Management Accounting Systems & Techniques: A Comprehensive Report

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Management Accounting Systems &
Techniques
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Contents
LIST OF FIGURES.........................................................................................................................3
LIST OF TABLES...........................................................................................................................4
INTRODUCTION...........................................................................................................................5
SCENARIO 1..................................................................................................................................6
FUNCTIONS OF MANAGEMENT ACCOUNTING...............................................................6
MANAGEMENT ACCOUNTING SYSTEMS..........................................................................8
DIVERSE MANAGERIAL ACCOUNTING METHODS.......................................................11
SCENARIO 2................................................................................................................................12
TECHNIQUES OF MANAGEMENT ACCOUNTING...........................................................12
MERITS AND DEMERITS OF PLANNING TOOLS USED FOR BUDGETARY
CONTROL................................................................................................................................18
PREPARATION AND FORECASTING OF BUDGET WITH THE HELP OF PLANNING
TOOLS......................................................................................................................................21
ASSOCIATING HOW BUSINESSES ARE ADAPTING MANAGEMENT ACCOUNTING
SYSTEMS TO SOLVE PROBLEMS.......................................................................................24
HOW MANAGEMENT ACCOUNTING IS LEADING TO SUSTAINABLE SUCCESS
FOR ORGANISATIONS..........................................................................................................26
CONCLUSION..............................................................................................................................27
REFERENCES..............................................................................................................................28
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LIST OF FIGURES
Figure 1 Functions of management accounting...............................................................................7
Figure 2 Management accounting systems......................................................................................8
Figure 3 VRIO analysis.................................................................................................................22
Figure 4 Industry analysis..............................................................................................................22
Figure 5 Pestle analysis.................................................................................................................23
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LIST OF TABLES
Table 1: Profit Statement using Absorption Costing Method.......................................................13
Table 2: Profit Statement Using Marginal Costing Method..........................................................14
Table 3: Reconciliation of profit figures.......................................................................................14
Table 4: Purchases and issue of raw materials using LIFO Method.............................................15
Table 5: Calculation by Weighted Average Cost Method.............................................................16
Table 6: Calculation of Material Variances...................................................................................17
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INTRODUCTION
Management accounting is the term which is used by firms in the form of tool for analysing the
activities of the business. For making decisions in an organisation, the company uses the
management accounting system, which is regulated and observed by the management accountant
for analysing the internal activities within a business. This type of account involves monetary
and non-monetary data and information of the company (Kaplan and Atkinson, 2015). For every
organisation, management accounting is beneficial as it is very helpful in preparing and planning
financial and non-financial information regularly, which aids in forecasting and budget planning,
it also allows the companies to make the decisions based on forecasting and analysis of the
information.
As a Trainee Management Accountant in Cairn Financial Advisers, this is a medium-sized
financial advisory. The report will be going to present the importance of management accounting
in an organisation and description of different types of management accounting systems. There
will be benefits and problems of planning tools for an organisation. The report will show the
comparison of the adoption of management accounting systems in an organisation.
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SCENARIO 1
Management accounting
According to Cost and Management Accountant Institute of London, the management
accounting is defined as “assisting management of the company for formulating the policies,
planning and controlling the operations within an organisation by relating specialized
information and skills in the accounting of the company (Heinzelmann, 2016).
FUNCTIONS OF MANAGEMENT ACCOUNTING
Management accounting consists of the ways and ideas that are required for effective planning
by selecting among the various business operations and controlling them through the valuation
and analysis of performances (Heinzelmann, 2016).
Management accounting includes 4 functions
Planning
This is the basic and primary function of management accounting for long term as well as short
term. The planning function of management accounting enables the business to forecast financial
and non-financial information regularly (Manyaeva, 2016).
Controlling
It is the process of management accounting for checking, analysing, assessing and correcting the
actual outcomes to confirm that enterprise can achieve its goals and objectives (Manyaeva,
2016). The control process is implied with the help of feedback of people of the organisation,
through which the results can be evaluated and corrected.
Decision-making
Decision making involves the process of selection in the alternatives. Decision making is the
base for planning, controlling and budgeting for the company. It helps us to choose between the
competitive alternatives for achieving the goals and objectives of the organisation (Manyaeva,
2016).
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Figure 1 Functions of management accounting
(Source: Berry, 2019)
Organizing
It is the process of creating or forming an organisational structure by assigning the work and
responsibility to each individual to achieve the goals and objectives of the business. The
structure of the organisation differs from one organisation to another. It requires clarity about the
role and responsibility of a person or the manager (Berry, 2019).
Budgeting
Budget planning or budget-related decisions always obey with the forecasting of sales and
history of the marketing database. It is very important for an organisation to define its investment
plans which will be going to apply in the future course of action. The budget is created for every
department, project and new product (Berry, 2019).
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MANAGEMENT ACCOUNTING SYSTEMS
The management accounting system is the internal system of the organisation which it uses to
measure and analyse the processes of management of the company. It helps to provide relevant
information about the organisation to the people outside of the organisation like shareholders.
This is also called as managerial accounting (Fiondella, 2016). Management accounting system
of an organisation leads the business to assess its internal strength and weakness so that it can
use them or reduce them to achieve the goals and objectives of the organisation.
Figure 2 Management accounting systems
(Source: Fiondella, 2016)
Essentials of management accounting system
Listing the needs
While updating or installing the management accounting systems in the company, the manager
has to list down the things required and need of information system for the company. This could
be in the form of the capturing and information and reporting it to in particular format. After this
process, you have to prioritise the things or items which are needed (Fiondella, 2016).
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Searching for solutions
After listing and prioritising the things, the manager has to look for the computerised solutions
that should meet your needs at least 90%. The person has to be focused on finding and deciding
among the solutions for the computer system software (Fiondella, 2016).
Considering the budget
Management accounting system may or may not be very expensive, so before installing or
purchasing the system, the company must evaluate its budget and find the cost of the system. The
manager must be sure if he can afford the needs system (Holopainen, 2019).
Planning before implementing the system
Before implementing the system the manager must aware about the plan he has made for
implementation and factors which are considered line timeline of the system and budget and
reasonability (Holopainen, 2019).
Check-in with employees and management
A manager must be sure about the behaviour of employees and management towards the work as
they are following the system effectively or not. For establishing the system, the management
and team need to be behind the system (Holopainen, 2019). The team needs full commitment
and support from the employees to successfully install the system.
The types of management accounting system are as follows
Job-costing system
Job-costing system is one of the systems of management accounting, in which the manager is
responsible to monitor the cost for manufacturing each product. Companies use this system when
the products are quite similar and identical (Berry, 2019).
This method of management costing provides the calculation of exact costs required for labour
and material. It also enables the manager to evaluate the performance of the employees and helps
in calculating the profit margin of the company.
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Price-optimisation system
Price optimisation system is used to control the prices of the resources required by the
organisation. Through this system, multiple products can be priced at a single time (Quattrone,
2016). This system helps to determine the fluctuations in demand for the product at different
price levels.
One of the benefits of the price-optimisation system is that it is time-saving and decreases the
internal manual source which is allocated for price setting. It also provides market transparency
and scalability to hundreds of products.
Cost –accounting system
Through this system, the organisation can estimate the cost for the product while analysing the
profit of the organisation (Quattrone, 2016). It tracks the activities of manufacturing of the
products and tracks the flow of inventory for different levels.
The cost accounting system measures and maintains the efficiency and after that improves the
efficiency. It gives a clear idea about the activities which are profitable and which are not
profitable to the company.
Inventory-management system
Inventory-management system deals with the management and supervision of the stock of goods
in the organisation. In this system, the inventory manager will be responsible for tracking the
inventory and stock of goods in the organisation (Quattrone, 2016). The system uses foretelling
and replenishment strategies to plan for the cost requirement of the company.
Due to the implementation of the inventory management system, it becomes very easy for the
manager to improve the accuracy of inventory orders. This is a real-time system and helps to
save the money as well as time. This also encourages the manager to increase productivity
(Quattrone, 2016).
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DIVERSE MANAGERIAL ACCOUNTING METHODS
Management accounting reports are used for functional analysis of the organisation like
planning, organising, controlling and decision-making for the organisation. The reports are
generated continuously for counting and bookkeeping (Hoffman et al., 2016). There various
methods for a managerial accounting system and they are as follows:
Budget report
Budget reports are very critical and complex to generate and measure the company’s
performance. These reports are generated department wise for the large-size organisations and as
a whole for small scale organisations (Hoffman et al., 2016). The budget is prepared on previous
involvements and it grades all the sources of earnings and expenditures.
Account receivable ageing report
This type of report helps to find out the unpaid customer invoices and fallow credit memos
according to the date. The ageing report is primarily an instrument to collect the collections by
the people based on overdue invoices.
Cost managerial accounting report
In this accounting system, the cost of each article or product which is manufactured is optimised.
It involves the costs like raw-material, labour, overheads and another cost of installation or
production of the product. This is the cost report which involves the summary of all the costs and
its information (Hoffman et al., 2016).
Inventory reports
The inventory reports generally use the information and data like hourly labour rates, inventory
waste and per unit overhead cost (Hoffman et al., 2016). Through these accounting systems, a
business can highlight the areas where the business is improving and can provide bonuses to the
departments which are performing best.
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SCENARIO 2
TECHNIQUES OF MANAGEMENT ACCOUNTING
Management accounting techniques are the methods of accounting through which business can
formalise the strategies, business decision making and execution and risk management (Malmi,
2016). Management accounting has various methods of it and they are as follows:
Marginal costing
Marginal costing is the technique of costing in which an additional cost is charged on the
production of the extra unit of product. In this method price determination take place on the basis
of marginal costing and marginal contribution (Knott, 2015).
Absorption costing
Absorption costing method is the method of management cost accounting in which the producer
calculates the overall cost associated with the manufacturing of the product. The costs which are
linked with the absorption costing are wages, cost for raw material and overhead costs (Tappura,
2015).
Variance analysis
Variance analysis is the study in which the actual performance or behaviour is compared with the
estimated or forecasted budget in management accounting. This indicates the difference between
the actual performance and planned performance is being affected. There are three types of
variances such as labour variance, material variance and overhead variance (Knott, 2015).
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