Management Accounting: Systems, Reporting, Planning Tools, and Budgets

This report delves into the realm of management accounting, elucidating its role in providing financial resources and information to support managerial decision-making. The report provides a comprehensive overview of various management accounting systems, including cost accounting, process costing, inventory management, and price optimization systems. It explores the different methods used in management accounting reporting, such as budget reports, performance reports, accounts receivable aging reports, and job cost reports, highlighting their significance in planning, measuring performance, and making informed decisions. The report evaluates the advantages of management accounting systems, emphasizing their role in effective business management, market analysis, and cost control. Furthermore, it discusses the integration of management accounting reporting and systems within organizational processes and examines the advantages and disadvantages of various planning tools, including cash flow budgeting, benchmarking, and activity-based costing, while also illustrating their application in budget preparation. The report concludes by summarizing the key concepts and findings related to management accounting and its practical applications.

Management accounting and its tools

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P 1) Management accounting and various types of management accounting system.................3
Management accounting-.............................................................................................................3
Job costing system:......................................................................................................................4
P 2) Explain various methods that are used in management accounting reporting.....................4
Management accounting reports :................................................................................................4
M 1) Evaluate the advantages of management accounting systems............................................5
D 1) Integration of management accounting reporting and management accounting systems
within organizational processes...................................................................................................6
P4) Advantage and disadvantage of various planning tools........................................................6
M3) Use of various planning tools and their use in preparing budgets.......................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting refers to the process of providing financial resources and
information to the management that supports decision-making. It is only adopted by internal
team of the business (Tirinato and et.al, 2018). The Report will provide an understanding of the
systems of management accounting. It will also explain the application of different types of
planning tools used in management accounting.
TASK 1
P 1) Management accounting and various types of management accounting system.
Management accounting-
It is also known as managerial accounting. It can be defined as the process of preparing
records, internal financial reports and accounts to support managers decision-making process.
Management accounting system-
Management accounting involves internal systems that are used by the business to
evaluate and measure
the process for the management of the firm. The most recognized elements of managerial
accounting are budgets, reports on the performance of internal management that helps to
compare actual results to projections.
Cost accounting system:
It refers to the tool that are used by firms to determine the cost of their goods for cost
control, inventory valuation and profitability analysis.
There are two major types of cost accounting systems. Such as-
Process costing-
It is a type of cost accounting system that combines cost of manufacturing separately for
each process. It is effective for the goods whose production is a process that includes various
departments. Example-System used by chemical producers etc (Mirzaey, Jamshidi and
Hojatpour, 2017).
Job order costing-
It can be described as the system that accumulates the cost of manufacturing separately
for each process. It is effective for companies that are involved in manufacturing of unique
products. Example- It is most appropriate for event management company.
Inventory management system:

It is the combination of technology and procedures that oversee the maintenance or
monitoring of stocked products or finished products that are ready to be sent to the suppliers or
ultimate consumers. It involves a system that provides a central database and helps to generate
forecasting the demand in the future. The major function of inventory management system is to
maintain a detailed record of new and returned products that comes into the warehouse as they
move from manufacturer to the warehouse and ultimately upto point of sale. .
Job costing system:
It can be defined as the method of recording various types of costs of a manufacturing job
rather than a whole process. With the help of job costing system an accountant can maintain a
track of the cost for each job and also maintain the data which is more important to the
operations of the business. Due to major variation in the products manufactured, the system of
job order costing requires a separate record for job cost for each item. The job cost record will
provide the report of direct material and direct labour on each item that are actually used in
production and assigned value of manufacturing overheads.
Price optimization system:
It is defined as the mathematical analysis that calculate the change in demand at various
levls of the price. Then combine the data with the details regarding level of inventory and costs
to recommend the prices that will help to improve the profits of the business.
P 2) Explain various methods that are used in management accounting reporting.
Management accounting reports :
The reports in management accounting are useful in regulating, planning measuring the
performance and making decisions. Management accounting reports are prepared throughout
bookkeeping records and through accounting according to the requirements. There are various
important decisions that are based on these types of reports. Managers may analyse these reports
to analyse specific patterns and convert them into important information for the business.
Budget report -
These reports are very important in measuring the performance of business and are
developed as a whole for department wise, for whole small company and also for large
organizations. An estimate of the budget is made on the basis of experience. The budget of firm
contains the list of all the sources related with expenditures and earnings. They support managers
to provide better incentives to employee's, reduce cost and renegotiate the terms with suppliers.

Performance report -
They are prepared for reviewing the performance of the firm as a whole. In large
companies, performance reports are prepared for each department. These reports also provide
deep insight into the working of the business. Management of the company uses performance
reports performing important decisions regarding the working of the company (Kuhlmann and
Bogumil, 2018).
Accounts receivable ageing report-
If firm relies heavily on providing credit to debtors in that case, accounts receivable
ageing reports is very important. By dividing the remaining balances of the clients into particular
time period allow management to determine the type and number of defaulters as well as it also
assist management to identify the issues that are present in the business (Kelly and Shoemaker,
2017). If there are many defaulters in that case, firm may require an overall transformation to
strict credit policies as cash flow is important for the operations of the business.
Job cost report -
These reports are important tool for the management that is used for analysing the
performance of the project or production against some estimated standards. These reports are
useful in different sectors of the business and also in respective industries. One of the major aim
of job costing reports is to determine the discrepancies or beneficial outcomes that are generally
in the terms of financial values. Opposite to the popular belief the reports of job costing are not
standard, but they are the type of customized reports that are driven by respective standards of
the industry and also by the purpose of preparing these reports (Kaplan and Atkinson, 2015).
Job costing is very helpful in determining the problems like an error in a tool or any
access point which was missed in take off. Effective reports also compare budgeted cost with
actual costs. Tracking cost and labour hours is an important element of job costing reports. The
problem with the cost of the advantages for job costing reports is that they do not appear on the
records of weekly payroll.
M 1) Evaluate the advantages of management accounting systems.
The major advantage of management system is that it helps to manage different types of
activities of the business in effective way with the help of planning and budgeting etc. It also
offers market position related information to the management. Further, cost accounting system
helps to determine the exact reason behind increase or decrease in the profits. It also help

management to place control over supplies and material (Ellul and et.al, 2015). Moreover, price
optimization system helps to take decisions related with price in effective way. They also help
management to focus on various types of goals such as margin of sales or number of
conversions.
D 1) Integration of management accounting reporting and management accounting systems
within organizational processes.
The system and reposting under management accounting is integrated with the processes
of organization. The major aim of management accounting system is to support the decision-
making of management by gathering, communicating and processing the details that helps
management to control, plan and evaluate the strategy and processes of the business.
P4) Advantage and disadvantage of various planning tools.
It refers to the tools that support the action steps of business related with implementation
of a program, intervention or an initiative. It may offer detailed discription regarding the
implementation plan and how it was developed.
Cash flow budgeting -
A cash flow budget provides an estimate of all the expenditures and cash receipts that are
expected to happen during a certain period. The estimates can be monthly, quarterly, bimonthly
etc. It focuses on the monetary movement and not at profitability. It describes outflow and inflow
of funds during a specific time period.
Advantage :
It helps to determine whether balance of cash remains sufficient to satisfy the day to day
obligations. It also specifies whether cash balance requirement and minimum liquidity stipulated
by the internal company regulations or banks are maintained (Cull, 2017).
Disadvantage :
This type of budgeting may cause distortions. Cash inflows that results due to sale of
capital assets, security deposits or due to non-sustainable activity do not necessarily represent
reliable continuous sources of income.
Benchmarking -
It is described as the practice of business to compare performance metrics and business
processes to the industry bests or with the best practices followed by other firms. It also supports
delivery of products, planning and selection etc. The point of benchmarking helps management

of the business to identify the opportunities that are present in internal environment that will help
to bring an improvement in production or processes.
Benefits :
One of the major advantage of benchmarking is that helps to reduce the cost of labour.
Further, it also helps to improve the quality of products that are offered by firm. It also helps to
improve the services, functions and profits and sales of the business.
Limitations :
One of the major limitation is that it focuses on numbers. It means that the business in the
industry that tends to set a benchmark will focus majorly on numbers rather than on the
understanding of complete process that helps to produce information.
Activity based costing -
It refers to the approach of accounting that can be used to determine the total expenditure
related with the activities that are required to develop a product. This system assign costs to each
and every activity that enters into production process (Childress and et.al, 2015).
Advantage :
It offers reliability and accuracy in estimating the cost of the product by focussing on
effect and cause relationship in the incurrence of the cost. It also provides more realistic cost of
the output.
Disadvantage :
There are different types of difficulties that may arise during the implementation of
selection of cost drivers, varying cost driver rates, assignment of common costs etc.
M3) Use of various planning tools and their use in preparing budgets.
The activity based method of budgeting is a method in which budgets are developed
using activity base costing after taking into consideration the cost of overheads like seeling and
distribution, administration overheads etc. On the basis of the result of the study the resources
are then allocated to a specific activity (Luft, Shields and Thomas, 2016).
CONCLUSION
The above Report has outlined the term management accounting as the process that
supports decision-making of the business. It has been concluded that, cost accounting, process
accounting, inventory management system, price optimization system etc. are various types of
management accounting. Moreover, it has been analysed that management of the firm uses

performance reports performing important decisions regarding the working of the company.
REFERENCES
Books and Journals -
Childress, S., and et.al, 2015. Using an activity-based model to explore the potential impacts of
automated vehicles. Transportation Research Record. 2493(1), pp.99-106.
Cull, M., 2017. Cash flow, budgeting and managing credit. Financial Planning in Australia.
pp.145-195.
Ellul, A., and et.al, 2015. Is historical cost accounting a panacea? Market stress, incentive
distortions, and gains trading. The Journal of Finance. 70(6). pp.2489-2538.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Kelly, M. and Shoemaker, N., 2017. Lumberjack Construction: Job-Order Costing &
Manufacturing Simulation. Journal of Accounting and Finance. 17(5).
Kuhlmann, S. and Bogumil, J., 2018. Performance measurement and benchmarking as “reflexive
institutions” for local governments: Germany, Sweden and England compared. International
Journal of Public Sector Management. 31(4). pp.543-562.
Luft, J., Shields, M.D. and Thomas, T.F., 2016. Additional information in accounting reports:
Effects on management decisions and subjective performance evaluations under causal
ambiguity. Contemporary Accounting Research. 33(2). pp.526-550.
Mirzaey, M., Jamshidi, M.B. and Hojatpour, Y., 2017. Applications of artificial neural networks
in information system of management accounting. International Journal of Mechatronics,
Electrical and Computer Technology. 7. pp.3523-3530.
Tirinato, J.A., and et.al, Abbott Point of Care Inc, 2018. Point-of-care inventory management
system and method. U.S. Patent 10,024,734.