Management Accounting Systems and Techniques

This report delves into management accounting systems and techniques, highlighting their importance in decision-making and financial management. It covers various accounting methods, cost analysis techniques, and the advantages and disadvantages of planning tools used for budgetary control. The report emphasizes the role of management accounting in enhancing business performance and adapting to changing organizational needs.

MANAGEMENT
ACCOUNTANT SYSTEM
AND TECHNIQUES

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and requirements of different kinds of accounting systems.....1
P2 Different methods used for the purpose of management accounting reporting................3
TASK 2............................................................................................................................................4
P3 Techniques of cost analysis to prepare an income statement using marginal and absorption
costs........................................................................................................................................4
TASK 3............................................................................................................................................7
P4 Advantages and disadvantages of various planning tools used for budgetary control......7
TASK 4 .........................................................................................................................................10
P5 Comparison on how organisations are adapting management accounting systems........10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is a process of making managerial records as well as accounts
which aid an company in taking a proper decisions. These books and reports are used for gaining
trust of parties like as investors, creditors and many more. It will reflect a fair and true business
position. Unicorn grocery is a co-operative store of grocery. It was founded in 1996. It was the
one of biggest independent wholefood groceries in United Kingdom. They also give employment
to approx 70 employees within the workplace (Arroyo, 2012). Management accounting is used
in each companies irrespective of its scope, size or nature. This company uses their systems for
preparing a income statement. In this report, it covers the methods of management accounting,
reports, techniques etc. Various significant benefits as well as roles of these approaches are
discussed in it. Process of decision making become effortless because of these systems.
TASK 1
P1 Management accounting and requirements of different kinds of accounting systems
Management accounting is an main function of an company as it make several
managerial reports and records, these vary from other financial statements as it can be made
anytime within a period of accounting as per its needs whereas these accounts are made at the
end year of accounting. It will help in knowing the business position by proper analysing of
accounting statements at the end year of accounting period.
Unicorn grocery is an co-operative business which delivers as well as produces the goods
of grocery and many others home utility products, they use the management accounting system
for taking a effective decision making (Baldvinsdottir, Mitchell and Nørreklit, 2010). At a time
of making a managerial records which aid them in providing a better image of enterprise
functions.
Types of accounting systems and their needs:
This management accounting system will aid enterprise in controlling as well organising
their functions by determining several costs which are included in activities. These management
accounting system gives several guidelines which aid in leading managers to delivering and
ascertaining better image of enterprise activities as well as profitability. Some of major managing
accounting systems are given below:
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 Cost accounting system: In this system, it include all costs in several departments such
as distributing, selling, marketing, production are discovered so that they can assume
the ratio of profitability in future events. Unicorn grocery is engaged in functions such
as delivering, packaging and manufacturing which include various expenses as it
determined within accounting systems. Most important role of cost accounting systems
is it aid in ascertaining income of future which is further used I the process of making
decisions as well as for future decisions of investments.
 Inventory management system: In this system, it gives a model which guides a
enterprise in managing inventory. Therefore, inventory means the availability of raw
material within enterprise, material stocked in warehouses, finished products and work
in progress stock. Unicorn grocery deal in home utility appliances and grocery goods
which outcomes to be having ample of finished and semi-finished stock, because of
this entire system is appropriate for this organisation. Unicorn grocery manager can
follow the system for managing all inventory (Bodie, 2013). This firm is using
approaches of EOQ, periodic, ABC and perceptual for inventory management.
 Job costing: It is a system which determine costs included in every job. Therefore, it
refers to job order which is taken from the customers to accomplish a particular task
within a limited period of time as per brief given by clients. Job costing is very
adequate for company which deals in customised goods such as Unicorn grocery, as
they will achieve order from several clients as well as try to accomplish manufacturing
of that order as per their brief within given period of time. It will aid company in
assuming cost which is further utilise in making decisions about labour needs as well
as material procurement. Accounting system is used for job costing are standards,
contract, process and batch costing systems.
 Price optimisation system: In this, it determine the prices of manufacturing products.
Therefore, price optimising is an process of determining the price after involving all
costs including selling as well as production. Price optimisation is an adequate for a
retail enterprise as they are selling various goods. Unicorn grocery exercise this
approaches in their planning of cost as they can allocate proper costs. Many main role
of this system will aid in maintaining a balance within various product cost. Cost of
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goods are very high then it will decline the supply as well as demand of that product
and if having a low price of goods then it will affect the company profit ratio.
 Activity based costing: As per this system, it include cost within this activity is
determined. Activity based costing is a process of costing a little difference, this
system is adequate for company which are involved in several activities. Unicorn
grocery organisation is not using techniques as they are a business of medium scale as
well as having low varieties of activities.
P2 Different methods used for the purpose of management accounting reporting
There are various types of methods that available for the purpose of reporting
management accounting, these methods are used by the business managers for effectively
managing the business and analysing the overall trend of business in the longer or short run. The
various methods which are being used are discussed as follows:
Cost Reports: Management accounting plays an essential role in determining the price of a
product or services and it is not possible to price a product until its actual cost to company is
known, for that purpose, A cost report is prepared by the accounting staff that will enable the
manager to take necessary course of decision regarding the pricing of product and service. It
allows managers to limit their unnecessary expenses and also gives an idea as to how much shall
be charged for a particular product or service. Cost reports are an important part of modern
business accounting and it is important to ascertaining the cost that has been incurred, so that
necessary measures can be taken to reduce the overall cost and increase the profits in general in
the longer run.
Budgets: It is yet another report which is being prepared by the managers for the purpose of
knowing an estimate of various transactions like cash, sales, Income etc. There are various types
of budgets are prepared like cash, sales, Profits etc. Budgets are normally made using the
previous year’s estimates and future projections are made using the same, this allows an
organisation to predict, what will be the cost that may occur, the level of profitability etc and
based on that necessary managerial decisions can be taken. The ultimate aim is to lower down
the cost and increase the overall profits of the organisation in the longer run. Budgets make it
possible for the managers to plan their expenses early and so as the profits that may occur, this
also enables to take decision whether it is feasible to undertake a particular project or not.
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Execution Reports: These reports are prepared by the accounting managers for the purpose of
ascertaining the different types of results that has came up. For example, once the budget has
been set, what is the level of deviation, whether the performance or execution was anyway near
to the budged one, and if no then what has been the reasons and how the same can be improved
shall also be discussed in the execution report in a proper manner. Execution reports are also
essential as without these, it becomes extremely difficult for the managers as to what is actually
achieved and whether the performance of the organisation and its people were satisfactory or not.
TASK 2
P3 Techniques of cost analysis to prepare an income statement using marginal and absorption
costs
Concept of an income statement is used by business organisation in order to determine
revenue and and expenses occurred during a specific period. It shows level of income gained
from selling products or services before taking out expenses. and also expenses through which
revenues are transformed into net income gained by an enterprise in financial year. The main
purpose behind making such statement is to show investors how much business has incurred loss
or profit in accounting period (Burritt, Schaltegger and Zvezdov, 2011). In this manner, a brief
description about absorption and marginal costing in income statement is given below:
Marginal costing- It refers to a costing technique which is used to determine how much
production cost is used for manufacturing an extra unit in organisation. It consider variable costs
rather than fixed costs for evaluating the fluctuation in marginal utility. In this manner, variable
costs are used to charge against sales revenue for measuring contributed amount in production.
While fixed costs of units are charged against contribution in order to formulate net income
during a certain period of business. In addition to this, marginal costs are considered as expenses
whose value varies as per change in production. It can be calculated by taking a summation of
direct material, labour, expenses and other overheads of company. Thus, it help small business
companies like Unicorn Grocery to measure profit.
Formula of marginal costing: sales revenue – marginal cost of goods sold = contribution
– fixed cost = net income
Particulars Amount
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Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Absorption costing – Absorption costing is a cost accounting method used to measure
value of inventories. It considers all costs used for manufacturing a good i.e. variable and fixed
cost both. Thus, both kinds of costs are charged against sales revenue for determining gross
profit or loss from which sales and distribution expenses are deducted to calculate net income
occurred in financial year (Chenhall and Smith, 2011). Absorption costs changes as per sold
units in business, therefore, profit determined using this method is relatively low as compared to
all costs.
Formula of absorption costing:
Net Profit = (Sales revenue) – (Cost of goods sold) = (Gross profit – Selling and Administrative
expenses)
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
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Net profit/ operating income 15675
Break-Even: This analysis refers to a situation where a company has gained no loss and
profit at certain point. In other terms, this method is used to measure how much firm needs to sell
in order to recover investment. It depends on fixed, variables costs and revenues per unit of sales.
a. The number of commodities needs to be sold for break even
Sales per unit 40
Variable costs VC = DM +
DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. In terms of sales revenue, break even point can be measured as
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution /
sales * 100 30.00%
BEP in sales 20000
c. In order to make profit of 10,000 it needs to sold x number of products which can be
formulated as
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
d. If 800 products are being sold then margin of safety can be calculated as
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Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
Margin of safety- It shows the difference between break even sales and actual sales of a
company. Thu, it is necessary to calculate as it shows sales performance during an accounting
period which further makes profit for business.
Interpretation of Data:
Through this calculation, it has interpreted that net income calculated by marginal costing
method is relatively much higher than absorption costing with a difference of 825 unit. The main
reason behind this is technique of marginal costing i.e. variable costs are charged against sales
revenue. In addition to this, under marginal costs, expenses are recorded as fixed and variable
costs in a certain financial period. On the other hand, in absorption costing, manufacturing and
selling costs are recorded as expensed overhead. In terms of BEP, it has been interpreted that if
Unicorn Grocery is going to manufacture 500 units then it will incurred no profit or loss in this
situation. Therefore, to earn a profit of near about 10,000 this firm needs to sale approximately
1334 units during a certain period.
TASK 3
P4 Advantages and disadvantages of various planning tools used for budgetary control
It is a system of management control in which managers of a firm used to compare actual
income and expenses with estimated one. This would help in evaluating whether plans are being
followed perfectly or there is a requirement of change so that profitability can be earned in
business. Budget of a company includes sales, flexible, cost, production and other kinds of
budgets. In this process, sales budget is used to determine how much firm requires to sales
during a specific period so that estimated profit can be earned (Cullen and et. al., 2013). This
kind of budget consists all kind of expenditure related to process of sales and estimation of
profitability. On the other hand, cash budget is used to predict financial position of business in
future context.
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Thus, it is essential mostly for small business organisation to prepare proper budget plan
so that managers can make adequate decisions related to production and other activities of
business. By budgetary control technique, they can reduce extra expenses occur in manufacturing
process through which cost of production can be enhanced and profitability can be enhanced
easily. Along with this, by comparing current budget with previous one, necessary steps can be
taken by employers of a Unicorn Grocery related to reduce costs and other expenses. Some
important tools used by small business companies to control budget are explaining below:-
Budgetary Control
Tools
Description Advantages Disadvantages
Forecasting This planning tool is
used to predict all
situations which may
occur in future and
affect business due to
certain plan and
action. This kind of
prediction is based on
evaluation of past
experience of a
management,
knowledge as well as
judgemental criteria
(Dosch and Wilson,
2010). Thus, it will
help in drawing up an
adequate action plan.
By forecasting
planning tool,
employers can
achieve objectives of
business in faster
manner. It also leads
firm in reducing cost
of operations by
ensuring an even flow
of work, minimise
errors as well as
protect against false
decisions. Thus, it aids
in enhancing
efficiencies of
managerial functions.
It also assists
managers in
implementing future
programs in a proper
and systematic manner
so that maximum
As the main purpose
of this kind of
planning is to develop
innovative and
creative strategies
which seems to be
more complex task.
The main limitation of
forecasting planning is
related to accuracy of
future prediction. It
also provides
numerous options to
cope with certain
problems which
misleads an enterprise
in formulating a proper
action plan as well as
in place of assured
goal, probable result
has gained in final
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profitability can be
obtained.
process.
Contingency It is considered as a
backup plan which
prepares in case of
disaster that may
disrupts entire
production activities
and can put workers in
danger too. Thus, it
helps in safeguarding
data of business,
minimising disaster as
well as prevent
employees from
dangerous conditions.
The main aim behind
contingency planning
is to keep updated
people and train them
to protect themselves
in case of risky
situation.
By having a
contingency plan, an
association can secure
its workplace from
hazardous situations
like natural disaster,
terrorism attack and
more. In case of any
discrepancy like
building gets struck by
natural calamities then
disaster relief
insurance help in
recovering loss (Faÿ,
Introna and Puyou,
2010).
It is a time consuming
and expensive
procedure as superiors
of firm need to go
through various
documentation process
as well as gather
information which
need to further
analysis and
interpretation thereof.
It also creates a wrong
sense of security in
people.
Scenario This tool is used to
create different kinds
of policies and plan
which is beneficial for
management of
Unicorn Grocery to
evaluate all possible
It helps in reduce
entire risks of business
in easy manner related
to operational
activities. In addition
to this, it also aids
managers in taking
For this kind of
planning, management
of a firm needs to hire
high talented and
skilled workforce for
evaluating all
scenarios of future in
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