Management Accounting: Systems, Reporting, and Problem Solving

This report provides a comprehensive overview of management accounting systems and techniques, including cost analysis, financial reporting, and budgetary control. It explains management accounting and its essential requirements, different reporting methods, and evaluates the benefits and applications within an organizational context. The report also calculates costs using marginal and absorption costing, analyzes planning tools for budget preparation, and compares how organizations adapt management accounting to respond to financial problems, ultimately aiming for sustainable success. The integration of management accounting systems and reporting within organizational processes is critically evaluated, highlighting the interrelation between systems, reports, and organizational departments.

Management accounting
1

Table of Contents
Introduction........................................................................................................................4
LO1: Demonstrate an understanding of management accounting systems.....................5
P1 Explain management accounting and give the essential requirements for different
types of management accounting..................................................................................5
P2 Explain different methods used for management accounting reporting...................7
M1 evaluate the benefits of management accounting systems and their application
within an organizational context.....................................................................................8
D1 provides a critical evaluation of how management accounting systems and
management accounting reporting are integrated within organizational processes.....9
LO2: Apply a range of management accounting techniques..........................................10
P3 Calculate costs using appropriate techniques of cost analysis to prepare an
income statement using marginal and absorption costing...........................................10
M2 Apply a range of management accounting techniques and produce appropriate
financial reporting documents......................................................................................12
D2 Produce financial reports that accurately apply and interpret data for a range of
business activities........................................................................................................13
LO3: Explain the use of planning tools used in management accounting......................14
P4 Explain the advantages and disadvantages of different types of planning tools
used in the budgetary control.......................................................................................14
M3 Analyze the use of different planning tools and their application for preparing and
forecasting budgets......................................................................................................15
LO4: Compare ways in which organizations could use management accounting to
respond to financial problems..........................................................................................16
P5 Compare how organizations are adapting management accounting systems to
respond to financial problems......................................................................................16
M4: you should analyze how, in responding to financial problems, management
accounting can lead organizations to sustainable success.........................................18
D3: how planning tools for accounting respond appropriately to solving financial
problems to lead organization to sustainable success:...............................................19
2

Conclusion.......................................................................................................................20
References.......................................................................................................................21
3

Introduction
In the changing environment, there are various aspects which will have to be taken into
consideration by the company. All of the factors by which the accounting of the
company is affected will be considered and then they will be taken into consideration so
that proper accounts are prepared. In this report, the management accounting will be
discussed and there will be an explanation of the systems and reports which are used
under this. The company will be using various methods for the making of the income
statements and they will be discussed. Together with them, the planning tools which are
there will be taken into account by which it will be possible for the company to attain the
sustainable success. The issues which arise in the business will have to be resolved in
an effective manner and the tools which will be used in this context will be described.
4

LO1: Demonstrate an understanding of management accounting systems
P1 Explain management accounting and give the essential requirements for
different types of management accounting.
The business is undertaken with the aim of maximizing the returns and for the
achievement of the same, there are several functions which are performed such as
organizing, planning and controlling. It is required that they shall be performed in the
most effective and efficient manner. There will be a requirement of the information for
the carrying out of them and that will be collected with the help of the systems which are
available under management accounting. The data which will be collected will be used
by the company for the making of the plan and also various decisions will be taken with
the use of them (Legaspi, 2014). Zylla will be using them so that all of the functions will
be undertaken in the most effective manner. All of this will also be requiring the use of
the principles of causality and analogy.
The business will be required to focus on the financial aspect and for that financial
accounting will also be taken into use which is having some of the differences from the
management accounting and they are as provided below:
Management accounting Financial accounting
The information which is tee under them
will be used in the internal processes of
the company.
The company will be providing the
information to the third parties so that they
can make the decisions on the basis of
them.
There will be the inclusion of all the data
which is related to the company.
Only the financial data will be incorporated
under this.
The reports under this will be prepared by
considering the policies which are
formulated by the company as there are
no specific formats which are there.
They will have to be prepared by the use
of the standards which are set by the
authorities and board.
The accounting will be made in the context
of any particular department of the
business.
There will be the consideration of the
complete organization which will be done
under this.
The process will be performed with the use of several systems and an understanding of
them is provided below:
5

Cost accounting systems: The manufacturing process of the company will be
requiring various costs and it will be required that they are calculated at the appropriate
time. For that, there are several approaches which can be used and in that various
aspects will be taken into consideration. There will be actual costing in which all of the
amount spent in actual will be considered. The standard costing is another method in
which all the target cost which is set will be included. There will be normal costing also
in which all of the actual amounts will be taken except for the overheads.
Inventory management systems: The stock of the company will be required to be
maintained in the best manner and for that, it will be required that the need of the same
shall be ascertained so that they can be arranged by the company in the best possible
manner. In that, the techniques such as Just in time approach and economic order
quantity will be taken into use (Lopez-Valeiras, et. al., 2015). The company will be
required to perform the valuation in an appropriate manner and for that method such as
FIFO, LIFO, and weighted average will be used.
Price optimizing systems: The Company is undertaking various operations with the
aim of the maximization of the profits and for that, it will be needed that such price shall
be calculated which will be making this possible. For that various practices which are
available shall be taken into use (De Toni, et. al., 2017). There are basically two
categories in which they are divided and they are based on the cost and based on
market factors. In that, some of the most important is market skimming, price
penetration.
6

P2 Explain different methods used for management accounting reporting.
The company is required to make the relevant decisions and for them, it will be needed
that they are having all of the information in an appropriate manner. For that, there are
various reports which are formulated and some of them are explained below:
Variance report: The Company is required to identify the variances which arise in the
business among the amounts which are there in the budget and the ones which have
been incurred in actual. For that, all of the values will be compared and then the
deviations which are determined will be recorded in this report (Wang, et. al., 2015). By
that, it will be possible for the company to make the correct decisions and then the
changes will be incorporated into the business so that they can be properly dealt with.
Budgets: This is the report in which all of the incomes and expenses which are related
to the business for any particular period will be taken into account. They will be
estimated and then on that basis standards will be set which will be entered in them.
The Zylla will be required to consider them and carry on the operations in accordance
with them. By that, it will be possible for it to attain the targets which are specified in the
business and establish a proper control.
Performance report: The employees in the company will be working in an appropriate
manner when the proper check is established and they are providing with the
appropriate motivation and incentives. For that, some of the aspects will be identified on
the basis of which it will be possible to evaluate their performance ( De Jong, et. al.,
2012). This report will be including all of them so that they can be followed by them and
they can achieve them to achieve the goals and establish their position.
Job cost report: This will be prepared by the company so that the cost which is
incurred in respect of all of the jobs which are undertaken is ascertained. They will be
determined and then reported so that can be used in the process of decision making.
The jobs will be including batches, processes which are included in the business and
the expenses will be ascertained in accordance with them so that all of the components
of the process will be included in the calculation.
7

M1 evaluate the benefits of management accounting systems and their
application within an organizational context.
The Zylla will be using all of the systems and with the help of them it will be possible for
them to attain various benefits and they are as follows:
 The improvement in the overall performance will be obtained as the employees
will be provided with the appropriate incentives and motivation.
 The company will be able to use the information which will help in making the
best decisions which will be beneficial for the entity.
 There will be the identification of the entire factor which will be affecting the
business and so it will be possible to take the corrective actions on time.
 The company will be experiencing the decline in the cost of the business which
will be beneficial for the long run.
8

D1 provides a critical evaluation of how management accounting systems and
management accounting reporting are integrated within organizational
processes.
The management accounting systems and reports which are used in the company will
be related to one another and this can be said as the company will not be able to use
the reports without the help of system which will be provided with all the information that
is needed in the making of reports (Watts, et. al., 2014). The data will have to be
collected from various departments of the company and due to this fact organization will
also be integrated into this process and all of them will be interrelated.
9

LO2: Apply a range of management accounting techniques.
P3 Calculate costs using appropriate techniques of cost analysis to prepare an
income statement using marginal and absorption costing.
In the business, there are various types of costs which are incurred and they can be
classified as the variable and fixed. They will have to be identified and then it will be
needed that correct treatment shall be provided to it. For that, there are two approaches
which are described below and will help in making the income statements in the
company.
Absorption costing: In this method, the proper allocation of the fixed overhead will be
made which are spent in relation to the production. They will be apportioned among all
the units which are prepared. In this, the classification of the cost will be made in terms
of the activities. There will be a proper treatment which will be provided in this so that
the over and under absorption can be identified and included in the calculations.
Marginal costing: This will be the approach in which all of the expenses are classified
as variable and fixed. All of the variables will be considered first and then by considering
them the contribution will be identified (Aurora, 2013). The fixed overheads will be
considered from this and this will be helping in the calculation of the net amount of the
profits which have been earned.
The company is preparing the income statements with the help of both the approaches
and they are provided below:
Income statement as per Absorption Costing 2017
£ £
Sales (50 x 1200) 60000
Cost of Sales :
Opening Stock 0
Cost of Production (5 x 1500) 7500
Fixed production cost 3000
Variable Production cost (3 x 1500) 4500
Add Closing Stock (10 x 300) 3000
Gross Profit 48000
Less Fixed Cost
Administration cost 1500 1500
Net Profit 46500
10

Income statement as per Marginal Costing 2017
£ £
Sales (50 x 1200) 60000
Cost of Sales :
Opening Stock 0
Cost of Production (5 x 1500) 7500
Variable Production cost (3 x 1500) 4500
Cost of Goods Sold 12000
Less Closing Stock (8x 300) 2400 9600
Contribution 50400
Less Fixed Cost
Administration cost 1500
Production overhead expense 3000 4500
Net Profit 45900
11

M2 Apply a range of management accounting techniques and produce
appropriate financial reporting documents.
The Zylla will be using various such tools and techniques which are available under
management accounting. By the help of them, it will be possible for the company to
make the appropriate reports so that they can be used in all of the processes which are
undertaken. For that cost will have to be ascertained and that will be carried with the
help of the target costing, standard costing and activity-based costing (Vasile and
Croiteru, 2013). Then with the help of them, it will be possible to make the proper
budgets and they will be helping the improvement of the actions which are undertaken.
By the use of them and the variance analysis, it will be able to determine the deviations
which are present so that it can also be reported to be considered for the coming period.
12

D2 Produce financial reports that accurately apply and interpret data for a range
of business activities
The data which is collected is applied and with that income statements are made in
which it can be noted that there are certain deviations in the amount of the profits which
are calculated by the two methods and this is due to the difference in the manner of the
treatment which is provided by the company to fixed production overheads. For this
purpose, the reconciliation statement is made and that is provided below:
Reconciliation Statement £
Profit under Absorption costing 46500
Fixed production cost in closing inventory (2
x 300)
600
Profit under Marginal Costing 45900
13

LO3: Explain the use of planning tools used in management accounting.
P4 Explain the advantages and disadvantages of different types of planning tools
used in the budgetary control.
The Zylla will be required to achieve the objectives which have been recognized by it
and for that it is very essential that the planning shall be undertaken in the best manner.
The plans will be made in such manner that all the actions are performed in accordance
with them and will be attaining the required results and the best way of doing this is
making of the budgets and the same are explained below:
Advantages of budgets:
 The costs which are required to be incurred in the business will be controlled and
this will be helpful in the proper management of the funds.
 The company will be able to identify the variances which will be there as the
comparison will be made possible with the help of them.
 The Zylla will be performing in accordance with them so there will be fewer
mistakes which will be made by it in the processes.
Disadvantages of budgets:
 There will be various types which will be included in this process which makes it
time-consuming and that will be increasing the cost of the plan also which is not
good.
 The values which will be included in the budget are based on the estimates and
so there are chances that errors may be there in them and this will be affecting the
whole process.
Different types of budgets:
Cash budgeting: In the company, all of the various items which will be included
required the use of cash and it is needed that proper estimation in relation to them shall
be made. By the help of them, all of the cash related matters will be managed in a
proper manner (White, 2015). They will be including the identification of the amount
which will be required in the business.
Master budget: The Company will be required to make the budget in relation to all the
aspects which are included in the business and to reduce the burden of the company
there is a budget known as master budget which is prepared. In that, all of them will be
considered and by that, all the aspects can be noted from the same place which will be
beneficial.
Flexible budgeting: The budget is prepared at the specific level of activity and then it
will be used by the company as the standard and will be considered for the making of
14

the budget at the other level of the activities. By this, the company will be required to
incur fewer amounts of the time and cost in the making of the budget.
15

M3 Analyze the use of different planning tools and their application for preparing
and forecasting budgets.
The budget making is the process in which there will need to use various techniques so
that they are prepared in the best manner. There will be a requirement of considering all
of the factors which will be affecting the business and for that proper evaluation will be
made. There are internal elements and for that SWOT analysis will be done in which
they all will be taken into account. The Porters five forces will also be undertaken as by
that consideration of the external factors is also made possible. By the help of them,
proper forecasting will be made and there will be the best budgeting.
16

LO4: Compare ways in which organizations could use management accounting to
respond to financial problems.
P5 Compare how organizations are adapting management accounting systems to
respond to financial problems.
In the Zylla, there are various financial problems which are being faced and some of
them are identified so that they can be resolved by the company inappropriate manner.
 There is the lack of the proper efficiency in the business and due to that all of the
resources which are available are not being utilized in a proper manner. There is
the wastage which is being made and by that the effective actions are not
performed and this increases the overall cost which leads to the reduction of the
profitability of the company.
 The issues related to funds also arise when the company is not having sufficient
funds to meet the liabilities of the business. Also, the functions are not
undertaken appropriately and this affects the overall performance of the
business.
The Zylla will be required to take the appropriate steps by which all of the issues which
are identified in the above part will be resolved in the appropriate manner. There are
various techniques which are available and will be used by the company. An
explanation in respect of them is provided below:
Key performance indicators: The Company is required to measure the performance
and for that, there is the need to use the appropriate parameters. There will be several
financial and non-financial incentives which will be provided so that it is made possible
to make the proper evaluation of the performance (Strelnik, et. al., 2015). By that, it will
be possible to ascertain the effectiveness and efficiency of the operations which have
been undertaken in the business.
Benchmarking: Under this, the industry averages and the policies of the best entities
will be considered so that proper evaluation of them can be made. By that the company
will be making the policies for itself which will be attaining the results that are required
by taken in account all of the factors which will be providing the benefits (Ajelabi and
Tang, 2012). These will be the standards which will have to be complied with by the
company.
17

Financial governance: The financial aspects of the business are to be managed in the
proper manner and for that, there are various policies and procedures which are
designed. They will be used as by the help of them all of the issues which are there in
relation to funds will be looked after in best manner.
18

M4: you should analyze how, in responding to financial problems, management
accounting can lead organizations to sustainable success.
Management of the company will be able to resolve all of the financial problems which
are included in the business in an effective manner with the help of the tools that are
there in management accounting. The company is performing proper planning in which
the process of the undertaking of the activities is specified and by that it will be able to
carry the operations in such manner that all of the funds will be managed appropriately
and also the cost will be reduced (Zaleha Abdul Rasid, et. al., 2014). This will be
because as all of the activities will be performed as per the plans and there will be no
mistakes which will be made in the process that leads to the wastage of the resources
and by all this, it will be possible to attain the sustainable success. There will be proper
risk management which will be made and also the coordination among all the sections
of the company will be improved which is beneficial.
19

D3: how planning tools for accounting respond appropriately to solving financial
problems to lead the organization to sustainable success:
The tools which are there in management accounting will be responding to the problems
in an effective manner and this will be possible as all the consideration will be made
about the factors that are included. There are techniques such as costing methods
which include target costing and budgeting. The company will be using the five forces
model by which all the external factors will also be included in the business and there
will be no issues which will be arising due to them. This way the growth will be achieved
which is retained for long period of time.
20

Conclusion
The report that is provided above elucidates the aspects which are related to
management account and the manner in which they will be used for the benefit of the
company. The identification has been made of all the reports which will be prepared
with the help of the systems. There is the profit which is calculated by the use of the
approaches that are discussed. The planning tool and the benefits and demerits of them
are also taken into consideration. There are the various types of techniques which are
there and all of them which are used in the making of the budget is determined. They
help in the attainment of the success. There are the issues which have been identified
and then with the help of the tools they have been resolved in the most appropriate
manner.
21

References
 Ajelabi, I. and Tang, Y., 2012. The adoption of benchmarking principles for
project management performance improvement. International Journal of Managing
Public Sector Information and Communication Techniques, 1(2), pp.1-8.
 Aurora, B.B.C., 2013. The Cost Of Production Under Direct Costing And
Absorption Costing–A Comparative Approach. Annals-Economy Series, 2, Pp.123-
129.
 De Jong, M., Van Beek, I. And Posthumus, R., 2012. Introducing Accountable
Budgeting: Lessons From A Decade Of Performance-Based Budgeting In The
Netherlands. OECD Journal Of Budgeting, 12(3), P.C1.
 De Toni, D., Milan, G.S., Saciloto, E.B. and Larentis, F., 2017. Pricing strategies
and levels and their impact on corporate profitability. Revista de Administração (São
Paulo), 52(2), pp.120-133.
 Legaspi, J.L., 2014. The Impact Of Management Accounting Literature To
Practice: A Study Of Management Accounting Concepts In The Philippines
Industries. LAP LAMBERT Academic Publishing.
 Lopez-Valeiras, E., Gomez-Conde, J. and Naranjo-Gil, D., 2015. Sustainable
innovation, management accounting and control systems, and international
performance. Sustainability, 7(3), pp.3479-3492.
 Strelnik, E. U., Usanova, D. S., & Khairullin, I. G., 2015. Key Performance
Indicators in Corporate Finance. Russia: Canadian Center of Science and Education
.
 Vasile, E. And Croiteru, I., 2013. Target Cost-Tool For Planning, Managing,
And Controlling Costs. Romanian Journal Of Economies/Institute Of National
Economy, 36(1), Pp.114-127.
 Wang, S., Wang, J., & Lin, L., 2015. Variance Analysis–Based Chinese Urban
and Rural Sports Development and Urbanization Construction Correlation Research.
Research. The Open Cybernetics & Systemics Journal, 2962-2968.
 Watts, D., Yapa, P.S. and Dellaportas, S., 2014. The case of a newly
implemented modern management accounting system in a multinational
manufacturing company. Australasian Accounting Business & Finance Journal, 8(2),
p.121.
 White, J., 2015. What are budgeting's purposes?. OECD Journal on
Budgeting, 14(3), pp.1-18.
 Zaleha Abdul Rashid, S., Ruhana Isa, C. And Khairuzzaman Wan Ismail, W.,
2014. Management Accounting Systems, Enterprise Risk Management And
Organizational Performance In Financial Institutions. Asian Review Of
Accounting, 22(2), Pp.128-144.
22

23