Management Accounting Systems and Techniques Report for Finance Module

This report delves into the realm of management accounting, exploring its significance in organizational decision-making, particularly for a company like Capital Joinery. It examines various management accounting systems, including cost accounting, job costing, and inventory management, highlighting their benefits and drawbacks. The report also analyzes different methods used for management accounting reporting, such as job cost reports and budget reports, along with their applications. Furthermore, it investigates planning tools like cash budgets and expense budgets, evaluating their advantages, disadvantages, and role in budgetary control. The report concludes with a comparison of how different organizations utilize management accounting systems to solve financial problems, providing a comprehensive overview of the subject.

MANAGEMENT
ACCOUNTING SYSTEMS
AND TECHNIQUES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
SCENARIO 1..................................................................................................................................3
P1 Management Accounting and essentially required types of Management Accounting
Systems........................................................................................................................................3
P2 Methods used for Management Accounting Reporting..........................................................5
P4 Planning Tools used in Budgetary control, its advantages and disadvantages and
application for preparing and forecasting budgets.......................................................................7
P5 Comparison of various organisations using management accounting systems for solving
financial problems.......................................................................................................................9
SCENARIO 2................................................................................................................................11
P3 Financial reports...................................................................................................................11
CONCLUSION..............................................................................................................................15
REFERENCES................................................................................................................................1

INTRODUCTION
Management Accounting can be termed as a process used by the internal management of
a company to facilitate smooth and efficient decision making regarding policy formulation,
controlling business operations and problem solving. Tools and techniques shall be applied to the
financial information and reports provided to make accurate decisions for the company.
This report shall address on management accounting tools and techniques used by Capital
Joinery. The unrivalled professionals of Capital Joinery help asset managers with their
independent advices with solutions and insights into their financial problem such that they can
meet their objectives.
The project shall throw light upon management accounting, its types, objectives and
importance that it carries in the organisation and its operations. It shall also highlight the
methods used for reporting of management accounting and apart from that evaluation of various
planning tools and techniques and a comparative assessment of how it is to be used in financial
problem solving. A deeper insight into calculations based on marginal and absorption costing.
SCENARIO 1
P1 Management Accounting and essentially required types of Management Accounting Systems
Management Accounting states the way in which the management of the company can
use the financial information provided to them for decision making. The professional skills and
expertise are used in order to control the operations and formulating the plans and policies to
achieve the organisational objectives of the company. Short term and long term goals are defined
by analysing and interpreting the information communicated, directing towards the growth of the
business. The data provided shall be used for preparing budgets which are then compared to
actuals to find out the variances (Abdusalomova, 2020). It plays an important part in an
organisation, as in today's business environment it is not sufficient going with only accounting
statistics but rather company's overall performance is to be tracked to analyse its position.
Management Accounting System can be referred to as a system that is used internally
used by the management to generate relevant information in order to make efficient decisions for
the company. Capital Joinery FMS also uses such system in order to critically evaluate the
information and determine its profitability. There are certain types of management accounting

systems that are essentially required in an organisation like cost accounting system, job costing
system, inventory management system and price optimisation system.
Cost Accounting System also known as product costing system can be used to evaluate
product cost and profitability based on it, valuation of inventory in terms of closing stock of
finished goods, work in progress and raw material. One of its essential functions can be of
controlling the cost of such products which prove to be non-profitable for the company. There
are two types of such costing job costing and process costing. Capital Joinery FMS determines
the cost of its financial services through this method and also regulates its profitability
accordingly.
Benefits Drawbacks
 Facilitates elimination of losses and
ineffectual operations
 Ensures cost reduction and thereby
maximizes profitability
 Helps in setting suitable price
 It is based on past information which
in turn does not provide suitable
information for decision making.
 Sometimes, it leads the problem of over
or under absorption
Job Costing System can be another system that is used to ascertain the cost of a specific
job or particular contracts. It plays significant role in estimation of cost of a contract and
accordingly bifurcate between the profitable ones and the non-profitable ones which are to be
deterred. Such system can prove to be very effective for financial consulting businesses like
Capital Joinery FMS because all its services are customised based on client’s specifications
(Abdusalomova, 2019). Costs shall also be effectively controlled as evaluation of individual unit
is taking place where actuals and estimates can easily be compared.
Benefits Drawbacks
 Helps in doing comparison of job cost
with profitability
 Assists in taking suitable decisions
about budgeting aspects
 Time-consuming process because it
requires lot of documentation
 Lack of standardized process
Inventory Management Systems manages proper account of inventory at all stages with
which it goes through starting from acquiring of raw material to its processing and then turning

into a finished product and finally sold by the company. This helps in avoiding incurring of
unnecessary costs while under stocking or overstocking. Monitoring such inventory helps in
transparency in transactions and improves the cash flow management. For advisory and
consultancy firms like Capital Joinery this does not prove to be useful as it has no inventory
levels to manage.
Benefits Drawbacks
 Helps in maintaining adequate stock
and thereby uninterrupted production
 Enhances operational efficiency by
saving time
 Highly expensive and complex in
nature
 Helps in limiting business risk level
Price Optimisation can be attained by finding an optimal price of the products and services
offered by the company in such a way that it can ensure prosperity. It is ensured by gathering the
statistics through a survey that can either help in profit maximisation or customer satisfaction. In
the case of Capital Joinery, the level of optimal price shall be tailor made because it provides
services as per requirements of the customer.
Benefits Drawbacks
 Assist in determining suitable price
which helps in influencing customer
decision making
 Helps in getting competitive edge over
others
 Expensive because training session
need to be conducted for personnel in
relation to dealing with software
 Requires proper maintenance
P2 Methods used for Management Accounting Reporting
Management Accounting Reporting proves to be very crucial for an organisation as it
helps in getting an overview regarding performance of the business. Such reports give deeper
insights into the transactions, associated costs, profitability etc. These reports are generated
during the accounting period by professionally trained people as these are used in critical
decision making process. The benefits attached to it are proper business planning, regulation and
performance measurement of its operations to be conducted.

There are certain reasons which reflects the usage of such reports like cost to profit
analysation, make or buy investment decisions and effective labour utilisation. List of methods
that are tend to be used in preparation of such reports are-
Job Cost Reports are ones which generally highlight the finances belonging to specific
jobs. They tend to compare the revenue and expenses of a particular project such that its
profitability can be determined. The focus increases on projects with better scope of growth on
the other hand minimises the wastage of time for not profitable ones (Joshi and Li, 2016).
This kind of reporting is also beneficial for Capital Joinery company as it can also classify
among its profitable advisory services and non-profitable advisory services.
Accounts Receivable Ageing Report is a report indicating the due but unpaid balances of
invoices by customers. It divides various receivables on the basis of time from which they
remain unpaid. Such report proves to be very essential for the company as it acts as a collection
tool for the collection, also it can be used for ascertaining the amount that has to be kept aside as
allowance for all the doubtful debts that can arise (Drury, 2018). This is very useful for Capital
Joinery as well because many a times payment of advisory services is postponed till the results
for the are achieved. The whole cash flow cycle runs in accordance with it and instead it is very
important to collect the dues as soon as possible to maintain the cash flows.
Budget Reports are accounting reports wherein budgets or estimates are formed based on
past performance and also catering to unforeseen future conditions. A single budget can also be
prepared if the organisation is small like Capital Joinery Ltd. but department wise shall be
preferred for a larger company. These reports are required to find out the variances between
actuals and estimates.
M1
The benefits of management accounting system can be namely determining the financial
health of Capital Joinery Ltd., optimum utilisation of various resources in the organisation,
maintaining coordination among various departments, building transparency for interested
parties like potential investors or shareholders of the company etc (Langfield-Smith, Thorne and
Hilton, 2018).
The application of such systems is common in the case of Capital Joinery Ltd. as small
companies like it to survive the competition has to continuously analyse its performance. It needs
to keep a close eye on its strengths, weaknesses, available opportunities and posed threats.

D1
As per the views of a management author Andriana Bose, the integration of both the
accounting systems and the reports generated by it within Capital Joinery Ltd. supports the
process by communicating the qualitative and quantitative data of the financial and operational
performance of it (Cooper, Ezzamel and Qu, 2017). The information is needed by the
stakeholders to know their position and try to improve the same.
Criticising the same another management author, Jacky Roy opinionated his views saying
that the integration of both is somewhere impacting Capital Joinery Ltd. In a negative way. It
increases the cost of operations, the plans formed limits the efficiency of the employees, wastage
of time and skills of the professionals etc.
P4 Planning Tools used in Budgetary control, its advantages and disadvantages and application
for preparing and forecasting budgets
Budgetary control can be used as technique in order to control costs incurred. This
system leads to comparison of budgets with actual figures to determines the variances. It
facilitates planning, regulating, coordinating and controlling the operations of Capital Joinery
Ltd. It’s done with the help of various planning tools in the form of different budgets serving
different purposes for the company.
Cash Budget
It depicts the expectation regarding cash receipts and the disbursement in unforeseen
future. It is a projection of cash position for a particular period incorporating all the revenues and
expenditures, and the payments and receipts. It determines the cash position, if the company has
surplus cash in hand then it permits the company to make investments which contributes in its
growth (Malmi, 2016). But rather if company faces difficult spot wherein it lacks cash then loans
are to be availed of optimum cost. Proper and efficient cash management system can be ensured.
Cash budget contains certain advantages like determining the financial well- being of
Capital Joinery Ltd. through the glimpse of inflows and outflows of cash, it helps in getting more
resourceful while keeping a reality check. Such budget can be used to compare the position with
that of competitors and such comparative analysis can also prove to be sound for the internal and
external users of this information. The surplus and deficit cash can also help in taking many
important decisions and optimum utilisation by avoiding idle cash.

Disadvantages of cash budget are also there as they cannot be used as a substitute to the
profitability and the fact that they depict certain elements which are not accounted for to find the
profitability (15 Cash Budget Advantages and Disadvantages, 2020). The cash outflow to
purchase capital assets or inflows generated by selling the same are not used in the assessment
of profits for the period.
Capital Joinery also uses this budget to improvise its day to day operations by managing
cash in such a way that no excess or shortages occur so as to optimise the transactions and to
generate better results.
Expense Budget-
It is another form of fundamental budget that is prepared to maintain the expenses of the
company. It is not only important to account for revenues but also the spending’s are to be
minimised to achieve organisational objectives (Hopper and Bui, 2016). Expenses can be
classified into capital and non- capital, not all expenses form part of the profit but it is relevant
for complete understanding of the position.
Its advantages lie in the comparison of alternatives generating similar revenues, where
apportionment of expenses can be done accordingly. Allocation of resources can be done based
on the expenses incurred and returns generated.
There are also disadvantages in preparation of such budgets as we are only making
approximations regarding the expenses that can happen in the future, which is certainly not
predictable. Also based on these figures certain essential decisions are taken completely fails if
estimates prove to be wrong.
Capital Joinery also accounts for all its expenses in advance by making budgets using the
conservatism principle of providing for all losses and not anticipating profits.
Variable Budget
It is also called as a Flexible budget determines the revenue and expenditure for current
levels of output and are capable enough to show at different levels of output based on the
baseline. This is that type of budget which can describe range of activities and where we can
ascertain the worst and best levels of performance and accordingly work to achieve it (What is a
Flexible Budget?, 2020). The cost per unit of goods is based on the last performance and with
reference to it and keeping other factors future is estimated.

Advantages highlighted by variable budget is that the profit at various operational levels
can be known and planning can be done in accordance with it. Capital Joinery utilises such
budget for determining its optimum level of output where cost is minimised and profits are
maximised (Quattrone, 2016). Its beneficial as it is not rigid in nature and so increases scope of
planning.
Disadvantages can be that wastage of more time, money and expertise and confusing the
employees regarding their targets that are to be achieved as it also depicts the worst scenario of
operations in a company.
Capital Joinery also take benefit of these budgets to facilitate smooth conduct of its operations
as the efficiency cannot be determined accurately for the human resource of the company.
P5 Comparison of various organisations using management accounting systems for solving
financial problems
Financial problems are suffered by Capital Joinery ltd because of different reasons like
employee retention, faulty reports and statements generated, loss making activities, defaults
made by debtors, poor management of cash, improper allocation of resources and changes in the
factors pertaining to the external environment of the company (Alborov and et.al., 2017). For
fixing up many of such problems management accounting is used so as to resolve them. Capital
Joinery also responds to its financial problems using certain tools like benchmarking, variance
analysis and key performance indicators etc. in order to solve them timely and efficiently.
Strength
 It is a global brand
 Has a strong brand image
Weakness
 Location of company are not easily
accessible
 Low online presence
Opportunity
 Increased demand in sustainable
products
 Increase towards the digital
transformation
Threats
 Higher competition
 Frequent changes in the need and
preference of consumers
Benchmarking can be termed as an efficient tool of management accounting which
compares the position of our company with that of our competitors. Benchmarks can be set

internally as well as externally for facilitating comparative analysis and finding deviations.
Capital Joinery Ltd. sets benchmarks internally to compare within various departments and
divisions, it also sets competitive benchmarks which are compared with direct competitors and at
industry level also it compares itself with the leaders of the industry (Otley, 2016). Many
financial problems can be solved by benchmarking as resource allocation can be done efficiently
in departments with higher profit generation.
Advantages Disadvantages
 Helps in executing creative ideas
 Increases competition and performance
level
 Results in lack of customer satisfaction
and understanding
 Decrease in employee motivation
Variance Analysis is the accounting tool used for determining the difference between
actual and the planned behaviour which is called variance. Such deviation is then cured by strict
management decisions. It is used to reduce cost and also control them. Variances can also be
divided on the basis of impact, controllability, elements of cost and nature (Osim, Umoffong and
Goddymkpa, 2020). It proves to be beneficial in finding out the efficiency of labour force,
whether they are working to the best of their capacity or there is idle time left.
Advantages Disadvantages
 Gives indication in relation to taking
remedial actions timely
 Assists in fixing accountability
 Unrealistic standards result into
unreliable framework for decision
making
 Time intensive exercise
Key Performance Indicators are the drivers to achieve the intended goal of the
company. They are used to proceed or progress in the direction of objectives to be reached. The
two indicators are leading and lagging indicators. The lagging indicators show the past
performance which is to be reached and the leading indicators are the ones on which we are
currently. Leading indicators are improved in order to get to the lagging indicators.
Advantages Disadvantages
 Helps in tracking progress
 Provides manager with high bonuses
 It is short term oriented which in turn
limits significance

as well as rewards and thereby
enhances motivation level
 Deteriorates quality of employee’s
work
Capital Joinery Ltd has a competitor named London Timber, who uses a different system which
is being describe below: -
Capital Joinery Ltd. London Timber
Capital Joinery Ltd uses the variance analysis
technique of management accounting to
resolve the financial problems that arrive in the
company, as variance analysis helps in
building standards and then it also reflects the
difference between what was estimated and
what the actual results are. The variance
occurring further shall be critically analysed
and reasons to improve shall be known.
In the same way London Timber uses the
benchmarking system to compete internally
and externally by comparison with the
competitors. This technique helps solving the
financial problems it is facing and also
surviving in the market by improving the
performance as compared to other leaders in
the industry.
By doing assessment, it has found that business unit should keep focus on employing
variance analysis tool for managing financial problems related to decreased in sales as well as
profit. through this, Capital Joinery can assess reasons due to which deviations take place in
financial performance. In this way, by doing investigation and taking corrective measures
business unit can increase overall performance and profitability.
M4
Responding to financial problems in a positive way by using the techniques as mentioned
above shall lead to sustainable success of the company and will lead to its growth in terms of
increasing profits and acquiring market share. By comparison of stats of one company to another
and finding deviations it shall motivate to move towards the goals and remove the deviations
which shall ultimately boost the performance (Ameen, Ahmed and Abd Hafez, 2018). Also by
standards we can properly allocate resources which shall help in optimisation of the operations.
All this works towards generating success for the company.
D3

Planning tools for accounting, as mentioned above are various budgets that are designed to
estimate the future position of the business. Such estimates are growth oriented and when the
workforce works in order to achieve these planned goals it shall help in achieving the sustainable
success of the firm (Abdusalomova, 2020). Such budgets are designed with full expertise in
order to direct the activities towards goals. Budgets provide a proper blueprint such that
deficiencies could be avoided and development is ascertained.
SCENARIO 2
P3 Financial reports
Absorption costing is the method of assigning overall manufacturing costs to the number
of units produced. In other words, the manufacturing costs are absorbed by the produced units of
goods. This costs include material, labour and overhead costs incurred in the process of
production. This costs are required to be presented for reporting external authorities.
Marginal costing is a costing technique in which the variable cost is charged to the units
and the fixed cost shall be written off against the amount of contribution (Joshi and Li, 2016).
The term marginal is used for additional and so marginal costing implies the additional cost that
has been incurred to produce an extra unit of the product.
Income statement as per Marginal Costing
Particulars May June
Sales Revenue (100*250) 25000 (75*250) 18750
Marginal Cost of Sales
Direct Materials (100*60) 6000 (80*60) 4800
Direct Labour (100*40) 4000 (80*40) 3200
Variable sales commission (25000*2%) 500 (18750*2%) 375
Variable Production
Overheads (100*20) 2000 (80*20) 1600
12500 9975
Add:
Opening Stock 0 0
Less:
Closing Stock 0 (5*120) 600

12500 9375
Contribution 12500 9375
Fixed production overheads 2000 2000
Fixed selling cost 1000 1000
Fixed administration cost 3000 3000
Net Income 6500 3375
Income statement as per Absorption Costing
Particulars May June
Sales Revenue (100*250) 25000 (75*250) 18750
Cost of Sales
Direct Materials (100*60) 6000 (80*60) 4800
Direct Labour (100*40) 4000 (80*40) 3200
Variable Production
Overheads (100*20) 2000 (80*20) 1600
Fixed production overheads (100*20) 2000 (80*20) 1600
14000 11200
Add:
Opening Stock 0 0
Less:
Closing Stock 0 (5*140) 700
14000 10500
Gross profit 11000 8250
Fixed selling 1000 1000
Fixed administration cost 3000 3000

Variable sales commission (25000*2%) 500 (18750*2%) 375
Net Income 6500 3875
Reconciliation of profit figures
May June
Profit under absorption 6500 3875
Difference in units of
inventory * fixed production
overhead p/u 0 (20*20) 400
Profit under marginal costing 6500 3475
CALCULATION OF VARIANCES:
i) Material Price Variance = Standard Price - Actual Price
= (Std Price - Actual Price) x Actual Qty)
(£12 - £9.3) * 2400 kg
6480 (Fav)
i) Material Usage Variance = Standard Usage - Actual Usage
= (Std Qty - Actual Qty) x Std Price)
(2000 kg - 2400 kg) *£12
-4800 (Adv)
Inventory ledger record using Average Cost method
Date Goods purchased Cost of goods Inventory balance Average cost

sold
Jun-
01
£350 (10 units *
£35) £35
Jun-
09
15 units *£38
=£570 25 units £920 £36.8 (920/25)
Jun-
15 £441.6(12*£36.8) 13 units £478.4
Jun-
20
10 unit * £32=
£320 23 units £798.4
£34.7
(798.4/23)
Jun-
23 £347 (10 * £34.7) 13 units £451.4
Jun-
27 £104.1 (3*34.7) 10 units £347.3
Jun-
30 £69.4 (2*34.7) 8 units £277.9
Inventory ledger for the month of May under LIFO method
Date Opening inventory purchase issued balance
price quantity value price quantity value price quantity value
01/06/01 35 10 350 350
01/06/09 38 15 570 920
01/06/15 38 12 456 464
01/06/20 32 10 320 784
01/06/23 32 10 320 464

01/06/27 38 3 114 350
35 2 70 280
CONCLUSION
From the above report we can summarize the management accounting system and how it
is essentially required in an organisation. It can also be concluded that different types of
management systems like job costing system, inventory management system etc. are used by
Capital Joinery Ltd for conducting its operations smoothly. Apart from this detailed description
of management accounting reporting with its benefits is also discussed. The report depicts a
numerical based on marginal and absorption costing showing costs as ascertained by two
techniques of management accounting. The project also inferred various planning tools used in
the budgetary control process, and various advantages and disadvantages it poses on the
company. Various budgets like cash budget, expense budget and their different applications in
different organisations. It finally showed the systems adapted by the Capital Joinery to resolve its
financial problems like benchmarking, key performance indicators etc. to survive the
competition in the market. There is a comparison chart between Capital Joinery and its
competitor for using different techniques. By using these tools and techniques the company can
improve their operations and can generate better results in terms of profit and market share.

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