Analysis of Management Accounting Systems and Reporting Methods

This report delves into the core principles and practical applications of management accounting within the context of George Lines, a concrete distribution company. It explores various management accounting systems, including cost accounting, price optimization, job costing, and inventory management, evaluating their benefits and applications. The report examines different management accounting reporting methods such as performance reports, accounts receivable reports, inventory management reports, and job cost reporting, highlighting their significance in decision-making. Furthermore, it analyzes cost calculation techniques like marginal costing and absorption costing, alongside break-even analysis and margin of safety calculations. The report also covers budgetary control and planning tools, assessing their role in financial planning and forecasting, and discusses how management accounting systems respond to and resolve financial problems. Overall, the report provides a comprehensive overview of how management accounting supports organizational planning, control, and financial success.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management accounting and its types of management accounting systems...................1
P2: Different methods used for management accounting reporting.......................................2
M1: Evaluate the benefits of management accounting system and its applications...............3
D1: Management accounting system and its reporting are integrated within organisational
process....................................................................................................................................4
TASK 2............................................................................................................................................4
P3: Calculation of cost using an appropriate technique.........................................................4
M2 Accounting techniques.....................................................................................................6
D2: Data interpretation...........................................................................................................6
TASK 3............................................................................................................................................6
P4: Budgetary control and planning tools used in budgetary control with its advantages and
disadvantages..........................................................................................................................6
M3: Uses and applications of planning tools for preparing and forecasting budgets............8
TASK 4............................................................................................................................................8
P5: Responses of management accounting system to deal with financial problems..............8
M4: Management accounting lead organisation to sustainable success in responding to
financial problems................................................................................................................10
D3: Planning tools respond appropriately to resolve financial problems.............................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accounting is a process of identification, measurement, accumulation,
analysis, interpretation and communication of financial information used by management to
plan, control within an organisation and assures the use of accountability for its resources.
George Lines is a concrete distributors which is an autonomous civil and landscape
merchants settled in West London. In this project, company is dealing in groundwork of supply
materials like natural stone and concrete. Company uses efficient accounting framework to thrive
success. Company follows several management accounting systems, reporting tools, budgetary
control techniques and tools for identifying it's profitability status that would be discussed in the
report. It also uses various planning tools used in budgetary control and evaluate use different
management accounting systems for resolving financial issues that will be discussed in this
report.(Knežević, Rakočević and Đurić, 2011).
TASK 1
P1: Management accounting and its types of management accounting systems
Management accounting is an approach of analysing financial information and sets
guidelines use in the arrangement and development of company. The primary aim of
management accounting is to assist the management to take qualitative decision for controlling
the company's working effectively. Management accounting system refers to supply of more
meaningful information to all level of management with the use of various accounting systems.
George Lines uses various management accounting systems for translating its objectives into
achievements within a particular time period. Cost accounting, inventory management, job cost
and price optimisation system helps management in analysing and interpreting information that
company have to follow in achieving goals. Different management accounting systems are
explained below:
Cost accounting systems: This system is used by manufacturer for recording and
accumulating cost of raw materials in their production activities as they processed through
various production stages and then turned into finished goods in specific time. George Lines is
perpetually developing a variety of landscaping products like precast concrete and nature stone
which they supply to builders and merchants within country. Management uses various cost
accounting systems like actual costing for determining the actual cost of raw material, labour
and variable overheads and standard costing for estimating cost of manufacturing products under
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normal conditions so that they properly utilized their resources against future uncertainty
(Schuster, 2015).
Price optimisation systems: It is a systematic approach that calculate variation in
demand of product at different levels of price and combines that content with information on
costs and stock levels to recommend prices for future profitability. George Lines is a concrete
manufacturer and distributor which adopt price optimisation system for identifying it's product
effective price i.e. recommended for improving profits and is one of most preferred decisions
made by the management. With the help of this system George Lines identify its customer's
willingness to pay for their product.
Job costing systems: In this system, management assign the manufacturing costs that a
company incur for a particular job. This system is broadly used in preparing effective budgets.
George Lines is working in distribution of stone and concrete so they have to focus on both
levels of product. Company follow process costing which is a method of job costing system for
identifying single manufacturing cost at different levels and measures their performance.
Inventory management system: This accounting system is planned for tracking the flow
of inventory continuously through different stages of production. George Lines is small scale
organisation and is expanding company for concrete distributor. Company use FIFO method for
valuation of inventory which help to determine the inflow and outflow of its inventory. With the
help of this system George Lines control its inventory and manage the product demand in future.
P2: Different methods used for management accounting reporting
Management accounting report is a tool used for understanding management reports that
is useful in decision making. Such reports includes company's quarterly or yearly performance in
the financial statements consist of income statements, balance sheet and cash flows statements
etc. George Lines uses different methods of reporting like performance reporting, job cost,
inventory management and account receivable reporting etc. for developing impressive plans
which improves company's performance so that they expand their market without any issues
(Venkatesh and Blaskovich, 2012).
Different types of management accounting reporting are explained below:
Performance report: This report measure continuous performance of organisation
which involves collecting and scattering project data, communicating its progress to
shareholders. It includes analysis of past performance, summary of alternation authorised in
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reporting period, present status of risks and outcomes of variance analysis etc. George Lines
prepares performance report for evaluating it's current performance within various departments
and forecasting future progress by comparing actual production and distribution with budgeted.
Company set certain laws and guidelines for manages at all level of management so that they
identify errors and resolve issues in time.
Account receivable reports: This is also known as account receivable ageing because it
determines the age of definite items. This report includes both detailed and summarized form of
information regarding customer's present and past due bills, on account credits and cash
amounts, debit memos etc. Company provides many receivable reports like ageing by account,
amount, collector and salesperson. George Lines consider this tool as an important tool because
it is used in determining details about overdue customer's invoices, credit customers, average
collection period and it also identify frequency of collection period for increasing their
distribution practices.
Inventory management reports: This report is created for maintaining a physical
inventory or products used efficiently in manufacturing process. Inventory wastage, labour cost
per hour or overhead costs per unit etc. are various elements included in these reports. ABC
analysis and EOQ are the examples of inventory management reporting. Economic order
quantity is an important method for determining ordering and holding costs of inventory. George
Lines wants to manage their inventories and finds EOQ method is valuable for maintaining
optimum amount of inventory.
Job cost reporting: This reporting system refers to ongoing cost of a project maintained
correctly in order to work. It helps in identifying issues related to present job and avoid those
problems in future job. George Lines is a small scale company and wants to expand in future for
this company choose job cost reporting method for detects its expenses like cost of direct
material, labour, equipments etc. of a particular assignment related to current status and evaluate
its future profitability (Weygandt, Kimmel and Kieso, 2015).
M1: Evaluate the benefits of management accounting system and its applications
Management accounting system Benefits
Cost accounting system  It leads to reduction in costs.
 It eliminate losses and inefficiencies by
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fixing standards for everything.
Price optimisation system  It assist in attracting more customers
 It helps in sales forecasting and profit
estimation.
Inventory management system  Provides strong visibility over
company's inventory.
 It analyse and solve a issue as soon as it
occurs.
Job costing system  Profit earned by individual job is shown
separately in this system.
 Overhead recovery rates can be
estimated on the basis of budgets.
D1: Management accounting system and its reporting are integrated within organisational
process
George Lines follows several management accounting systems and reporting tools for
planning and controlling management performance effectively. Company uses price optimisation
for creating an effective pricing strategy so that they can expand their business and maximizes
purchasing power of customers and inventory management system for identifying under and
overstock of Concrete so that George Lines evaluate future demand. Management accounting
system and its reports helps the company to improve its reporting system.
TASK 2
P3: Calculation of cost using an appropriate technique
Cost: It is a monetary value which has to be paid by buyer to the seller while buying any
kind of goods or services. George Lines is small scale company and wants to set right cost of its
product so that it can attract more buyers. Customer look for the product cost before purchasing
the product and setting right cost for the products is the key to earn maximum profits (Brennan
and Merkl-Davies, 2013).
Marginal costing: It shows the cost of additional unit which have been added to the
production. It is a costing technique, which is used by George Lines. Marginal costs are variable
costs including labour, material and overhead costs of additive unit.
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Absorption costing: In this technique, all the manufacturing costs of the units are
absorbed from the sales of the same units. It includes all the direct material cost, direct labour
cost and overhead. It provides financial transparency to the investors of George Lines.
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200 + 1200 + 1500 ) 5900
Net profit 17500
Computation of net income by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis: It is a point where all variable and fixed costs are equal to all
revenues. George Lines uses this analysis to determine its break even point where business is in
the no profit and no loss state (Chen and et. al,. 2011).
A. Total number of product sold
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
B. Calculation of break even point in accordance to sales revenue
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
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BEP in sales 20000
C. Calculation for getting desired profit of 10000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: It shows the variation in internal and market value of the product. It is
used to find out the difference between actual sales and BEP sales. This helps the management to
identify the risk of loss to which the organisation is subjected by modification in sales.
D. The margin of safety, if 800 units are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M2 Accounting techniques
George Lines uses three type of accounting technique that are standard costing, marginal
costing and historical costing to calculate its net profits. Standard costing is used to compare
actual standards and planned standards. Marginal costing is used to calculate the cost of
additional unit of production. Historical costing techniques shows the actual costs of the
transactions which are recorded in financial statements.
D2: Data interpretation
As per the above calculation, it is clear that marginal costing method will be more
profitable as compare to absorption costing method. Because the marginal costing method shows
more profits. Marginal costing results £17500 as profits and absorption costing results £15675 as
profits. If George Lines is willing to earn a profit of £10000 then it has to sale 1333.33 units.
TASK 3
P4: Budgetary control and planning tools used in budgetary control with its advantages and
disadvantages
Budgetary control: Budgetary control is the process of setting financial and
performance based goals based on budgets (Budgetary control, 2017). It compares the actual
data with budgeted. It is used by George Lines to plan and control budgets related to production
and sales. It shows the plans in financial terms. It is an advance planning of the money related
functions of the organisation. It also includes the forecasting of the incomes and expenses.
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George Lines use three planning tools for budgetary control, that are as follows:
Forecasting tools: These tools are used to forecast future condition of the business or get
the idea of future consequences. George Lines use forecasting tool to evaluate previous and
current data and present trends of market to plan for future situations.
Advantages Disadvantages
 Provides valuable informations that can
be used in decision making.
 It helps the organisation to be prepare
for consequences that might occur.
 This tools is based on past data, so it is
not totally depended on accurate results.
 It is very complicated and less helpful
for the organisation.
Contingency tools: These tools are used by George Lines to analyse the market trends in
various situations likewise, if the organisation cut or increase the cost of the product then what
will be the reaction of the customers and competitors.
Advantages Disadvantages
 It helps to be prepared for the changes
in demand of customers.
 While planning for the worst situation
it is very helpful.
 Cost or resources spent on such plans
which are never going to be
implemented.
 Extensive planning would leave a
negative impact on the business.
Scenario tools: It is implemented while examining and evaluating the possible events
that could happen in future. It also analyses the changes in the performance of business and
monetary factors. These tools are used by George Lines to predict favourable as well as
unfavourable events that might occur in future. (Dzuranin and Stuart, 2012).
Advantages Disadvantages
 It helps to build the easy understanding
of market.
 It shows the wide ranges of variety to
managers so that they can pass accurate
judgements.
 These tools require a lot of time to
implement.
 Managers have to face several
challenges like extra cost and time
involved in the process while
implementing these tools.
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M3: Uses and applications of planning tools for preparing and forecasting budgets
All the above mentioned planning tools are used by George Lines to form a budget for
the organisation. Forecasting tools help to estimate future conditions like customer demand,
future risks etc. Contingency tools helps to analyse market trends and customer reaction on the
activity which is implemented to maximize the profit. Scenario tools help the managers to be
prepare for the possible risks that have chance to happen. All the planning tools help the
management of George Lines to get the accurate information, that helps in formulating policies
and decision making process.
TASK 4
P5: Responses of management accounting system to deal with financial problems
Financial problems are mainly related to the lack of monetary resources, that an
organisation have to face when it does not have sufficient funds for the activities. Here are some
identified financial issues that are emerging in George Lines:
Unplanned expenses: Numerous unplanned expenditures that emerge in different
consequences are leading to financial issues in George Lines. When managers of George Lines
have to deal with these expenses they have to use monetary funds and it can result in deficiency
of resources (Hartmann and Maas, 2011).
Money management system: The money management system of George Lines is not
good and this type of system is not helpful to face the financial problems but creates such type of
problems. A weak money management system can not plan accurately for any kind of issue or
situation related to money.
Credit availability: George lines is a small enterprise, so it is not easy for the company
to get credit amount form the banks. Banks require collateral for the loans and the company is
not able to provide security to the bank and get the approval of loan. This is the main financial
problem that the organisation have to face (Ogata and Spraakman, 2013).
Improper maintenance of records: The record handling department of George Lines is
not properly trained. Hence, employees are not able to handle the account and record
inappropriate transactions. This leads the management to the misconception and affect their
decisions whether it is related to finance or another department of the company. It creates various
issues including financial issues for the company.
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To deal with the above mentioned financial problem, George Lines is employing
following techniques:
KPI(Key performance indicator): It is used to measure the performance of George
Lines, that it is able to achieve goals or not. If the performance is not good then managers put
efforts to enhance the performance that can create a good market image and help to resolve
issues related to unplanned expenses.
 Leading KPI: These indicators are used to evaluate the result of any action of the
organisation. It helps to reduce unnecessary expenses of the company.
 Lagging KPI: It helps to measure success or failure of any plan of George Lines, it is
very helpful for management.
Company use leading KPI to control unplanned expenses to increase its revenues which
helps to improve its financial position as this helps in performance management and maintaining
expenditures of organisation. .
Benchmarking: Benchmarking is the process of comparing one business to another best
organisation or competitors to analyse their own strategies relatively. This technique helps the
management of George Lines to find out the areas where improvement is required to deal
financial problem such as improper money management. Company use benchmarking technique
to set its standard which are better than their competitor that can assist in availability of credits
and other financial issues as well (Qian, Burritt and Chen, 2015).
Financial governance: It refers to the collection, measurement and control of financial
informations within a company. When all the financial information are monitored accurately
then it is not possible to have improper records and helps to identify the cause of issue and deal
with the same. Financial governance helps the managers of George Lines to get the actual
information of finance and resolve the issue of improper financial records (Hartmann, Perego
and Young, 2013).
George Lines Pavestone
 Benchmarking helps to find out the
ways for improvement.
 KPI is used to measure the
performance.
 JIT (Just In Time) technique is used to
reduce production time.
 It helps the organisation to forecast
demand.
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 Financial governance is helpful in
recording proper financial information.
 It is used to modify efficiency and
reduce waste.
M4: Management accounting lead organisation to sustainable success in responding to financial
problems
Management accounting is very beneficial while looking for the solutions of financial
problems. George Lines use three techniques to deal financial problems such as credit
availability, unplanned expenses etc. These techniques are very helpful for the organisation, KPI
helps to measure performance of the organisation so that it can help to set a positive image in the
market. Benchmarking helps to compete with competitors to acquire more customers. Financial
governance is helpful in maintaining proper financial information to deal financial problems.
D3: Planning tools respond appropriately to resolve financial problems
Planning tools help the management of George Lines to plan advance for each kind of
uncertainty so that the company can overcome any kind of financial problems. The management
of the organisation make strategy in advance by using planning tools so that they could early
detect the problems and overcome them accordingly. Forecasting tools help the management to
forecast business condition, contingency tools help to analyse market trends and scenario tools
estimates the future risk so that the company can deal with such problems with the provided
information.
CONCLUSION
From the above project report its has been concluded that management accounting system
and its reporting helps management to form good strategies to maximize profit and minimize
losses. It provides various information of cost, price, profit and losses. It helps to maintain proper
records of financial information that are required to deal financial problems. Budgetary control
system is used to form such budget that is suitable for each kind of activity. Planning tools help
to control budget as well as to resolve financial issues. A company can use different techniques
such as KPI, benchmarking, financial governance to deal with financial problems.
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