Management Accounting Systems and Techniques: A Detailed Analysis

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MANAGEMENT ACCOUNTING

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INTRODUCTION
Management accounting is vital for ensuring overall organizational success. Therefore, the
organizations should make huge efforts in the creation and usage of the management
accounting information. The efficient management accounting comprises up of responsibility of
managing a wide range of critical management information by making substantive use of
techniques such as budgetary control, costing systems, break-even analysis and others.
Therefore, as a trainee management accountant, this report is being made with the objective of
analyzing in detail the management accounting systems and also gaining an understanding of
applying the numerous management accounting techniques. The report would also be focused
on analyzing the use of planning tools and determining its use in problem-solving.

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MANAGEMENT ACCOUNTING
The efficient utilization of the knowledge and professional skills for providing the accounting
information in a personable manner is known as management accounting. The information
provided is helpful for assisting the management to formulate policies and also plan and control
the organizational activities (Kaplan and Atkinson, 2015).
MANAGEMENT ACCOUNTING SYSTEMS
These are the systems which are capable of developing reports for the management of the
organization. These reports aid the management in the decision making process with regards to
the business activities. The requirement of the management to make decisions decides which
reports are to be made (Chiarini and Vagnoni, 2015). The reports made by using the
management accounting systems comprises up of breakeven charts, trend charts, budgets and
others.
TYPES OF MAS
The systems can be broadly classified amongst the following. The detailed explanation of the
types is as follows:
Job-Costing Systems
By using this system, the organization aims at assigning the costs to the specific activities which
are being performed. This system of management accounting is highly beneficial in situations
when the organization works at numerous projects simultaneously (Fisher and Krumwiede,
2015).
Cost-Accounting Systems
The manufacturers majorly make use of this system for recording the transactions related to
the actual production activities undertaken by the organization. The perpetual inventory system

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is being adopted for the implementation of the job-costing systems (Guenther et al., 2015). The
inventory can be efficiently tracked at all the stages of production by the management.
Price-Optimization Systems
The price optimization systems are being implemented by the organizations as they are highly
helpful in analyzing the best prices for the services offered to the customers. The
implementation of this system also helps the organizations in ensuring that the right products
are being sold at right prices, which are helpful in maintaining decent profits from the
operations.
Inventory Management Systems
This is being used with the objective of tracking the goods possessed by the organization within
the warehouse. The use of an inventory management system is also highly beneficial in
ensuring that the stock of goods and the production activities are being planned regularly
(Mountz et al, 2015). With the objective of getting the best results, the organization should
ensure that the system is being deployed at several locations.
METHODS USED FOR MANAGEMENT ACCOUNTING REPORTING
The management accounting reports are an important technique for determining the complete
performance of the organization. The reports are very crucial for the management of the
organizations in defining the competence of the business activities. The methods which can be
used for the management accounting reporting are:
- Budget reports
This is being considered as one of the most essential reports within the managerial accounting.
The report facilitates in estimating the revenues and expenditures for future operations based
on past information (Maas et al., 2016). This is highly beneficial in determining the efficiency of
the processes.
- Job cost reports

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The job costs reports are being made by the organization with the objective of accounting for
the costs which are being incurred during the manufacturing processes (Maas et al., 2016). The
comparison of the actual costs with revenues helps in determining the profitability of the
organization. This report is beneficial in determining the actual expenses when the project is
operational.
- Manufacturing and inventory reports
All the manufacturing companies have a physical inventory with them. These organizations use
management reports for ensuring proficiency in the manufacturing process. The report
contains details about the hourly labour costs, overhead costs and the details of inventory
wastage during the manufacturing process (Maas et al., 2016).
- Accounts receivable ageing reports
This report is beneficial to organizations providing credit to customers. This report categorizes
the customers based on the time duration for which they owe to the customers. The problems
existing within the collection process can be efficiently determined and the bad debts of the
organization could be avoided (Maas et al., 2016).
BENEFITS OF MANAGEMENT ACCOUNTING SYSTEMS
The following are the benefits:
- Planning
The management accounting systems help in the planning and execution of various business
operations. The accounting information is being categorized on the basis of departmental
activities and the functional budgets are being prepared (Uyar and Kuzey, 2016).
- Controlling
In situations when the deviations are found between the actual and the budgeted figures, the
management can implement control over the actions of the organization. For exercising

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control, the management can make substantive use of the budgetary control systems and the
standard costing (Pérez-Méndez and Machado-Cabezas, 2015).
- Organizing
These systems help in the organization of the work by defining the responsibilities of the
executives and the scope of authority
Co-coordinating
The numerous tasks undertaken within the organization needs to be organized for ensuring
that the organizational objectives are fulfilled. Therefore, the organization should make efforts
for ensuring that the activities of production, sales, finance and other departments are being
coordinated (Pérez-Méndez and Machado-Cabezas, 2015).
- Efficiency improvement
The implementation of the management accounting systems helps in elimination of wastages
and defective products (Wadan and Teuteberg, 2019).
- Communication
The organization should adopt a two-way communication process. The top management is
provided with the reports and important accounting information for aiding them in the decision
making the process (Uyar and Kuzey, 2016). The responsibilities and the work assigned needs to
be communicated to the employees of the organization.
- Profit maximization
This is the sole objective of the organization. The organization should make efforts for
determining the deviations from the standard performance. The use of systems would guide in
maximizing the profits (Pérez-Méndez and Machado-Cabezas, 2015).

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INTEGRATION OF SYSTEMS AND REPORTING IN ORGANIZATIONAL PROCESS
The organizations should focus on integrating the accounting systems and the reporting
practices within all the undertakings of the organization. The management accounting system
comprises all the processes which are being installed by the company with the objective of
planning and controlling the activities. The implementation of these processes within the
organization also supports the decision-making process of the management (Appelbaum et al.,
2017). The organizations strive for ensuring continuous development by focusing on the
improvements of the organizational process and the established systems. It is also evident that
the implementation of the management accounting system within the organization is of utmost
importance in evaluating the effectiveness of the activities and also introducing new activities
which could enhance the performance of the organization in terms of revenues (Chiarini and
Vagnoni, 2015).

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Costs are the expenses incurred by the organization in the monetary terms for manufacturing a
product. The costs represent the overall expenditures borne by the organization with the
objective of undertaking its operational activities (Boardman et al., 2017).
CALCULATION OF FULL PRODUCTION COSTS
The production costs for the manufacturing activities of Galway Plc. Are as follows:
Particulars Amount
Direct Materials £ 8
Direct labour £ 5
Variable overhead £ 3
Fixed production overhead (£ 4000: £ 400) £ 10
Total production costs £ 26
CALCULATION OF PROFIT PER UNIT
Particulars Amount
Selling price per unit £ 50
Total production cost per unit £ 26
Profit per unit £ 24
CALCULATION OF CONTRIBUTION PER UNIT
Particulars Amount
Selling price per unit £ 50
Less: direct costs
Direct materials £ 8
Direct labor £ 5

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Variable costs £ 3
Contribution per unit £ 34
CALCULATION OF VALUE OF INVENTORY AND PRODUCTION
Opening inventory Production Closing inventory
May 0 500 units * £ 16 =
8000
200 units * £ 16= £
3200
June £ 3200 380 units * £ 16 = £
6080
80 units * £ 16 = £
1280
MARGINAL COSTING PROFIT STATEMENT
Marginal costing is a costing system where the costs are being bifurcated into fixed and variable
costs. The marginal costing method focuses on writing off the fixed cost against the
contributions and also in charging the variable costs (Medudula et al., 2016).
Particulars May May June June
Sales £ 15000 £ 25000
Less: variable
cost
Opening
inventory
0 £ 3200
Production £ 8000 £ 6080
Closing inventory £ 3200 £ 4800 £ 1280
Variable sales
commission
£ 9450
Contribution £ 15750
Less: fixed cost £ 4000 £ 4000
Fixed cost £ 2000 £ 2000

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Fixed selling
price
£ 4000 £ 10000 £ 4000 £ 10000
Profit £ 550 £ 5750
ABSORPTION COSTING PROFIT STATEMENT
Under the absorption costing technique, the costs of production are being allocated to the
particular units. This method of costing focuses on allocating the fixed overheads to the
manufacturing cost of the product. Absorption costing also focuses on stock valuation.
Particulars May May June June
Sales £ 15000 £ 25000
Less: variable
cost
Opening
inventory
0 £ 5200
Production £ 8000 £ 9880
Closing inventory £ 5200 £ 2080
Contribution £ 18 00 £ 13000
Less: fixed cost £ 4000 £ 4000
Fixed cost £ 2000 £ 2000
Fixed selling
price
£ 4000 £ 10000 £ 4000 £ 10000
Profit £ (8200) £ 3000

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UNDER/ OVER ABSORBED FIXED PRODUCTION COSTS
Particulars May June
Actual fixed production
overhead
£ 4000 £ 4000
Fixed production overheads
absorbed
(500 units * £ 10)
=£ 5000
(380 units *£ 10)
= £ 3800
Absorption £ 1000 over absorbed £ 200 under absorbed
RECONCILIATION OF THE PROFIT FIGURES
Particulars May June
Profit under absorption 1450 4550
Difference in inventory (200 units * £ 10) = £2000 (120 units *£ 10)= £ 1200
Profit under marginal costing £ 550 £ 5750
STOCK VALUATION METHODS
For the store assistant of Galway Ltd., it is very essential to determine the closing value of raw
material inventory at the end of each period. With the objective of valuing the stock, the store
assistant can use the FIFO, LIFO or the weighted average stock valuation techniques (Shapiro et
al., 2019).