Management Accounting: Systems, Reporting, and Techniques Report

This report delves into the core concepts of management accounting, exploring various systems and their benefits, including cost accounting, inventory management, and job costing. It examines different reporting methods such as inventory reports, budget reports, and job cost reports, providing insights into their application within organizations. The report critically evaluates management accounting systems and reporting, demonstrating their role in organizational success and financial problem-solving. It analyzes the application of techniques like marginal and absorption costing, including detailed calculations and interpretations. Furthermore, the report discusses planning tools for budgetary control, comparing how organizations adapt management accounting systems to address financial challenges and achieve sustainable success. The analysis also considers the break-even point and margin of safety. Finally, the report concludes with a summary of the key findings and their implications for effective financial management within organizations. This report is a comprehensive resource for students, offering a detailed overview of management accounting principles and their practical applications.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
P1 Different management accounting systems and their benefits...............................................1
P2 Different methods used for MA reporting .............................................................................3
M1 & D1 Critical evaluation of MA system and reporting along with application....................4
P3 Application of different types of management accounting techniques..................................5
P4 Types of planning tools for exercising budgetary control......................................................9
P5 & M4 Comparing organisation adapting the MA systems for responding to financial
problems and leading organisation towards success. ................................................................10
D3 Evaluating planning tool for resolving financial issues for sustainable success. ................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
MA can be defined as accounting process including combination of the non financial and
financial statements to enable organisations for making effective decisions. The information
generated by the managers to take different activities and operations for controlling the costs.
Next Plc is international footwear, clothing and the home product retailer which is
headquartered at Enderby, Leicestershire. It has nearly nearly 700 stores and around 500 are
located in UK and 200 in Asia, Europe and Middle east. It is largest retailer of clothes by sales in
UK. Company is listed in London Stock exchange. Report will provide about the MA concepts
and systems used by managers. It will also include the MA reporting systems and different types
of costing techniques used. Further it will provide about the budgetary planning tools and use of
different tools in solving the financial problems.
MAIN BODY
P1 Different management accounting systems and their benefits.
MA refers to process involving presentation of the financial information regarding the
different operations of business to manage the internal working of organisation. It involves
application of professional & knowledge skills for formulating the accounting and financial
information that helps the management of company for planning, framing policies, strategies,
and to control operations of enterprise. MA enables management to take decisions that are most
beneficial for the entity.
Difference between management and financial accounting
MA is of internal use of company to take business decisions where financial accounting
aims at providing information to external users of the business such as stakeholders.
Organisation is not required to follow any set standard in MA reports while financial accounting
reports are prepared using set standards (Jermias, Gani and Juliana, 2018). MA reports are for
internal use therefore no audit where financial reports are required to be audited before they are
issued for public use.
Different MA systems and essential requirements
Cost Accounting systems
This refers to MA systems that keep record of all the transactions carried out by the
organisation related with production. The system helps company in tracing the costs related with
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each product being manufactured. It is essential for the business to evaluate costs to determine
the profit margins and costs of products.
Requirements
Cost accounting system is required for tracing the costs that are incurred at different
stages of manufacturing the product. The system enables managers in producing goods and
services at minimum cost and adequate profits.
Benefits
 Managers could identify productive and unproductive exercises of processes.
 Cost information provides the managers to make important strategic and operational
decisions. Cost accounting allows company to exercise control over increasing costs applying cost
efficient techniques.
Application
This system is applied by the manufacturing concerns to appropriately and effectively
record and implement the various costs in relation with the business production of goods and
services.
Inventory Management System
The system looks over each item of the stock. It plays essential role to assess needs
regarding the raw materials and other components used to produce the goods and
services(Abernethy and Wallis, 2019). This system provides a defined framework regarding the
management of inventory of the organisation.
Requirements
IMS is essential for the management to have record of each and every inventory items
from capital assets, raw material to other supplies of the company. It has automated the process
of ordering.
Benefits
 It assists in managing the inventory stocks of company adequately.
 Management could identify the frequency of inventory movement to make future
forecasting. It helps the company in saving and reducing its carrying cost of inventory.
Application
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The system is applied in the organisation to have complete record of all the inventories
and their consumption in the process. This is required for maintaining safety stock and making
timely orders.
Job Costing System
JC system refers to practice of gathering the information regarding the costs associated
with specific job or the production. The information related to cost of producing particular job is
required by the business on special orders from customers. JC system is very useful system as it
enables the company to identify the costs related to each costs separately.
Requirements
The systems is very essential for the organisation as it provides detailed information
regarding each cost of job such as raw materials, labour and overheads. It enables the company
to quote price of each job separately.
Benefits
 It supports the business to assist costs of every job individually.
 This helps the company to determine the cost margins and profit levels. The systems helps management in allocating the cost to different accounts and jobs
specifically and appropriately.
Application
JC system is applied by the organisation for identifying the cost of producing a specific
job on special requirements of the client. It determines the prices to be charged over specific
jobs.
P2 Different methods used for MA reporting
There are different types of MA reports that are used by the organisation for providing
information related to different operations.
Inventory Report
The report contains information regarding all the inventory stocks of business. It
provided complete information regarding the quantity of purchases, frequency of purchases and
the rates at which inventory is purchased. Management analyses the inventory stocks are capable
to meet the requirement of specified period or not. The information provided by the inventory
reports enables the management in taking future decisions (Bui and De Villiers, 2017). It also
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presents the consumption and wastage figures in production so that adequate steps could be
taken by the entity and for framing the strategies to reduce the costs and wastage.
Budget Report
Budget report could be stated as one of the important report for the management. It could
be defined as standard document containing all the information regarding income and
expenditures of the specific period. Budget report is prepared by company analysing the previous
trends and reviewing the previous budgets and making adjustments related to the current
situation. It is used by the management for comparing the actual and budgeted figures of the
organisation and to identify the variances (Endrikat, Hartmann and Schreck, 2017). On the basis
of variances effective control procedures are adopted for reducing the variances from the
organisation.
Job Cost Report
The report is used to evaluate projects of company against set standards. The work
includes evaluation of total cost in a specified project as against the estimated revenues. The
reports of job costing are used for evaluating profitability associated with every job undertaken.
It helps Next plc in identifying jobs that are profitable for the entity so that it could pay attention
over such jobs. Report provides all the information related to different jobs performed by the
organisation.
M1 & D1 Critical evaluation of MA system and reporting along with application.
Various systems of MA are used by company to help them in running operations
smoothly and effectively. MA systems enables firm to assist the organisation to attain the desired
goals and objectives of earning adequate profits at minimum cost. Integration of the MA systems
& reporting results in integrated system that enables the management in having effective
management of various operations and assessing the success achieved using information
provided by MA reports. It provides information of MA systems and its effectiveness in
achieving the organisational goals. The information provided by the systems helps in evaluating
efficiency and productivity of the organisation related to different operations undertaken by
company. MA report enable the management to give direction to different processes carried out
by organisation (Herschung, Mahlendorf and Weber, 2018). It is essential for the business to
make effective utilisation of the resources of the entity using different systems and reports.
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P3 Application of different types of management accounting techniques
The MA techniques are useful for the business organization for the purpose of effectively
evaluating their business practices in order to conduct cost control which leads to cost saving.
There are various techniques that are being utilized by the businesses two widely used techniques
are stated below.
Marginal costing
This technique is used by the business entities for the purpose of analysing the relation
between the cost, volume of production and the profit on account variation in the change in the
level of activity. In this, the products are tracked using variable cost only and neglects the fixed
expenses (Ray and Gramlich, 2016). It considers only the direct cost as the part of product. It
determines the right production level with least cost.
Absorption costing
It involves fixed and variable cost in the cost of production which leads to direct impact
of it on the profitability (Paul, 2020). The variable cost remains the same but the fixed cost
differs as per the number of units of products.
Income
statement as
per Marginal
Costing
Particulars April May
Sales Revenue (4000*14) 56000 (5000*14) 70000
Marginal Cost of Sales
Variable Production cost (4000*5) 20000 (6000*5) 30000
20000 30000
Add:
Opening Stock 0
(2000/6000*3000
0) 10000
Less:
Closing Stock
(2000/6000*3000
0) 10000
(3000/6000*3000
0) 15000
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10000 25000
Contribution 46000 45000
Fixed manufacturing
overheads 18000 18000
Fixed Non-Manufacturing
Cost 5000 5000
Net Income 23000 22000
Income
statement as
per Absorption
Costing
Particulars
Januar
y
Februar
y
Sales Revenue (4000*14) 56000 (5000*14) 70000
Marginal Cost of Sales
Variable Production cost (4000*5) 20000 (6000*5) 30000
Fixed manufacturing
overheads 18000 18000
38000 48000
Add:
Opening Stock 0 16000
Less:
Closing Stock
(2000/6000*4800
0) 16000
(3000/6000*4800
0) 24000
22000 40000
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Gross profit 34000 30000
Fixed Non-Manufacturing
Cost 5000 5000
Net Income 29000 25000
Reconciliation
statement
April May
Profit as under marginal costing 23000 22000
Add: Under absorption of fixed manufacturing cost 6000 3000
Profit as under absorption costing 29000 25000
Analysis and interpretation:
The profit under marginal costing is lower as compared to that of absorption costing
because it only considers variable cost in determining the cost of production. Therefore, it is
preferred to use absorption cost which also used for external reporting purpose as well.
Break even point and margin of safety analysis
Budgeted production 20000 packs
Sales revenue (20000*60) 1200000
Less: Variable costs
Materials (20000*20) 400000
Labour (20000*14) 280000
Other variable cost (20000*12) 240000
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Variable administration and selling (20000*3) 60000
980000
Contribution 220000
Less: Fixed cost
Fixed cost 80000
Fixed administration and selling 60000
140000
Net profit 80000
Contribution margin per unit 60-(20+14+12+3) 11
Contribution margin (11/60) 18%
Total fixed cost 140000
Break even point (in units) 12727
Break even point (in amount) 763636
Current sales in units 20000
Break even sales in units 12727
Margin of safety (in units) (20000-12727) 7273
Current sales 1200000
Break even sales 763636
Margin of safety (in amount) (1200000-763636) 436364
Units Sold
Sales
Revenues
Variable
Costs Fixed Costs Total Cost
Operating
Profit
0 0 0 1,40,000 1,40,000 -1,40,000
3181 1,90,909 1,55,909 1,40,000 2,95,909 -1,05,000
6363 3,81,818 3,11,818 1,40,000 4,51,818 -70,000
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9545 5,72,727 4,67,727 1,40,000 6,07,727 -35,000
12727 7,63,636 6,23,636 1,40,000 7,63,636 0
15909 9,54,545 7,79,545 1,40,000 9,19,545 35,000
19090 11,45,455 9,35,455 1,40,000 10,75,455 70,000
22272 13,36,364 10,91,364 1,40,000 12,31,364 1,05,000
25454 15,27,273 12,47,273 1,40,000 13,87,273 1,40,000
28636 17,18,182 14,03,182 1,40,000 15,43,182 1,75,000
Therefore, the company would be required to sell 12,727 units in order to cover its fixed
costs. If it sells the budgeted 20,000 units then it will incur profit of £80,000.
P4 Types of planning tools for exercising budgetary control
Budgeting is the formal business statement which includes estimated figures with respect
to the future performance of the business. This supports in measuring the performance with the
budgeted one so that actions can be taken on right time. Some of the tools that can be used by AJ
and Sons are stated below.
Zero based budgeting
In this type of tool, the budget is prepared fresh without considering any previous ones. It
requires intensive research and analysis on the account of expenses to be clubbed in the budget.
This results into making accurate budget with very less deviation from the actual outcomes
(Kumar, Reddy and BIST, 2018). Under this proper justification is not required as in case of
traditional methods.
Advantages
 This tool is not dependent upon the past year’s budget which leads to better result.
 Each time the budget is prepared complete research is carried out.
 This supports the business entities in lowering their cost elements. It is effective for the products which are affected by the frequent changes in the market.
Disadvantages
 It involves consumption of lot of time and efforts.
 It is a very expensive as in-depth research is carried out for preparing the budget.
 Also, the data manipulation can be done by the managers for getting more resources for
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their department.
Activity Based Budgeting
This budget created which is dependent upon the activities being carried out by the
business organization. It is completely based on the estimation in respect to the resources to be
used and production level to be generated (Cokins and Dybvig, 2018). The activity-based
budgeting helps in identifying the different types of costs and expenditures that may be incurred
in relation to the various business activities which is conducted in the manufacturing process.
Advantages
 This tool is very simple to be implemented as it requires less time.
 It provides support to the management in identifying any discrepancies in the production
activities and processes. This budget is prepared without considering any of the previous year’s budgets.
Disadvantages
 For preparing this budget requires exercising professional knowledge and skills.
 It is very costly at the time of implementation.
 It is useful for the businesses where various activities are carried out.
Operational Budgets
This budget only involves the operational activities of the business. Estimated values are
provided taking into account the past year’s budget. It provides an estimated amount of income
and expenditure and other relevant cost in relation to operational activities. This tool provides
support to the organization for the purpose of effective allocation of financial resources among
the different functional units or departments of the organization.
Advantages
 This budget can be easily created and also it is simple to understand.
 Useful in appropriate distribution of the financial resources, resulting exercising control
over cost. Based on the set targets, the effective actions can eb taken to ensure that all the
requirements can be easily met.
Disadvantages
 The operational budge is based on the previous year budget which leads to increase in
chances of errors and inaccurate figures.
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 It is not possible to forecast the revenue and expenses accurately.
P5 & M4 Comparing organisation adapting the MA systems for responding to financial problems
and leading organisation towards success.
Companies serve in the dynamic business environment which is full of uncertainties.
Companies are required to adapt different business models, strategies & procedures to respond
effectively to social as well as environmental changes to maximise value for the shareholders
and financial success of organisation. It is essential for the business to identity financial issues
for taking active measures to reduce the same.
Key Performance Indicators
This is defined as the measurable value demonstrating effectiveness of the firm to
accomplish the set business objectives over the period in specified time period. KPI are
established at various levels of the organisation for evaluating success of departments, operations
or employees. It analyses whether the existing strategies are effective to reach the target goals.
Benchmarking
It is described as the practice involving assessing and identifying various financial
problems that company may face. Tool is used by management for comparing the actual results
of the process with set standards. Technique enables management to measure performance of
operations carried out during the year. It also identify the variances which are caused in the
different business operations.
Comparison of the financial problems faced by different organisation
Next Plc Tesco
Next is using KPI to assess financial
performance of the organisation and different
departments. The various techniques used in
MA provides essential information to make
sound decisions. Managers can identify the
costs and expenses of various processes to
assess the profitability of operational carried
out during the year. Use of KPI enable the
company to find areas where the entity is
lacking behind. On the basis of information
It is also a multinational retailer which uses
benchmarking for identifying the financial
issues faced by company. Benchmarking
allows Tesco to identify the variances between
actual and planned figures using which
organisations take steps for removing the
variances. It provides information based on
which MA systems are established for
removing the financial issues faced by
company (Ax and Greve, 2017). Management
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provided by KPI different MA systems are
improved to ensure that the desired goals and
objectives are achieved resolving the financial
issues.
exercise strong control and governance over
the management operations using MA systems
and manage each and every operation
appropriately reducing the financial problems.
D3 Evaluating planning tool for resolving financial issues for sustainable success.
MA provides different planning tools that helps the management in making sound
decision regarding the financial issues faced by company. Planning tools such as different budget
enable the company to manage the resources effectively and making best utilisation of the
resources reducing the wastages. While framing the strategies planning tool ensures that the
company considers the financial issues faced by the organisation ensuring that company makes
effective control over the costs and expenditures and manages the resources to overcome the
financial issues of company.
CONCLUSION
It can be summarized from the above that management accounting (MA) is a complete
package which provides support to the business entities in managing their business activities
effectively. The data and information provided through this leads to better and improved decision
making. The MA system like cost accounting, inventory management system and so forth, is
developed in order to meet the various business requirements along with the reporting system
which helps in ensuring that everything has been kept intact. Th MA techniques that AJ and Sons
can implement with the aim of exercising cost analysis which results into identifying
unnecessary cost. The budgetary control tools such as zero based budgeting, operation and
activity based budgeting can be utilized for the exercising budgetary control. At last, the ways
through which the business organization can effectively respond to its financial issues such a
benchmarking can be used. Therefore, MA is very useful for the business.
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REFERENCES
Books and Journals
Jermias, J., Gani, L. and Juliana, C., 2018. Performance Implications of Misalignment Among
Business Strategy, Leadership Style, Organizational Culture and Management
Accounting Systems. Leadership Style, Organizational Culture and Management
Accounting Systems (January 9, 2018).
Abernethy, M.A. and Wallis, M.S., 2019. Critique on the “manager effects” research and
implications for management accounting research. Journal of Management Accounting
Research.31(1).pp.3-40.
Bui, B. and De Villiers, C., 2017. Business strategies and management accounting in response to
climate change risk exposure and regulatory uncertainty. The British Accounting
Review.49(1). pp.4-24.
Endrikat, J., Hartmann, F. and Schreck, P., 2017. Social and ethical issues in management
accounting and control: an editorial.
Herschung, F., Mahlendorf, M.D. and Weber, J., 2018. Mapping quantitative management
accounting research 2002–2012. Journal of Management Accounting Research.30(1).
pp.73-141.
Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational
culture compatibility and perceived outcomes. Management Accounting
Research. 34.pp.59-74.
Cokins, G. and Dybvig, A., 2018. NEXT GENERATION BUDGETING: If you want more accurate
results from your budgeting process, it may be time to switch from traditional budgeting to
operational budgeting. Strategic Finance. 99(10). pp.38-46.
Kumar, S. P., Reddy, S. and BIST, B., 2018. A STUDY ON BUDGETING. International Journal of Pure
and Applied Mathematics. 119(12). pp.6315-6326.
Paul, D. D., 2020. STANDARD COSTING AND ABC: A COEXISTENCE. Strategic Finance. 101(11).
pp.32-39.
Ray, K. and Gramlich, J., 2016. Reconciling full-cost and marginal-cost pricing. Journal of Management
Accounting Research. 28(1). pp.27-37.
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