Management Accounting Systems, Techniques, and Zylla Company Analysis

This report provides a detailed analysis of management accounting systems and techniques, specifically focusing on their application within Zylla Company, a construction industry business. It elaborates on management accounting systems, contrasting them with financial accounting, and highlights essential requirements for Zylla Company. The report explores various management accounting methods, including financial reports, pro forma cash flows, sales reports, and item cost reports. It evaluates the benefits of management accounting, such as improved cash flow prediction, rate of return evaluation, and decision-making support. Furthermore, it applies management accounting techniques like marginal and absorption costing, providing calculations and reconciliation statements. The report also discusses the advantages and disadvantages of planning tools used in budgetary control, such as employee motivation and resource allocation.

Unit-5 Management Accounting
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Contents
Introduction:...............................................................................................................................................3
LO1: Elaborate an understanding towards the management accounting systems......................................4
LO2: Apply a range of management accounting techniques.......................................................................8
LO3 Explain how the management tools used in the management accounting........................................20
LO4: By comparing the ways by which organization is using the management accounting to solve their
financial problems.....................................................................................................................................24
Conclusion.................................................................................................................................................27
References.................................................................................................................................................28
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Introduction:
This report is made for the Zylla Company which is engaged in the business of
construction industry which produces trade; it used to handle number operations of
finance and accounts. It has done a number of acquisitions and takeovers and
expansions to grow this company resulting in the operations to be revamped. This
report is all about the management accounting methods and techniques used to control
the financial structure of the organizations. Different numerical methods and formulas
are put to make a financial report. The scope of management accounting is explained in
the context of Zylla Company. The scope of management tool is explained with the
maintaining the sustainable level and the success of the organization the cost of the
company is derived using the various numerical by the marginal or absorption costing.
The scope of the management planning tools are explained with two methods that are
cash flow forecasting and budgeting in solving all the financial problems of the
company. At, last the methods and principles of the management accounting are
highlighted to give the benefits to the Zylla company in large.
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LO1: Elaborate an understanding towards the management accounting systems
P1; what is management accounting explain it and give the essential
requirements of management accounting.
Management accounting is a process to make financial report and other final accounts
of the company to help the managers to easily take decision on basis of the anticipated
reports and layout the plan easily. It includes financial statements, balance sheet, and
profit and loss account etc. (Kerzner and Kerzner, 2017).
The management accounting systems are of two types’ management accounting and
financial accounting. They both differ from each other, where former is whole
organization oriented the latter is only addresses the financial issues it does not take
any stakeholder or manager needs.
The essential requirements of management accounting system in the Zylla
Company
According to the context of the Zylla Company the essential requirements of the
management accounting systems is that it will help decision making by providing
accurate financial and statistical information to the managers. Helps in pre cash
requirement from the cash flow, helps in other cost reduction of product as well as
makes overall growth of the company.
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P2 explain the different methods in the management accounting and reporting
Management accounting reporting used to facilitate the collection of meaningful
information from the historical records and interpreting in the form of management
reports and other financial statements and final accounts.
Different methods of the management accounting are as follows:
1. Financial Reports; this includes the financial statements and other profit and loss
account that reveals the true position of the company, the data is collected from the
historical records and interpreted so that managers could know what plan they need to
take.
2. Pro Forma Cash flows: it includes the future cash flows for two to three years it
makes to know the anticipated cash flows from various activities; it also helps the
mangers to know which activity is generating more cash. It also reveals the cash deficit
requirements from the various sources. (Boardman, et. al., 2017).
3. Sales Reports: they are the means to know are sales ledger of the company plus it
helps the managers to know which part is creating more revenue so as to employ more
funds in that activities and can earn more profits. (Ptak and Schragenheim, 2016).
4. Item cost reports: this report includes all the expenses incurred by the company in
making of the product like direct labor, direct expenses, wages & salaries, depreciation,
rent, insurance and other things plus knowing if they are invested somewhere the
company could have earned more profits.
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M1. Evaluate the overall benefits of the management accounting systems and
their applications in the context of the organization.
The benefits of the management accounting in the Zylla can increase the overall value
of the company by reducing the cost of production and increasing the economies of
scale there by helping the managers to take the decisions.
1. Anticipated cash flows: it helps in predicting the future cash flows and other
cash deficit requirements of the company. It helps to know the cash budget for
the next future years.
2. Evaluating the rate of return: with the capital budgeting and other methods the
rate of return from the projects can be ascertained. The rate of investment
derived in the company context. (Ptak and Schragenheim, 2016).
3. Helping the managers to take decisions: from the accurate statistical and
financial information. It gives the true and the accurate results to the organization
as well.
4. Forecast the future: it helps to identify and treat the future outcomes to
company. It provides the cover to company from future outcomes. (Kerzner and
Kerzner, 2017).
5. Forecasting the business trends; the ratios, inflation- deflation any change
price theory.
6. Helps in cost and volume analysis; it helps to know the break even analysis at
which stage and helps to know the sales and profit volume.
7. Ascertaining the competitive competition: helps in knowing the marketing
trends and the ways which we can attain the competition.
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D1. Evaluate as how the management accounting systems and the management
account reporting are integrated within the organizational processes.
The management accounting systems and the management report both facilitates the
success of the organization it provides the accurate financial and statistical information
to help managers in the decision making.
It can be done through the following tools and techniques which govern a formula and
other trained staff and manager to perform it. The management accounting techniques
are as product costing and budgeting and other performance measurement tools.
(Martinelli and Milosevic, 2016).
The management reporting are integrated through the it’s methods like pro forma cash
flows, financial reports, sales reports and other item cost reports it facilitates the
financial accuracy of company. (Boardman, et. al., 2017).
The management through its tools like ABC model, marginal and absorption costing and
other planning tools like variance, regression, SWOT and PEST or ERM methods can
be integrated in Zylla to help its financial structure.
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LO2: Apply a range of management accounting techniques.
P3. Calculation of costs using marginal and absorption costing
M2. Management accounting techniques for producing appropriate financial
reporting documents.
Marginal costing
Contribution = Sales Price – Variable Costs
Profit = Total Contribution – Fixed Overheads
Marginal means additional and marginal cost means additional cost. Marginal costing
system revolves around additional cost that is the variable cost of production. In
marginal costing, the variable costs of production are charged to the revenue to get the
contribution per unit. After this, fixed costs are subtracted to calculate the profit per unit.
This system is particularly helpful in the decision-making process of the managerial staff
(Drury. 2013).
Absorption Costing
Sales – Cost of goods sold = Gross Profit
Gross Profit – Indirect Expenses = Net Profit
Absorption costing is the method of absorbing the costs of production. It includes both
the fixed and variable costs and divides them into direct costs and indirect costs. The
direct costs of production are subtracted from sales to get gross profit and the indirect
ones are subtracted from gross profit to get net profit. Absorption costing is generally
used by the management of the company for the purposes of financial reporting. It is
also called full absorption method (Ray. 2012).
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The difference in marginal and absorption costing
Basis Marginal costing Absorption costing
Meaning Marginal cost increases in
the cost of production
when the producer's
manufacturers one more
unit of output. The
calculation of these costs
is called marginal costing.
The method of calculating
the cost of a good by
using the direct and
indirect expenses. In this
system costs (direct and
indirect) are shown in the
form of absorption.
Costs In this costs are divided
as fixed and variable and
by using variable
contribution is calculated
and by using fixed profits
of the Zylla Company.
In this, all the costs are
either direct or indirect.
Direct costs are used for
the calculation of gross
profit and indirect for
calculation of the net
profit of the Zylla
Company.
Use Marginal costing is used
by the management of the
company for the decision-
making process.
Absorption costing has
used for the
representation of the
financial information of
the company to the
external shareholders.
Under or over
absorption of
In marginal costing, such
a problem does not arise
In absorption costing as
fixed costs are part of
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overheads as fixed costs are
excluded from product
costs of the Zylla
Company (S, 2015).
product costs of the Zylla
Company. This needs to
be corrected through
adjustment (S, 2015).
Covering the costs In marginal costing
covering variable costs is
considered important.
This gives the
management of the
company the reason to
continue the production of
the product.
In absorption costing the
sole purpose is to
calculate profits and
convey the management
about the profitability of
the product, variable
costs are not considered.
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Cost information of the company
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Calculation of income using marginal costing method
Particulars March April
Amount Amount Amount Amount
Sales 52500 105000
Cost of
production
(22500) (45000)
Other variable
expenses
Selling,
distribution,
and
administration
(7875) (15750)
Contribution 22125 44250
Fixed costs
Selling,
distribution,
and
administration
Production
overhead
10000
(25000)
10000
(25000)
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