Management Accounting: An In-depth Analysis of Systems and Reporting

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Management Accounting
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Table of Contents
Introduction......................................................................................................................................3
Task 1 (LO1)....................................................................................................................................4
Task 2 (LO2)....................................................................................................................................8
Task 3: LO 3:.................................................................................................................................13
Task 4: LO 4..................................................................................................................................16
Conclusion.....................................................................................................................................18
Reference list.................................................................................................................................19
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Introduction
With every passing day, the worth that management accounting has in the world of business is
enlarging, which is mainly because of the elevating number of complexities in businesses and
increasing potential threats. Management accounting acts as an effectual means via which
business entities could be ensuring that their financial troubles are solved meticulously, the
planning within it enhances, and the cost quantification in it improves while the overall
effectualness within it increases. This study involves an in-depth investigation over the topic of
management accounting starting from assessment of the management accounting systems while
using the techniques involved in management accounting. It is also concerned with the
examination of the planning tools that are existent within management accounting while
illustrating how management accounting helps differing organisations in solving differing sorts
of problems associated with finances.
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Task 1 (LO1)
Introduction
As one of the junior management accountants within a medium-sized manufacturing firm within
the UK named ABC Ltd, this report is created for the promotion of understanding among the
differing departments inside it and to explain the role that the entity’s management accounts
department plays.
Explain what is meant by ‘Management Accounting’ and give the essential requirements of
different types of management accounting systems
Management accounting, famous also as “managerial accounting”, serves as a major part of
management accounting. One can define or refer to management accounting as the branch within
accounting wherein business entities contribute via presentation of professional knowledge and
capacities so that both non-financial and financial accounting information are revealed, which in
turn facilitates organisational planning, control, and varying other aspects (Malmi, 2016).
However, there are four specific systems present in the management accounting field (Kaplan
and Atkinson, 2015). They have been discussed beneath in depth along with a mention of their
essential requirements -
Cost accounting system - Christ and Burritt (2015) defined cost accounting system as the
management accounting framework and system via which business entities can be conducting an
estimation of the costs that are spent on their products while finding out profits from them. It is
essentially required within ABC Ltd for attaining accuracy within cost of products for
ascertainment of profitable operations.
Job costing system - It can be stated to be the system via which business entities might be
capturing and tracking costs that they spend associated with jobs via labour, material as well as
overheads within a manufacturing environment (Weygandt et al., 2015). ABC Ltd’s essential
requirement also involves the system since jobs can not only be optimised with it but their costs
can also be largely controlled using it.
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Inventory management system - Starting from keeping a track of job costs to the management of
stock related documents, inventory management system is utilised for supervision and
monitoring of stock of a business entity (Higham et al., 2018). ABC Ltd’s essential requirement
involves this system as well so that flow and delivery of stock within it can be optimised.
Price optimisation system - One can define this system as the framework or the method utilising
which business entities can be computing the demand of its product, analyse customer responses
and then set product prices (Nagle et al., 2016). ABC Ltd’s essential requirement consists of the
price optimization system as well since it facilitates the business entity in the maximisation and
accomplishment of clients’ satisfaction.
Explain different methods used for management accounting reporting
In the words of Rikhardsson (2017), reporting acts as one of the primary ways with which
management accounting extends help to business entities. The points beneath evaluate the three
main kinds of reporting widely performed in management accounting -
 Investment appraisal reports - There are differing investments that business entities
consider and their evaluation is done through investment appraisal techniques. The results
derived from these techniques are usually incorporated using a reporting technique called
the investment appraisal report, which benefits business entities such as the ABC Ltd for
ascertainment of proper decisions on investment are being taken in it (Laird and
Venables, 2017).
 Job cost reports - Managerial accounting optimises planning and operations of business
entities via summarising the job costs that it spends along with highlighting which of
them do not add value to the business entity, all of which are incorporated in job cost
reports (May, 2017). Along with assisting ABC Ltd for understanding the value that its
jobs add to it, the report is also helping it in eradication of the job costs that do not add
value.
 Budget reports - Method of reporting via which business entities summarise and
incorporate their budgeted projections while conducting its comparison with the actually
accomplished figures is known as a budget report and enables business entities such as
the ABC Ltd for ascertaining budgetary variances are reduced while administering its
performance (Hirsch et al., 2015).
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Evaluate the benefits of management accounting systems and their application within an
organizational context
The essential requirements of business entities associated with the management accounting
systems itself prove the benefits that business entities could enjoy when entities apply them. The
four points beneath discuss benefits associated with management accounting systems being
applied to organisational contexts -
 In case of application or incorporation of the cost accounting system, business entities
are benefitted via identifying controlling expenses and costs associated with production
while ensuring that costs are being spent efficiently (Kokubu and Kitada, 2015).
 In case of application or incorporation of the job costing system, business entities are
benefitted via better job cost management while ensuring that maximised profits are
drawn from jobs (Fisher and Krumwiede, 2015).
 In case of application or incorporation of the inventory management system, business
entities are benefitted via better inventory cost management, order management, proper
ascertainment of inventory availability and better inventory flow supervision (May et al.,
2017).
 In case of application or incorporation of the price optimising system, business entities
are benefitted via setting of improved and customer satisfying product prices along with
amplification of customers (Nagle et al., 2016).
All these benefits are enjoyed as ABC Ltd as well whenever the four above management
accounting systems is applied to it.
Critically evaluate how management accounting systems and management accounting
reporting is integrated within organizational processes
In the words of Leiby (2018), management accounting reporting in addition to management
accounting systems could also be integrated and incorporated into organisational processes.
These processes could be improved largely with the assistance of reports and systems from the
management accounting. Systems, for example, the price optimising or the job costing could be
integrated into ABC Ltd’s organisational process of decision-making. These systems
incorporated would be benefitting the entity in the allocation of expenses or costs in differing
jobs whereas price optimising would be advantageous for entities for the pricing of commodities
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while attaining clients’ satisfaction. The process would be optimised as well when reporting such
as the job cost reports can be incorporated so that better job-associated decisions could be made
while profitable jobs can be optimised with it.
Similarly, systems, for example, the inventory management or the cost accounting could be
integrated into ABC Ltd’s organisational process of manufacturing. Both these systems
incorporated are advantageous for gaining information over costs along with stock in trade, their
requirement, their orders, their availability and such others needed for manufacturing. The
process would be optimised as well when reporting such as the budget reports helps in
optimising its manufacturing via properly estimating manufacturing costs and sticking to the
budget. In this way, a number of processes being performed in the ABC Ltd can be incorporated
via reporting and systems from managerial accounting.
Conclusion
Therefore, one can understand from this report that management accounts department has a
noteworthy role to be played in business entities through the means of the varying sorts of
systems that it contains as well as the range of techniques it provides to organisations.
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Task 2 (LO2)
Budgeted figures
Particulars Units
Volume of the units produced 18,000.00
Beginning stock in trade Nil
Ending stock in trade 2,000.00
Actual figures
Particulars Units
Volume of the units produced 19,000.00
Beginning stock in trade Nil
Ending stock in trade 3,000.00
Sales made in actual 16,000.00
(a) Marginal costing
1. Calculate the production cost per unit, Total Production Cost and Total cost of sales for
January
(a)
Productio
n costs for
every unit
(b) Total
costs
related to
productio
n
(c) Total cost of sales
Amt Amt
1. Spending on direct
material
£10.00 £
180000.00
Net amount spent on production =
£630000.00
Less - Beginning stock in trade =
£0.00
Add - Ending stock in trade =
£70000.00
2. Spending on direct labour £20.00 £
360000.00
3. Spending on variable
overhead
£5.00
£90000.00
Total £35.00 £
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630000.00 Hence,
Total cost of sales = £560000.00
2. Accurately apply the techniques and produce appropriate Budgeted Profit or Loss
Statement for January
Particulars Unit based
cost
Budgeted amounts (Total)
Amt Amt
Actual amount of sales (£50.00 * 16000) £50.00 £800000.00
Less - Variable manufacturing costs
Spending on direct material (£10.00 *
18000)
£10.00 £180000.00
Spending on direct labour (£20.00 * 18000) £20.00 £360000.00
Spending on variable overhead (£5.00 *
18000)
£5.00 £90000.00
£35.00 £630000.00
Add - Beginning stock in trade £0.00
Less - Ending stock in trade £70000.00
Variable or flexible manufacturing costs £560000.00
Contribution £240000.00
Less - Spending on fixed overhead £100000.00
Net profit or gain (loss) £140000.00
3. After the end of January if the actual production units were 19,000 and closing stock was
3000 units
Particulars Unit
based
cost
Actual amounts (Total) Budgeted amounts
(Total)
Amt Amt Amt Amt
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Actual amount of sales (50.00
* 16000)
£
50.00
£800000.00 £800000.00
Less - Variable manufacturing
costs
Spending on direct material £
10.00
£
190000.00
£180000.00
Spending on direct labour £
20.00
£
380000.00
£360000.00
Spending on variable
overhead
£5.00 £95000.00 £90000.00
£
35.00
£
665000.00
£630000.00
Add - Beginning stock in
trade
£0.00 £0.00
Less - Ending stock in trade £
105000.00
£70000.00
Variable or flexible
manufacturing costs
£560000.00 £560000.00
Contribution £240000.00 £240000.00
Less - Spending on fixed
overhead
£100000.00 £100000.00
Net profit or gain (loss) £140000.00 £140000.00
(b) Absorption costing
1. Calculate the production cost per unit, Total Production Cost and Total cost of sales for
January
(a)
Productio
n costs for
every unit
(b) Total
costs
related to
productio
n
(c) Total cost of sales
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Amt Amt
1. Spending on direct
material
£10.00 £
180000.00
Net amount spent on production =
£720000.00
Less - Beginning stock in trade =
£0.00
Add - Ending stock in trade =
£80000.00
Hence,
Total cost of sales = £640000.00
2. Spending on direct labour £20.00 £
360000.00
3. Spending on variable
overhead
£5.00
£90000.00
4. Spending on fixed
overhead
£5.00 £90000.0
0
Total £40.00 £
720000.00
Note: Spending of fixed overhead (per unit) = Budgeted overhead cost ÷ Standard volumes
produced = £100,000 ÷ 20,000 = £5.00 for every unit
2. Accurately apply the techniques and produce appropriate Budgeted Profit or Loss
Statement for January
Particulars Unit
based
cost
Budgeted amounts (Total)
Amt Amt
Actual amount of sales £50.00 £800000.00
Less - Full or entire manufacturing costs
Spending on direct material (£10.00 * 18000) £10.00 £180000.00
Spending on direct labour (£20.00 * 18000) £20.00 £360000.00
Spending on variable overhead (£5.00 * 18000) £5.00 £90000.00
Spending on fixed overhead (£5.00 * 18000) £5.00 £90000.00
£40.00 £720000.00
Add - Beginning stock in trade £0.00
Less - Ending stock in trade £80000.00
Standard cost of sales £40.00 £640000.00
Standard amount of profit £10.00 £160000.00
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Less - Under-absorbed overhead expenses £10000.00
Net profit or gain (loss) £150000.00
3. After the end of January if the actual production units were 19,000 and closing stock was
3000 units
Particulars Unit
based
cost
Actual amounts (Total) Budgeted amounts
(Total)
Amt Amt Amt Amt
Actual amount of sales £
50.00
£
800000.00
£
800000.00
Less - Full or entire manufacturing
costs
Spending on direct material £
10.00
£
190000.00
£
180000.00
Spending on direct labour £
20.00
£
380000.00
£
360000.00
Spending on variable overhead £5.00 £95000.00 £90000.00
Spending on fixed overhead £5.00 £95000.00 £90000.00
£
40.00
£
760000.00
£
720000.00
Add - Beginning stock in trade £0.00 £0.00
Less - Ending stock in trade £
120000.00
£80000.00
Standard cost of sales £
40.00
£
640000.00
£
640000.00
Standard amount of profit £
10.00
£
160000.00
£
160000.00
Less - Under-absorbed overhead
expenses
£5000.00 £10000.00
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