reports signify towards backlog
informations when information remain needed. This reports are bifurcated in small parts and
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sections subject to specified orders, products. It help in identifying the unused sources which are
not the part of manufacturing the products. Business situation or opportunity are created in other
reports which help in decision making process.
Equilibrium Asset Management (EAM) is an organisation which provides wealth
management services in UK. It is one of the growing and developing small size organisation in
UK. Management reporting is essential part of management accounting for company.
Performance reporting and cost reports are the main reporting parts which are used by
management department of EAM. This reporting help in personalised financial planning and
investment management. Budgeting and projection help managers to work in the direction of
being market leader in terms of share of new assets under management in the regions. This is the
mission and vision statement of company.
TASK 2
P3 Techniques of cost analysis to prepare an income statement using marginal and absorption
costs
Net profit calculation on the basis of marginal costing
Per unit
price(£) No. of units Amount(£) Amount(£)
Sales revenue 35 600 21000
Less: Marginal cost
Direct materials -6 600 -3600
Direct labour -5 600 -3000
Variable production Overhead -2 600 -1200
Variable sales overhead -1 600 -600
-8400
Contribution 12600
Less: Fixed overhead
Production overhead -2000
Administration cost -700
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Selling cost -600
-3300
Net Profit 9300
Net profit on the basis of Absorption costing
Per unit price(£) No. of units Amount(£)
Amount
(£)
Sales revenue 35 600 21000
Less: Cost of Production
Opening Stock Nil
Cost of goods Produced(700*16) -16 700 -11200
Less: Closing Stock(100*16) -16 100 -1600
-9600
Gross Profit 11400
Less: Selling and Administration
cost
Selling and Administration cost per
unit(1300/600) -2 600 -1200
Sales Overhead -1 600 -600
-1800
Net Profit 9600
As per above explain practical situation there are two type of cost calculated as marginal cost and
absorption cost. Fixed cost and overheads are not considered while calculating the cost of
product as per absorption costing. It is resulted that the profit under marginal costing was £9300
whereas the profit under absorption cost was £9600. fixed cost as production, administration and
selling cost are the only factors which affected the profit ratio.
Difference between two accounting techniques
Financial planning Analysation of financial statements
It is a process of projection of finance needs,
requirement for performing the tasks or
It is a pert of financial reporting which is
prepared on the basis of financial records and
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managing the departments of organisation. statements like profit and loss statements,
balance sheets, income statements.
It contains both the long term and short term
finance requirement of organisation. It helps in
developing financial procedures to attain the
aims and objectives of organisation. Scope of
financing planning remain vast in comparison
to analysation of financial statements.
This techniques is used to analyse the
requirement of finance and sources which are
required to prepare financing reporting. It
provides an idea that which source would be
beneficial to make strong capital and finance
structure of business.
This techniques remain centralised towards
making finance policies and plans for smooth
functioning. It provides a path to analyse the
capital requirement.
This technique help in measuring the capacities
and abilities to pay interest and liabilities to
creditors. This method help in making a sound
polices in respect of dividend.
TASK 3
P4 Advantages and disadvantages of different type of planning tools used in budgetary control
Operation research is the part of management or managerial accounting. There are three
main budgetary control techniques are used in formulating plans and strategies in forecasting
projects (Contrafatto and Burns, 2013). Organisation become eligible to make budget units,
departments, sections and divisions. Basically budgets are made for one year which can be
related to finance and resources requirement. Budgets are the main sources of control cost. It
provides standards to analyse the performance and help in comparing among between levels and
divisions in organisation.
Purpose of budgetary-control is to help managers and co-ordinates between department
and sub divisions. It help to define the standards which are required to control the cost and
management system. It provide a clear picture and guidelines about the structure of organisation.
Main objective of budgetary-control is to evaluate the performance of organisation. There are
major three types of budgetary control techniques are used in managerial accounting :
1. Finance budget
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cash is one of the essential and important sources which is used to deal regular financing
activities. Finance budgets are prepared to estimate the requirement of cash in upcoming years
and duration. This budgets help in making the plans to utilise the resource in effective manner.
Cash budget – cash budgets are prepared to analyse the daily requirement of cash to
operate the functions and departments of organisation ( Dillard and Roslender, 2011). Cash
receipts, fund flow and cash flow statements are the main sources to make cash budgets and
plans. Cash budgets can be made on weekly, monthly and quarterly basis. It shows the excess
amount of cash and how it would be utilised in enhancing profitability.
Capital expenditure budget – This budgets help in analysing the requirement of capital
expenditure which are made in organisation. Purchase of new plant and machinery, land and
building, assets are the type of capital expenditure which are made in organisation. This
techniques helps to make a budget regarding capital structure.
Balance sheet budget – This budget is prepared to control over all activities and
operations of organisation. It reflect the relations between assets and liabilities of company.
These budgets are prepared on the basis of balance sheets of organisation.
2. Operating budgets – This budgetary techniques remain centralised to plan operating budgets
for a specified time duration.
Sales and revenue budget – how much amount of sales must be made and for a particular
time period are analysed in this budget technique.
Expense budget – this budgets are prepared to control the extra expenses and expenditure
to maximize the profits and income (Fullerton, Kennedy and Widener, 2013). Profit and loss
accounts and income statements are the sources to dorm expense budgets.
Project budget – These are the budgets which are used to analyse the difference between
sales and revenues and expenses. If the expected profit remain small in amount then the expense
budgets are used to compensate the difference.
3. Non-monetary budgets
these type of budgets which are used to analyse the non monetary incomes and
expenditures, sales and revenues.
4. Fixed and variable budgets
there are three types of major cost found in business. These are the budgets which are
made to analyse the cost per product and decide the price of product and services (Fullerton,
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Kennedy and Widener, 2014). Reducing the manufacturing and production cost are the main
objectives to prepare fixed and variable budgets. Factors which keep changing during
production and manufacturing process are considered in variable budgets and those factors which
remain invariant are considered in fixed budgets.
Fixed cost – This are the cost which remain uncontrollable and remain same while
preparing budgets and plans. These cost remain same and actual cost are taken while preparing
the budgets. These is also considered as external cost affect the cost of cost of products directly.
For example a rental cost of store field is £25000 would be remain constant at all levels of
operations and management.
Variable cost – it is a cost which is calculated on the basis of change in expense in
respect of change in production by one unit. This budget helps in identifying the factors and
figures which remain centralised and focused to control variable cost for particular subject.
Semi – variable cost - this is the cost which remain constant at certain level or units of
groups. For example cost of package container 0-100 contains a cost of £50 and 100-200 it will
be increased by £60. these type of budgets help in ascertain the amount of semi – variable costs.
Advantages Disadvantage
This helps in making effective budgetary
policy.
It is time consuming and expensive techniques
which remain responsible to lag the process.
It provides an advance formation regarding
events and incidents and help in co ordination.
There are various type of factors remain
undefined while making budgets which occurs
various type challenges in decision making
process.
It helps in maintain the records which are used
in decision making and strategic planning
process.
There is lack of certainty of projected plans
and budgets which affect the process of
informations and accurate data to form a
budget.
It is a natural process which remain dependent
upon
Innovations and new experiments remain
avoided while making budgets.
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TASK 4
P5 How organisations are adapting management accounting systems to respond to financial
problems.
Criteria of business operations has become vast. There are various type of business found
in general context of management and accounting (Granlund, 2011). Management or managerial
accounting is considered as essential element in changing environment of business. Management
accounting is a combination of multiple management techniques like budgetary-control, strategic
planning, forecasting the tasks and events. Its multi-purpose use and scope make its importance
more valuable in this organisational context. Below are some financial problems are discussed
and it is also elaborated that how these systems can be implemented in organisation.
(Source : Implementation of management accounting tool in organisation, 2017)
Price deciding – this is one of the major aspect which considered essential in production and
manufacturing industries. There are various factors and elements are find out while analysing the
price of product. There are two type of expenses which affect the cost of product at initial stage.
Direct cost affect the cost of product directly, it contains direct expenses and fuel, freight, labour,
raw material cost, wages, electricity and consumption cost which incurred in manufacturing
process of product (Lavia López and Hiebl, 2014). Indirect cost contains administration
expanses, additional expenses, news papers, stationary and daily expenses, these expense are
used to decide and control the price of product and sale margin. Pricing deciding process help in
ascertain the profitability.
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Absorption and marginal cost accounting systems are considered optimum and effective
for these organisation. Before implementing this system in organisation requirement must be
analysed. What would be the cost of implementing the plan also analysed properly.
Costing system – In large size of organisations and manufacturing industries production process
remain divided in multiple process and batch. Job and batch costing are the techniques which are
used to define the cost at individual batch and section (Kotas, 2014). Cost analyse is done in
three phases which are as actual costing, normal costing and standard costing. There are
projected cost plans are prepared at various levels which help in integrated the cost of different
stages at one point. Process costing is one of the accounting tool which is used in refining and
reenergising the production process in single dimension. It is one of the cost consuming
accounting tools which contains high investment cost to implement the tool in accounting.
Strategic planning – This is the tool of management accounting which used at managerial level
to making strategies and plans for smooth functioning (Morales and Lambert, 2013). This tool
help to identify strength, weakness, opportunities and threats subject to organisational goals and
objectives. It provides a path to analyse the financial position of entity in market. This
management tool is considered as essential for the organisation which are aligned in providing
wealth management and investment management services.
It is considered by the example, ABC company wants to raise the funds and utilise them
and introduce the funds with in the organisation. the amount of £200000 to make the financial
structure more strong proposed by the managers. Company has three option one is whether to
issue share, buy debentures or take short term loan from financial bank. Now the managers need
to implement the principles, standards and capital management tools to choose the best options
among the three investment options.
Finance and risk management is one of the effective management system of management
accounting which helps to resolve the financial problems and issues. The above example is
related to cost of capital or financial management. As per the above example there the option
which contains low cost of capital opted by the organisation. There is a specific methods are
used to calculate the cost of debenture, share capital and loans. The option which contains low
cost of capital return will be chosen by the managers.
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CONCLUSION
Management accounting is a method which is used by managers to analyse performance
and strength of organisation. This is the process which help in decision making and strategic
planning. As a management accounting officer there is an management reporting procedure
defined in respect of mentioned organisation. Meaning of management accounting is defined in
this report. Different types of management accounting system are explain and their scope also
highlighted with practical examples. How budgetary control process help in reducing the cost
and cost control process is defined in effective manner. Absorption and marginal costing are
discussed with practical situation. Difference between financing planning and analysation of
financial statements are also done. These are the techniques of management accounting and
techniques. There are different type of budgets explained with advantages and disadvantages.
How organisations are adapting accounting management system to operate financial activities in
organisation.
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