Detailed Analysis of Management Accounting Systems and Techniques

This report provides a comprehensive overview of management accounting systems and techniques, focusing on Bright Star, a financial organization in the UK. The report covers various aspects of management accounting, including different types of systems such as inventory management, price optimization, and cost accounting. It delves into the roles and principles of management accounting, comparing it with financial accounting. Furthermore, the report elaborates on diverse reporting methods like inventory management reports, accounts receivable ageing reports, performance reports, and budget reports. The report also explores cost analysis techniques, including cost volume profit analysis, flexible budgeting, and cost variance, with a detailed explanation of absorption and marginal costing. Finally, the report discusses the advantages and disadvantages of budgetary control tools and compares how organizations adapt management accounting systems to address financial problems.

Management
Accounting Systems and
Techniques

Table of Contents
INTRODUCTION...........................................................................................................................1
Task 1...............................................................................................................................................1
P1 Explanation of management accounting along with assorted types of systems....................1
P2 Elaborate diverse methods of management accounting reporting.........................................4
Task 2...............................................................................................................................................5
P3 Figure out cost by the usage of cost analysis techniques by making useof absorption as
well as marginal costs.................................................................................................................5
TASK 3............................................................................................................................................1
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control........................................................................................................................1
TASK 4............................................................................................................................................4
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems. .....................................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7
.........................................................................................................................................................7

INTRODUCTION
Management accounting is also referred to cost or managerial accounting. It is a process
of analysation of business cost along with operations for preparing internal financial records,
report as well as aids management within decision-making activities that assist in attainment of
business goals (Aldehayyat and Maan, 2013). It is the presentation of accounting information for
formulation of policies that must be opted by management for carrying out their everyday
activities. This report is based on Bright Star which is a financial organisation and is in United
Kingdom. They serve diverse organisations which deals in retail, manufacturing, food & safety
and various others. Stitchland Ltd is one of them who deals with manufacturing of clothes and
takes assistance from Bright star for carrying out their finances. This report deals with
management accounting along different types of its systems. In addition to this, diverse methods
are used and cost analysis is carried out for preparation of income statements. Furthermore, their
advantages as well as disadvantages have been illustrated with respect to budgetary control.
Apart from this, management accounting systems will be compared.
Task 1
P1 Explanation of management accounting along with assorted types of systems.
Management accounting: It is known as managerial accounting and it refers to a
process that furnish financial information and resources to managers of organisation within
decision-making process (Anandarajan, Anandarajan and Srinivasan, 2012). This is utilised
within internal teams of organisation as this is the only method which makes organisation
different from financial accounting. For an example, Stitchland Ltd organisation can make use of
this kind of accounting system for carrying out their operations within process associated with
manufacturing.
Management accounting system: This refers to system that comprises of internal
system and is used by organisation for measurement as well as evaluation of their performance.
The major objective of suck kind of systems is to render appropriate information to managers by
which they can carry out effectual decisions. So, Stitchland Ltd needs to make use of accounting
systems so that they can have specific data for development of effectual decisions (Christ and
Burritt, 2013). It is crucial tool as it comprises financial and non-financial information that aids
within business management.
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Importance to integrate different accounting systems within the organisations: Diverse
kinds of accounting systems exists which will aid Stitchland Ltd organisation. For an instance,
cost accounting system will assist within computation of cost along with inventory management
system that can be utilised within effectual management of stocks. Along with this, price
optimisation systems furnish a framework for determination of prices (Cohen and Karatzimas,
2013). This denotes that these accounting systems for their own significance.
Origin, role as well as principles of management accounting:
As per the history, they are being developed in England before as well as during
industrial revolution. It comprises of implementation o0f diverse tasks within series for
enhancing financial problems associated with organisation. Principles of management accounting
deals with relevance, influence as well as formulation of trust with respect to organisational
orientation.
Difference Between Management Accounting and Financial Accounting:
Management Accounting Financial Accounting
The aim is to render qualitative as well as
quantitative information to managers for
assisting them to formulate decisions.
In this case, goal is to provide accurate and just
financial position of the organisation to diverse
parties.
This is being used within internal reporting
such as report to CEO, managers.
It is utilised for external reporting and basically
for stakeholders.
They are not regulated by any kind of law as
well as confined to audit.
It has to be conferred according to specified
standards as well as their financial reports
needs to be audited.
There do not exist any kind of defined
frequency for generating reports and they can
be furnished wither quarterly, monthly or
weekly.
Financial reports are created at the end of
financial year (Cooper, 2017).
Diverse kinds of management accounting systems have been elaborated below:
 Inventory management system: Such kind of systems are taken into consideration for
tracking movements of services as well as products into an entire procedures. It assists in
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evaluation of raw materials as well as finished goods which will assist organisation to
carry out production accordingly. Along with this, it will alleviate a way through which
demand as well as supply of services or products can be met. Its key function is to
maintain records of entire products that have been transferred into the warehouse (Daoud
and Triki, 2013). Stitchland Ltd is making use of this accounting system in diverse
services so that they enhance their productivity within specified time duration.
 Price optimisation system: It is a type of accounting system which renders a basis for
determination of prices at an effectual level. It is responsible for allotment of prices by
taking into consideration cost as well as needed profit by taking into consideration
satisfaction of their customers. When prices offered by Stitchland Ltd will be fixed then it
will enable them to grab attention of ample number of customers.
 Cost accounting system: It denotes accounting system that is also referred to costing
system. It is liable for rendering a framework for figuring out cost of products as well as
services. Along with this, due to accounting systems organisation compute overall cost
associated with production as well as services. Finally, it is serviceable for organisation
that carry out their operations within manufacturing sector. For an instance, Stitchland
Ltd organisation have executed these systems for management as well as controlling
entire cost related with production of clothes (Dillard and Yuthas, 2013). It is crucial for
organisation to predict entire cost as well as evaluate profitability which has been attained
by rendering services.
 Job costing system: It is a system that is obligated for assigning and computing of cost
related with assorted activities separately. Finally, this accounting system will be helpful
in entities where there are lot of activities and jobs that have to be carried out. With
respect to Stitchland Ltd, accounting system are effectual as organisation can have
information related with cost of job within manufacturing activities.
Assets of management accounting systems:
Management accounting system comprises of different types of systems and each possess
their own importance. Stichland Ltd makes use of diverse management accounting systems, their
significance has been illustrated below:
Cost accounting system: Through this entire cost of system can be calculated with
respect to activities and operations that have been carried out (DRURY, 2013). It is necessary for
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Stitchland Ltd organisation to measure accurate profit that has been earned by them by carrying
out comparison of incurred cost with amount that has been attained.
Inventory management system: This system is responsible for tracing movements of
services or products that are responsible for carrying out inventory management with respect to
stock that is available within warehouse. In context of Stitchland Ltd, this will assist them to
check that raw material is available and can be used for furnishing final product.
Price optimisation system: It assists in determination of prices of goods and services.
Within Stitchland Ltd, it will alleviate them to have a structure for assigning products with their
prices. Along with this, it will aid them to examine the influence on customers with respect to
amount for specified services (Hall, 2012).
Job costing system: This system can be used for furnishing information related with cost
of each job respectively. Along with this, it will aid them to have data related with amount
required for carrying out various activities within production process of Stitchland Ltd
organisation.
P2 Elaborate diverse methods of management accounting reporting.
Management accounting reporting is liable for management accountant which renders
direction to higher level management through which effectual decisions with respect to business
can be carried out. These reports can be utilised by management for evaluation of performance of
employees. Some of these are illustrated below:
Inventory management report: This is a crucial activity of management accountant for
preparation of report as it gives entire information related with inventory of Stitchland Ltd like
cost of storage, closing stock, etc. Inventory management report also renders information related
with methods that are valuable for closing the stock (Harrison and Lock, 2017). The major
objective of such kind of reports is to furnish balance in between customer services along with
inventory investment.
Accounts receivable ageing report: This report furnish details related with invoices that
are provided to customers with respect to credits that will aid Stitchland Ltd to find unpaid
customers amount as well as unpaid credit memos. This is a original tool that can be used for
determination of effectualness of credit, overdue for payment as well as gathering of functions.
Performance report: It is developed for carrying out performance measurement of their
employees and has been carried out by management accountant with respect to detailed
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statements that comprises of incentives that are being given employees with respect to
performance appraisals. This will lead to motivate employees of Stitchland Ltd and work in an
effectual manner along with this bonus and training is given to their working employees.
Budget Report: It is given by management of Stitchland Ltd with respect to their future
business operations as it will aid them to identify their exact business operations and according
to that they can take corrective actions for rendering benefits to overall operations of
organisation (Hitomi, 2017). It will give details about incentives that are being given employees,
if they carry out their operations in an affirmative way with respect to standards. This report will
aid organisation to ensure that resources of organisation are utilised in an appropriate manner for
improvisation of organisation.
Task 2
P3 Figure out cost by the usage of cost analysis techniques by making useof absorption as well
as marginal costs.
Cost: It denotes addition of overall expenditures which have occurred in diverse kinds of
operations as well as activities of organisation. It can be further divided into diverse categories
variable, fixed, direct and indirect, etc. Different types of costs occurs within Stitchland Ltd
organisation for an instance labour, material, cost associated with suppliers, etc. It denotes entire
process that is associated with computation of entire cost of diverse activities by which cost of
each activity is identified.
Cost volume profit analysis: It is an analysis technique that is linked with analysing
deviation within profits and cost. The primary objective of such kind of analysis is to identify
financial situations of organisation according to variance within volume as well as cost. In case
of Stitchland Ltd the difference in between these two factors can be evaluated by carrying out
analysis.
Flexible budgeting: It denotes a budgeting technique in which values of budget can be
altered with respect to volume and sales (Ismail and King, 2014). In context of Stitchland Ltd
organisation, they can make use of this budgeting method for changing the relationship in
between sales of clothes that have been taken place.
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Cost variance: It refers to alteration within figured cost along with existent cost that has
been occurred. With respect to Stitchland Ltd, they need to examine the deviation in between
existent as well as computed cost of manufacturing (Lavia López and Hiebl, 2014).
Absorption & marginal costing:
Absorption costing: It is a kind of a costing technique in which both fixed as well as
variable costing are taken into account as a cost of product.
Marginal costing: This technique of costing is not similar to absorption costing instead
in this, variable cost is considered as unit case and in other hand fixed cost is given as period
cost.
Cost allocation: It refers to a process of allocation of overheads according to the
activities. Like in this case, Stitchland Ltd allot their expenditure according to various activities
associated with production (Namakonzi and Inanga, 2014).
Fixed cost: This is not based on level of output rather it is a kind of a which do not alter
with variation within quantity of production as well as sales. Fixed costs are rent, payment on
loans, insurance, etc.
Variable cost: It denotes a kind of cost that is associated with variance within production
along with sales that been incurred within Stitchland Ltd. This denotes that entire cost has
assorted nature with respect to fixed cost. They comprises of material cost, variable overhead.
Normal costing: It comprises of cost of products that also includes material cost, labour
cost along with other cost which took place within an organisation.
Standard costing: This is a standard cost that can be expected in terms of future aspects
for diverse activities. It takes place with respect to comparison in between actual performances.
Like in case Stitchland Ltd, they are making use of costing for measurement of exact cost.
Activity based costing: This activity is dependent on kinds of costing system that have
been assigned to diverse activities respectively.
Inventory cost: It is a type of cost that comprises of cost of storing, carrying as well as
ordering and various others (Ross, 2017). With respect to Stitchland Ltd, they figure out cost
associated with inventory by which they are able to manage entire cost.
Valuation methods:
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LIFO: This is a kind of method that has been used with respect to raw materials which
came at last were utilised at first. For an instance Stitchland Ltd organisation make use of raw
materials that were bought at last.
FIFO: This method is exactly opposite to LIFO. As in this case the stock that has been
bought at first is used initially. Like Stitchland Ltd make use of raw material bought at initial
stage so that it do not get hampered with passage of time.
Overhead: They denotes kind of expenses that are connected directly with labour as well
as material. For an instance, salary, rent are some examples (Soudani, 2012).
Income statement under absorption costing method for month of May & June
Particulars May June
(in £) (in £)
Total sales 50 15000 25000
Less: Cost of Goods sold
Opening stock
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable production cost 3 1500 1140
Fixed indirect production expenditure 4000 4000
Closing stock -4800 2122.4
Total cost of goods sell 7200 7957.6
G.P. (Gross profit) 7800 17042.4
Selling & Distribution expenses 4000 4000
Administrative cost 2000 2000
Sales commission expenditure 750 1250
N.P. (Net profit) 1050 9792.4
Absorption Cost per unit
Direct labour cost per unit 5 5
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Direct material cost per unit 8 8
Variable cost per unit 3 3
Fixed indirect production expenses per unit 8 10.53
Total Absorption Cost per unit 24 26.53
May June
Opening stock - 200
Units produced 500 380
Sold units 300 500
Closing stock 200 80
Income statement under Marginal costing method for month of May & June
Particular May June
(in £) (in £)
Total Sales 50 15000 25000
Less: variable cost
Opening stock - 3200
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable Cost 3 1500 1140
Less: Closing stock -3200 -1280
Total Variable cost 4800 8000
Contribution 10200 17000
Fixed indirect production cost 4000 4000
Selling & Distribution costs 4000 4000
Administrative costs 2000 2000
Sales commission cost 750 1250
N.P. (Net profit) -550 5750
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Absorption Cost per unit
Direct Labour cost per unit 5 5
Direct Material cost per unit 8 8
Variable cost per unit 3 3
Marginal Cost per unit 16 16
May June
Opening stock - 200
Produced units 500 380
Sold Units 300 500
Closing stock 200 80
Material cost variances:
Given information is as follows-
Standard price(SP)- £10 @ per kilograms
Actual price (AP)- £ 9.5 @ per kilograms (20900/2200)
Actual quantity (AQ)- 2200 Kilograms
Standard quantity(SQ)- 1000 Kilograms
Material price variance (MPV)= (SP-AP) * AQ
(10-9.5)* 2200= £1100 F
Material usage variance (MUV)= (SQ-AQ)*SP
(1000-2200)*10= £12000 A
Material cost variance (MCV)= Standard material cost- actual material cost
(10*1000)- (2200*9.5)= £10900 A
Valuation of closing stock using LIFO and Weighted average method:
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Weighted Average method:
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