Management Accounting Systems & Techniques Report, Finance Module

This report delves into the realm of management accounting systems and techniques, offering a comprehensive analysis of their application within a business context. It begins by defining management accounting and exploring various types of systems, such as cost accounting, inventory management, job costing, and price optimization. The report then examines different methods for management accounting reporting, including budget reports, accounts receivable aging reports, performance reports, and inventory reports. Furthermore, it highlights the benefits of management accounting systems, illustrating their integration within organizational processes. Task 2 focuses on the preparation and interpretation of income statements using both absorption and marginal costing methods, providing a detailed numerical example. The report also explores the application of management accounting techniques, such as budgetary control and standard costing, in producing appropriate financial reporting and solving financial issues. It concludes by emphasizing the role of planning tools in supporting industry for sustainable success.

Management Accounting
Systems & Techniques

Contents

INTRODUCTION
Management accounting system (MAS) may be defined as an important tool for any
business organisation which is required to implement effectively to manage the various business
operations. This system assist the company in utilising financial information in preparing various
reports for the company's internal use and assist the managers. MAS is important source for high
quality decision making in performing various business task. Management accounting system is
very advantageous if it has the characteristics of some attributes which includes timeliness,
scope, aggregation and integration. For better understanding of MAS, a company named Boston
consultancy group is chosen which is engaged in providing consultancy services to various
manufacturing organisations. This report defines the term management accounting and its
different types. Apart from this, it provides the techniques for calculating profit and loss account
of an entity in detail, on other hand it explains the various benefits and weaknesses of different
kind of planning tools utilised in budgetary control.
TASK 1
P1.Management accounting systems and different types of MAS:
Management accounting may be said as a measure of providing monetary details and
key sources which helps managers in making effective decision making. Management
accounting system is a systematic process by which financial information as well as non
financial information are evaluated to preparing the various types of reports that used by the
managers for internal use. MAS is vary in their use because these are made to provide several
advice based on the requirements of entity (Kaplan and Atkinson, 2015).
There are different kinds of MAS, few are discussed as follows:
 Cost accounting system: It may be defined as a system that may be utilised by
organisations for measuring its production cost. This may be beneficial to implement
such costing system because it helps the company in determining its profitability and
reducing the expenses. Further it may also be categorised in job order costing and process
costing.
 Inventory management system: It helps the companies like Boston Consultancy Group in
effective management of the stock, raw materials and related aspects. Inventory shall be

used in production process in cost effective manner by implementing this system. By
implementing this system, manager are able to create purchase orders, receive and
relocate and dispose of inventory and physical inventory count. This system provides a
various benefits to the company such as improving organisation's bottom line, increase
the efficiency of it's workforce and improve its inventory accuracy (Ward, 2012).
 Job costing system: It may be defined as a process by which a company can accumulate
several cost related to particular job. These data is necessary in providing cost related
advice to the customers under a contract for reimbursement of cost (DRURY, 2013).
 Price optimisation system: This is a type of a tools which helps the company like Boston
consultancy group in fixing the prices of a particular product. It helps the company to
find, how demand varies at different price levels. It also helps in determining the
customer's response in case of different prices of a product set by the company. Pricing
optimisation system focuses on three factors which includes pricing strategy, commodity
cost to both seller and purchaser that are required to control the factors which effect the
profitability. This system helps the managers in evaluating and finding several pricing
strategy.
P2.several methods for management accounting reporting:
For MAS reporting, various methods are available for reporting purposes, some of them
are discussed in detail as follows:
 Budget report: It may be defined as internal report utilised by the working staff for
comparing the budgeted figures with actual results to find the weaknesses in the
production system of any manufacturing system and according take suitable action to
improve.
 Accounts receivable ageing reports: It is used by managers to find the list of unpaid
customers to whom product are sold. It also provides the details about what amount is
collected up till now and what is yet to be recovered from such debtors (Wickramasinghe
and Alawattage, 2012). The period of credit is also given in the report to finding the
interest amount in case of delay in payment.
 Performance report: It is used by the company like Boston consultancy group to evaluate
the outcome of an activity done by working staff. This report provides the comparison
from budgeted or standard and provides variances. Company with the help of this report

may improve its business operations by providing suitable action plan.
 Inventory report: This report is used by the company for providing summary of its
finished goods stock, raw material which is belonging its production system. It track the
records of inflow of raw material as well as supply as such to customer and in production
process. Inventory report can provides the categories of various inventories of the
company in an appropriate method (Hilton and Platt, 2013).
M1.Benefits of management accounting systems and their application:
MAS gives several benefits to an firm like Boston Consultancy Group by implementing
these systems. These benefits are as below:
 Cost accounting system: By implementing such system, company can improve its
efficiency in its day to day business activities by identifying profitable and non profitable
activities and according eliminate the non value added activities in its production system.
 Inventory management system: It assist the company in minimising the inventory cost.
Due to this, company can achieve its efficiency and productivity.
 Job costing system: This system focuses more on providing the information for
estimating the profitability and costs related to a future jobs. This may help company to
plan its future work accordingly with the help of estimated cost and profits (Otley and
Emmanuel, 2013).
 Price optimisation system: Foremost advantages of implementing this system is to
provides control over price of different products of an organisation and what is the
customer response in this respect. This help the company in fixing such price which is
more beneficial to the organisation and also not affecting the customer in negative way.
D1.Management accounting systems and management accounting reporting is integrated within
organisational processes:
MAS and management accounting reporting assist shall required to integrate within
organisational processes. It can be understand by example of above company in which their
MAS are aligned into activities of businesses. Like price optimisation system is interrelated to
the sales department because it helps in increasing sells. Along with cost accounting system is
relates to the finance department of above company. Apart from it, the MA reports are also have
interpretation with process of organisations. In above respective company, their reports such as
account receivable reports is related to finance department in managing the total collection of

funds etc. The other benefits of such integration is that it provides various reports to the mangers
which are used in taking effective decision making in context of its business operations (Soin
and Collier, 2013).
TASK 2
P3.Preparation of income statements using absorption and marginal costing:
For calculating income statement of a company, there are two methods is provided that is
absorption costing and marginal costing. Details and meaning of these two techniques is
discussed in detail by solving a numerical question which are as below:
Marginal Costing:
This is techniques of MA that is applied by the company in preparing the income
statement, in this method, only marginal cost is consider relevant and and all variable cost related
to production are included in cost sales.

Income statement as per Marginal costing for month of May & June:
Absorption Costing:
This techniques of MA is known as historical method, which may be used in calculating
the income statement. In this method, all production related cost whether variable cost and fixed
cost are to be considered in cost of goods sold (Schaltegger and Burritt, 2017).
Income statement as per absorption costing for month of May & June:

D2.Interpretation of income statement prepared above:
After analysis above income statements, this is clearly evident that profit are higher in
absorption costing (£ 1050 in May and £ 9792.4 in June) as compare to marginal costing (£ -550
in may and £ 5750 in June). This is due to fixed production overhead is taken as period cost in
marginal costing. Company shall be beneficial to use marginal costing because it provides the
correct profitability of company.
M2.Application of management accounting techniques and production of appropriate financial
reporting:
There are different MA techniques that may applied by the company like Boston
consultancy group, some of these are as follows:
 Budgetary control: By using this technique, company may estimate its cost and profits
related to its future business operations.
 Standard costing: It is an important technique by which a company can set standards for
its business operations. This may increase the efficiency and effectiveness of the working
staff related to several business operations (Renz and Herman, 2016).
 Cash flow statement: This technique may be used by the company for evaluating its
various business activities regarding cash inflow and outflow.
By using these techniques, production of appropriate financial reporting are as follows:
Calculations of various material cost variances:
Valuation of closing stock using Last in last out method:

Date Reference Purchase Issues Balance (Inventory)
Units £/
Units
£
Total Units £/
Units
£
Total Units £/
Units
£
Total
05/01
Previous
balance
(inventory)
40 3.00 120.00
05/12 40 3.00 120.00
Bought 25
units at £ 3.60
each
20 3.60 72. 20 3.60 72.00
05/15 20 3.60 72.
Issued 36 units 16 3.00 48. 24 3.00 72.00
05/20 24 3.00 72.00
Bought 20
units at £ 3.75
each
20 3.75 75. 20 3.75 75.00
05/23 Issued 10 units 10 3.75 37.5 24 3.00 72.00
10 3.75 37.50
05/27 9 3.75 33.75
Issued 25 units 25 3.00 75.00
05/30 Issued 5 units 5 3.00 15.00 4 3.75 15.00
Valuation of closing stock by using weighted average method:

05/01 Previous balance
(inventory) 40 3.0000 120.000
0
05/12 Bought 25 units
at £ 3.60 each 25 3.60 90. 65 3.2308 210.000
0
05/15 Issued 36 units 36 3.2308 116.30
77 29 3.2308 93.6923
05/20 Bought 20 units
at £ 3.75 each 20 3.75 75. 49 3.4427 168.692
3
05/23 Issued 10 units 10 3.4427 34.427
0 39 3.4427 134.265
3
05/27 Issued 25 units 25 3.4427 86.067
5 14 3.4427 48.1978
05/30 Issued 5 units 5 3.44 17.213
5 9 3.4427 30.9843
TASK 3
P4. Benefits and limitation of planning tools
Budgetary control is a process by which an organisation may control the activities
business by preparing various budgets to monitor and control the costs and operations in a given
accounting period. A company like Boston consultancy firm may used various planning tools in
controlling and monitoring its budgets. There are various important roles as well as weaknesses
to the company in implementing such planning tools (Weetman, 2019). These benefits and
disadvantages are as follows:
Fixed budget:
This budget is made by the management of the company for in its future volume of
operation which shall be fixed in any circumstances.
 Benefits: Preparation of fixed budget is very easy and easy to implement and follow.

 Weaknesses:Company like Boston Consultancy Group can not changed this budget. In
other words, it has lack of flexibility. This budget is more useful companies which
estimates its sales volume very high, therefore it is not suitable for medium and small
sized enterprises (Banerjee, 2012).
Flexible budget:
This budget is prepared by those organisations whose future volume of operations are
uncertain i.e. company has not able to estimate its future volume of operations. It is designed to
adopt changes as per the future circumstances. It is also known as a multi-volume budget.
 Benefits: It enable organisation to estimate its performance and earning level by
estimating its sales volume in future and helps in providing business direction. Flexible
budget helps the company in management to think ahead which encourage coordination
and communication.
 Weaknesses: Preparation of this budget is easy and it is also not suitable in a situation
where future is more uncertain. This not suitable for the organisation because it may
cause disclosure of confidential information and may create conflict (Schaltegger,
Gibassier and Zvezdov, 2013).
Zero based budget (ZBB):
It is a method of budgeting in which company justified all the expenses related to each
new period, as name suggest, this budget starts with zero base at the beginning of every budget
period. All the activities are to be included and all the expenses are approved in order to take in
such budget.
 Benefits: It helps in identifying the inefficient or obsolete business operations and helps
in increase the staff involvement at all levels. ZBB helps the company in responding the
changes which are taking place in business environment.
 Weaknesses: The main limitation of this budget is to give more emphasis to short term
goals at the cost of long term objectives of company. Process of ZBB is too rigid, due to
this, organisation may not be able to react various threats or opportunities. For preparing
this budget, management skills required but these skills are normally missing in
management staff.