Comprehensive Analysis of Management Accounting Techniques and Systems

This report provides a comprehensive overview of management accounting, exploring various systems and methods. It begins by defining management accounting and its different types, including production cost, cash flow analysis, inventory turnover analysis, and constraint analysis. The report then delves into specific methods such as job costing, inventory management, and price optimization. Furthermore, it discusses the benefits of a management accounting system, such as improved decision-making, planning, and customer service. The report includes calculations related to cost cards, income statements under marginal costing, and the high-low method. It also covers LIFO, FIFO, and AVCO inventory methods, along with break-even analysis, cash collection schedules, and budgeting. Finally, the report touches upon financial ratio analysis, including return on capital employed (ROCE) and asset turnover, providing a complete picture of management accounting principles and their application.

Management accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
1.1 Management accounting system and different types............................................................3
1.2 Different methods of management accounting......................................................................4
1.3 Benefits of management accounting system..........................................................................5
2.1 cost card ................................................................................................................................6
2.2 Income statement under Marginal costing.............................................................................6
2.3 High-low method , LIFO FIFO and Avco.............................................................................2
2.4 Break even.............................................................................................................................4
Calculation of sales .....................................................................................................................4
Calculation of profit of 500000 units ..........................................................................................5
3.1 cash collection .......................................................................................................................5
3.2 Budget ...................................................................................................................................6
Part 2 ...............................................................................................................................................6
4.1 (i) Return on capital employed (ROCE)................................................................................6
4.2 (ii) Asset turnover ................................................................................................................6
Conclusion ......................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting is used by the managers in the organisation to identify the
goals, objectives and also it describes financial performance of the organisation to managers
(Ameen and et.al, 2018). Through management accounting, managers can make plans and
policies for the company. This report speaks about the different types of management
accounting system along with this different type of management accounting system is explained
in this report. Different cost such as marginal and absorption is being mentioned in this report.
Various advantages and disadvantages of different types of planning tools used for budgetary
control is being mentioned in this report.
1.1 Management accounting system and different types
Management accounting system focuses on recognizing the cost which is related to
production of goods in the company. Management accounting system will help The London
college to track down its cost and financial statements so that college may attain the revenues.
So the management accounting system is basically used by the management of any company by
tacking the financial performance.
Types of managerial accounting system
Production cost
As the name suggest, production cost is used to determine the total cost which is
included in the production of cost, and cost can be divided in to different categories such as
variable, fixed , direct and indirect cost. Cost accounting is used to recognize the overhead as
well (Rikhardsson and et.al, 2018).
Cash flow analysis
Managers and managerial accountants manages the cash flow to know the impact of
business decisions. Most of the companies are indulge in recording the financial information on
accrual basis. With the help of cash flow company may know the inflows like how many
revenues have been generated by the company through sales and how many expenses they did in
the form of rent,, wages, production etc.
Inventory turnover analysis
Inventory turnover is being calculated in the company to know that how many times
they have changed and replaced the inventory apart from this, due to inventory turnover

company may know how much inventory has been sold out. So the analysis of inventory
turnover assist the business to take better decisions for pricing, marketing, manufacturing and
also for purchasing new inventory (Allain and et.al, 2021). This assist the company to know
the cost incurred for the unsold items and inventories as well.
Constraint analysis
This states about the managerial accounting which involves review of constraints in the
production line. Along with this managerial accountants helps to determine the calculation of
constraints revenue and profit. It is valuable information for the managers to implement change
and also they can improvise the efficiencies of the production and sales procedure.
1.2 Different methods of management accounting
Job costing system
Job costing system talks about the procedure of accumulating the information which is
associated with the cost which is associated with the specific production and service job. This
information is necessary for the customer as well. It helps the company to know the estimation
cost of company as well. This job costing method needs three types of information
Direct material
Job costing system is being used by the company to track down the cost of material
which is being used by the company. This cost is being used by the company for the manual
tracking and also it assist the company to know the expenses of warehousing so the company
can save the extra cost.
Direct labour
The job costing system tracks the cost of labour which is being given by the company
and used in job as well (Abdusalomova, 2020). Direct labour generally assign to a job including
a time card and time-sheet, many companies using smart phones and internet to record the
work done by the labour.
Overhead
Job costing refers to overhead cost which states about the depreciation which is being
levied on the production, equipments and rent of the buildings. At the end of every accounting
period overhead is being decided.
Inventory management system

Many big companies uses inventory management system so that they can keep an eye on
the usage of inventory, this system is helpful for the company to track down the goods from
supply chain to the sale. This system is the collaboration of technology which oversee the
process of monitoring and maintaining the inventories , raw- material, and finished goods as
well which is ready for sell. By using inventory system in the company, they can find
minimise the unnecessary and extra cost apart from this company may know how much
inventory they have to purchase so that they do not have to face issues of surplus and deficit in
the inventory.
Price optimization
Prize optimisation is the procedure of collecting data from the customers and from the
market to analyse the exact price which is going on in the market and help the company to set
price of their product so that they do not have to face any kind of problem. If company charges
higher prices then its competitors no one customer will buy the good and products from the
particular company and if the company charges lower price as compared to the competitors then
it may have to face loss. So here prize optimisation helps the company to put the accurate cost.
For prize optimisation, company may gather data from customer survey, machine learning
outputs, and from the historical prices.
1.3 Benefits of management accounting system
Decision making
One of the biggest benefit of management accounting system that it provides different
charts, graph, tables which is beneficial for the company to forecast the revenues and sales of
the business apart from this, it is an accounting technique whi9ch is being used by the company
for costing, and statistics so that company make take the correct decision in the favour of the
company.
Planning
Management accounting helps the managers to analysis the data so that they can plan
the activities of the organisation and business. As per the given data management can make
p0lans and policies so that organisation do not have to face any kind of loss.
Controlling
The actual performance of any business is being compared and measured with the
standard plan so that the management can know how many efforts they have to put more so that

they may attain their target profit and goal. This can only possible by management accounting.
Die to management accounting management of the company can make changes in the plans and
strategies and also the management can (makeBasova and et.al, 2020) budget for the standard
costing and budgetary as well.
Services to customer
With the help of management accounting, company may provide better and improves
services to the customers. And also make changes if the customer is not satisfied with the
product.
2.1 cost card
Particulars January February
Direct material 132000 114000
Direct labour 88000 76000
Variable production 55000 47500
Prime cost 275000 237500
Fixed production 20000 20000
Cost of goods 295000 257500
Variable selling cost 11000 9500
fixed selling cost 2000 2000
Cost of goods sold 308000 269000
Marginal costing
Particular Amount in £ (January) Amount in £ (February)
Sales 315000 332500
Direct labour 88000 76000
Direct material 132000 114000

2.2 Income statement under Marginal costing
Particulars January
Amounts in (£)
February
Amounts in
(£)
Total
Sales unit 9000 11500 20500
Selling price
per unit
35 35 35
Sales Value 315000 402500 717500
Less- Variable
cost
234000 299000 533000
Contribution 81000 103500 184500
Less Fixed
production and
sales cost
24000 21000 45000
Profit 57000 82500 139500

income statement for absorption cost
Particulars January
Amount in (£)
February
Amount in (£)
Total
Sales unit 9000 11500 20500
Selling price
per unit
35 35 35
Sales Value 315000 402500 717500
Less- Cost of
goods sold
308000 269000 577000
Profit 7000 133500 140500
Merits of Marginal costing
Variable cost fluctuates even in long run but marginal cost remain stable, this is one of
the advantage of marginal cost (Basova and et.al, 2020). Another merit of this cost is it divides
the cost into fixed and variable, and fixed cost is being calculated from product. Apart from this,
it minimises the degree of over and under overheads. This cost is helpful for management as it
enables the management to begin a new line of production which can be advantageous.
Demerits of Marginal costing
Marginal costing divide the entire cost into fixed and variable but separation of cost
makes it difficult for the management. Although, semi- variable and semi fixed cost do not
considered. This cost ignores the time factor, which makes the answer wrong. Apart from this,
marginal costing ignores the fixed cost, this makes it less effective.
Merits of absorption costing
The biggest advantage of absorption costing is it ensures that all the costs are covered.
The prices determine the variable cost only specially in long run and also the contribution. This
cost is good for those business and companies who have seasonal business. The main purpose of
this cost is to prepare the external reports for stock valuation purpose.
Demerits of absorption costing
Absorption cost includes selling and administration and these costs are period cost which
do not give any future benefit and it do not get included in the cost of production and inventories

as well (Eory and et.al, 2018). This cost is not useful in the process of decision making, different
types of managerial problem like – selection of product mix, whether they should bough or not.

2.3 High-low method , LIFO FIFO and Avco
Month Hours spent Expenses
January 630 7960
February 505 7410
March 705 8285
April 555 7375
May 780 9110
June 800 9840
High point = cost / activity
cost activity
9840 800
= 9840/ 800= 11.85
Low Point = Cost / activity
= 7375 / 555 = 13.28
cost activity
7375 555
Change = 2465/245
Fixed cost = 9840-10.06*800
= 1792
Variable cost = HAC- Lowest activity cost / HAU- lowest activity units
= 9840- 7410= 2430/ 800-705 =95
=2430/95=25.75
3

HAC = highest activity cost
HAU = highest activity units
Fixed cost = HAC – (Variable cost * HAU)
=9840- (25.75*800)
= -10760
Lifo and Fifo method
Month Inventory purchased in
units
Cost of each inventory
in £
Total value in £
01/05/15 100 units 1000 100000
01/08/18 200 units 2200 440000
01/09/19 130 units 1800 234000
430 units 5000 2150000
On 31st company had 30 units
FIFO method
Sold inventories = 100*17.5= 1750
=200*17.5= 3500
=100*17.5= 1750
Cost of goods sold = 1000+2200+1050=4050
Profit = 6000-4050= 1950
LIFO method
Sold inventories = 70*17.5=1225
=200*17.5= 3500
=130*17.5=2275
Cost of gods sold = 250+2200+1800= 4250
Profit = 6000-4250= 1750
Avco method
4

units purchased = 100+200+130= 430
Units sold = 400
ending inventory= 30
Average = 215
2.4 Break even
Formula – fixed cost/ contribution percentage = 2000000/ 33.333% = 6,000,000
Units - fixed cost / contribution of each unit = 200000/100= 200000
Calculation of sales
Assumption
Let the sales is A
Particulars Amount in (£) Amount in (£)
Sales A * 300 300A
Less - Variable cost A * 200 (200A)
Contribution 100A
Less - Fixed cost (2,000,000)
Profit 1,000,000
100- 2000000= 100000
Unit of sales (A)= 30,000 units
value of sales = 9,000,000
Variable cost = 6,000,000
contribution = 3,000,000
5

Calculation of profit of 500000 units
Particulars Amount in £
Sales 15,000,000
Less- Variable cost (10,000,000)
Contribution 5,000,000
Less- Fixed cost 2,000,000
Profit 3,000,000
3.1 cash collection
Schedule 1
Cash collection for September= 39000
= 7%*6000= 420
=80%*8000= 6400
=10%*9000= 900
total = 46720
2nd disbursement
=24000*20%= 4800
inventory purchase = 15000
Cash budget
Particulars Amount
Opening balance 20000
Cash collection 46720
Cash disbursement -19800
Selling and distribution -9000
Purchase of equipment -18000
Dividend -3000
Total (Disbursement) -49800
6

Balance 16920
Credit (Minimum 33080
Closing balance 50000
3.2 Budget
Particulars Amount in
£ (100%))
60.00% 80.00% 100.00% 110.00%
Rent 200000 120000 160000 200000 220000
Rates 40000 240000 32000 40000 44000
Direct
Material
800000 480000 640000 800000 880000
Direct labour 600000 360000 480000 600000 6600000
Electricity 120000 720000 960000 120000 1320000
Insurance
cost
20000 12000 16000 20000 22000
Indirect
labour
30000 18000 24000 30000 33000
Part 2
4.1 (i) Return on capital employed (ROCE)
Formula = earning before interest and tax/ capital employed*100
For design division
= 5890/ 23100*100 = 25.50
For gear box division
=3600/31930*100 = 11.27
For UCK woodwork
7

= 6955/81230*100 = 8.56
4.2 (ii) Asset turnover
UCK Furniture
Formula = Net Sales/ Net total assets
Design division
= 13000/23100 = 0.56
Gear box
=24900/31390= 0.79
Conclusion
After analysing the entire report it can be concluded that this report states about
management accounting. Management accounting system and different types have been
mentioned in this report. Benefits of management accounting system is also elaborated in this
report.
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REFERENCES
Books and journals
Abdusalomova, N., 2020. Principles of ties of internal control and management accounting
systems at the enterprises of black metallurgy. Архив научных исследований, (2).
Allain and et.al, 2021. Managers' subtle resistance to neoliberal reforms through and by means
of management accounting. Accounting, Auditing & Accountability Journal.
Ameen and et.al, 2018. The Impact of Management Accounting and How It Can Be
Implemented into the Organizational Culture. Dutch Journal of Finance and
Management.2(1). p.02.
Basova and et.al, 2020, January. Implementation of the Marginal Approach to the Operational
Costs Accounting in Railway Enterprises. In International Session on Factors of
Regional Extensive Development (FRED 2019) (pp. 275-280). Atlantis Press.
Deryugina and et.al, 2017. The marginal product of climate (No. w24072). National Bureau of
Economic Research.
Eory and et.al, 2018. Marginal abatement cost curves for agricultural climate policy: state-of-the
art, lessons learnt and future potential. Journal of Cleaner Production, 182, pp.705-716.
Rikhardsson and et.al, 2018. Business intelligence & analytics in management accounting
research: Status and future focus. International Journal of Accounting Information
Systems.29, pp.37-58.
Shin, J., Ramdas, A. and Rinaldo, A., 2020, November. On conditional versus marginal bias in
multi-armed bandits. In International Conference on Machine Learning (pp. 8852-
8861). PMLR.
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