Analysis of Management Accounting Systems and Techniques Report

This report comprehensively examines management accounting systems and their applications within a construction company, McGoff. It begins by defining management accounting and its various systems, including cost accounting, inventory management, price optimization, and job costing, emphasizing their importance in decision-making and operational efficiency. The report then explores different management accounting reporting methods, such as budget reports, account receivable aging reports, performance reports, and cost managerial accounting reports, highlighting their benefits in financial planning and performance evaluation. The analysis extends to evaluating the benefits of different management accounting systems, showcasing how they integrate with organizational processes for planning, regulation, and performance measurement. Additionally, the report delves into cost analysis techniques for income statements, planning tools for budgetary control, and how organizations adapt accounting systems to address financial problems, ultimately leading to sustainable success. The integration of these systems and techniques is illustrated through real-world examples, providing a practical understanding of their impact on business operations and financial health.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Management accounting and its different types of system;.............................................3
P2 Explain different method of management accounting reporting: ....................................5
M1. Evaluation of benefits of various management accounting systems:.............................6
D1Management accounting system and management accounting reporting are integrated with
organisation process:..............................................................................................................7
TASK 2............................................................................................................................................8
P3 .Appropriate techniques of cost analysis to prepare an income statement:.......................8
M2 Management accounting techniques and financial reporting documents.:...................11
D2 Financial reports which applies to interpret many business activities:.........................11
TASK 3..........................................................................................................................................11
P4 Advantages and disadvantages of different planning tools used for budgetary control:11
M3 Analysis of different planning tools and their applications:..........................................13
P5 Organisations are adapting management accounting systems to respond to financial
problems:..............................................................................................................................14
M4 Management accounting in response to financial problem can lead organisations to
sustainable success:..............................................................................................................16
D3 Various Planning tool to resolve financial problems:....................................................16
CONCLUSION..............................................................................................................................16
REFRENCES ................................................................................................................................18

INTRODUCTION
Management accounting refers to that field of accounts which is concerned with assisting
managers in decision-making, planning, analysing the performance of organisation in order to
strategies appropriately for the further growth of the company. Business is complex activity, it
requires constant attention on part of managers to deal with the uncertainties occurring at every
point of time. This practice helps in understanding detail information about various aspects and
estimation of alternatives for effective working of enterprise (Kraus and Strömsten, 2012). The
role of Management accountant is to assess the risk associated with certain instruments along
with identifying which elements of company needs to be discarded to achieve goals. There are
different types of management accounting systems such as cost accounting, Inventory
management, price optimization and Job costing. McGoff is construction company offering wide
variety of services like site identification, constructing building, acquisition of land, interior
designs and many others. The company manages it's accounts on regular basis. Information
about requirements and availability of materials, equipment, machinery can be obtained from
financial book of organisation. It is essential for managers to prepare such statements to
understand the working of company. It helps in achieving the goals along with attaining the
success for the business.
TASK 1
P1. Management accounting and its different types of system;
Management accounting is system of preparing management reports which include
financial and other statistical information. These informations are required by the managers to
make important decisions and as well as to run day to day activities. This accounting system is
very important for all the organisations. It is generally used for the internal purpose and helps in
making internal decisions. The basis of this accounting system is informations regarding to
financial and non financial terms, which is needed by managers.
Inventory management system- This method deals with managing records of data
related to production activities. It keeps track of stocks availability and it's flow during the
various stages of production. McGoff is manufacturing association it uses this to analyse course
of material used while constructing building. They have this technique installed which provides
information about raw materials which are being converted into finished goods. Importance of

such system is that it helps in maintaining and controlling the inventory levels. It requires
ensuring smooth functioning of supply chain. It covers areas from warehousing, retail and
shipping movements throughout the production process. Macgoff gained profit because this
which helped in maintaining the stock effectively. The advantage of having this system is it free
from the error and mistakes of manual handling. Companies able to manages warehouse facilities
along with locations of goods (Laksmana, Tietz and Yang, 2012).
Cost accounting- This system manages the costs occurred during the production. It is
concerned assessing expenditure incurring in the business. These are involved at every stage of
manufacturing thus it is important to evaluates how much the company is spending and return it
is getting over such expenditure. It is beneficial for managers take decisions to cut down certain
prices that aid in achieving the economies of scale. McGoff collects data about business assets
and liabilities through such process. It keeps track of information about transactions and the
amount of acquiring machinery, equipments, and amount of depreciation. McGoff used this
procedure to measure the performance of business.
Price Optimization- It refers to the process of identification of point where company
charge enough to make profits and able to expand customer base. It is not necessary that for
buyers this point is perfect they may find it expensive, but as long as it serves the business
purpose this should be considered. The main purpose McGoff is to construct large projects, for
that this helps in guiding managers in setting price appropriately. It should neither be too high
nor too low. This system is important for creating balance between price and value based on the
changing relative value of goods and services. McGoff designed the pricing software based on
the structure of it's organisation. It creates segments of customers based on prediction about
responsiveness towards changing prices. Further promotional strategies and pricing method can
be developed as per their preferences.
Job Costing system- It refers to the process of collecting data about manufacturing and
service costs, to acquire such info as it helps in estimating business sustainability. It is important
to understand cost associated with each job. Direct material cost are analysed to check
expenditure incurred during construction, labour on the other hand evaluates salaries or wages
given to workers for the services provided by them. Over head calculates the depreciation of
machinery. McGoff accumulates money spend on direct material, labour, overhead with the help
of this method and then charge customers accordingly.

So as per above discussion, organisation should incorporate these systems into it's
operation. Certain advantages attached with them are improved timing, pricing and effective
maintenance of inventory. Earlier these were prepared manually but later with the introduction of
technology variety of software are now available to keep complete records of organisation's
information.
P2 Explain different method of management accounting reporting:
Management accounting reports gives detailed description of overall organisation
development. These are prepared for specific purpose to understand profitability of variety of
activities operating in the enterprise. Income statement, Balance sheet and cash flows are the
source of information mentioned in these reports.
Different method of management accounting reporting
Budget Reports- These are reports are created by the organisation to set budgets for next
financial year. Managers study these reports thoroughly to make changes in the way business is
being done. Main advantage of this is that it consists of list of company's sources of incomes
along with the investment made on various projects. After analysing such reports they can
determine whether everything is going according to set figures or not. If not then decisions
regarding negotiation with suppliers, vendors are done to bring down the prices (Jones, 2014).
To identify the bottlenecks McGoff ensures accuracy of figures by preparing these statements. It
set amount for every building that it constructs after comparing budgets from last year. In case of
contingency these help in fulfilling the financial needs. McGoff identifies source of funding from
such reports as well. It has successfully strengthen it's business by creating impressive budgets.
Account receivable aging report- Business dependence on credit transactions makes it
necessity for them to create such reports. This is prepare to manage information related to buyers
who have not made the payments in cash. It also helps in identification of non payments. Like
every other organisation McGoff also gathers invoices, credit memos in this report. Advantage it
provides to managers are in determining how much money does the borrower owed and what
needs to be done to gain respective amount. McGoff uses software for this purpose. List of
account receivables and date on which the invoices issued is arranged in systematic manner.
Customer's financial situation can also be visible and based on this business can decide to grant
credit in future and if yes then what should be the limit.

Performance Report- Such reports are created by the management to assess the overall
performance of the different projects and business organisation. It helps in providing the
complete picture of company's financial status. For estimation of whole organisation
performance It required to evaluate the functioning of each and every department. It gives
complete information about creation of project, it's progress meaning at what stage it lies timings
required for completion analyse and evaluation of risks and the advantage of this are that it set
benchmarks for business. McGoff uses these reports to study and forecast future uncertainties.
Actual work is measured on the basis of planned. McGoff avail advantages of these reports.
Company manages it's punctuality by effectively maintaining delivery status.
Cost Managerial accounting report- These consists of data about the expenditure
incurred on the production of goods and services. It is prepared based on the details given in cost
accounting. Here cost of product and it's selling price are compared to set profit margins.
Managers of McGoff figure out expenses occurred in term of labour costs on hourly basis,
obsolete stock and other additional costs (Englund, Gerdin and Abrahamsson, 2013). The main
advantages of these are in understanding the optimum utilization of physical and human
resources. Being construction company McGoff needs to be aware of quality and quantity of the
raw materials used along with wages given to employees. If workers are satisfied with the
earnings and working hours this would help increasing in their productivity.
M1. Evaluation of benefits of various management accounting systems:
Management accounting systems Benefits
Cost accounting system  It assist in accumulation of different
information concerned with cost structure
which provide optimisation of cost in
construction.
 It provide a summary of all expenses and cost
related to construction in Mc-Goff construction.
Inventory management system  It assist in holding inventory records updated
like inventory register, stock summary. Spare
and tools register etc. in systematic manner to
avoid any complexity at year end.

 Use of inventory management reduces time
scheduled to tasks, minimise extra cost and
money, enhance productivity and effectiveness
of tasks involved in inventory management
process.
Price optimization system  This system adopted by organisation to
minimise price of product while maintaining
profit margin with same quality standard.
 It helps to formulate direct control of
managerial personnels over vital decisions
related to pricing of product (Vom Brocke and
Rosemann, 2014).
Job Costing system  This system provide a framework for
systematic analysis costs related to particular
project.
 It assist in analysis of performance of each task
and job to evaluate overall probability.
D1Management accounting system and management accounting reporting are integrated with
organisation process:
Management accounting system and there reports play crucial role in any organization to
sustain in competitive environment by proper planning, regulating, decision making and
performance measurement. Various management accounting reports includes budgetary reports,
inventory management reports and operating reports. Budget reports helps in calculating the cost
in prior year and estimate budgets for the following year and determine the transactions to reduce
cost (Busco and Quattrone, 2015). Inventory management reports are prepared for recording the
detail information about the inventory available with an organisation to make the supply chain
more efficient, data on inventory stock, labour and other expenses involved in production
process. Operating reports helps in increasing the profitability of operation as well as efficiency
of people involved in performing tasks to maintain daily operational performances for taking

effective decisions. All these reports helps in formulation and implementation of various
policies by considering the financial information to provide assistance related to day to day
activities. These reports are useful in estimation of total costs which helps in improving
strategies to take effective decisions and focusing towards the efficiency in current or future
operations of an organization.
TASK 2
P3 .Appropriate techniques of cost analysis to prepare an income statement:
Absorption costing method- It is the method of calculating cost of total production, then
assigning cost to each product's unit individually. This method includes both cost fixed and
variable in calculation, because both cost occurs in production (Uyar and Kuzey, 2016).
Marginal costing method- Marginal costing method is a kind of method in which variable
cost considered as the cost of product and fixed cost as the cost of period.
Income statement by absorption costing method

Income statement by marginal costing method

Interpretation- From above solved numerical it has been recommend that net income is
same from both the method which is 50000. In absorption method sales is calculated by
multiplying price per unit with number of units sold and that is 250000. For calculate gross profit
, cost of good sold is deducted from sales. Cost of good sold is calculated by adding following:
direct material, direct labour, variable manufacturing expenses and fixed manufacturing
expenses. Then gross profit is found 110000. In the end to calculate net income, selling and
manufacturing expenses are deducted from gross profit. Selling and manufacturing expenses are
60000 and net income is of 50000 . On the other hand, in marginal costing method contribution
is calculated by deducting marginal cost of sales from sales amount. Marginal cost of sales is
calculated by adding following: direct material, direct labour, variable manufacturing overhead
and variable selling and administrative expenses which are of 130000. Then fixed cost is
deducted from contribution to calculate net income (Brierley and Gwilliam, 2017). Fixed cost is
of 70000 and net income is 50000.

M2 Management accounting techniques and financial reporting documents.:
Management accounting system and there reports play crucial role in any organization to
sustain in competitive environment by proper planning, regulating, decision making and
performance measurement. Various management accounting reports includes budgetary reports,
inventory management reports and operating reports. Budget reports helps in calculating the cost in
prior year and estimate budgets for the following year and determine the transactions to reduce cost.
Inventory management reports are prepared for recording the detail information about the inventory
available with an organisation to make the supply chain more efficient, data on inventory stock,
labour and other expenses involved in production process (Fiondella et.al. , 2016). Operating reports
helps in increasing the profitability of operation as well as efficiency of people involved in
performing tasks to maintain daily operational performances for taking effective decisions. All these
reports helps in formulation and implementation of various policies by considering the financial
information to provide assistance related to day to day activities. These reports are useful in
estimation of total costs which helps in improving strategies to take effective decisions and focusing
towards the efficiency in current or future operations of an organization.
D2 Financial reports which applies to interpret many business activities:
Financial reports are mandatory for all organizations as they discloses the financial results as
well as performance and related information to management and external stakeholders for
specified time period. Such reports are prepared by considering the rules and regulations
prescribed by General Accepted Accounting Guidelines. These are very useful for diversifies
users to take economic decisions. Such reports are the combination of cash flow statement,
income statement and balance sheet which describes the financial status of an organization. Mc
Goff Construction prepares such reports to provide evidences related to organizational health,
monitoring to describe the differences between failure and success of the transactions which
guides to take effective decisions. Such reports helps the selected organization to raise its capital
in domestic as well as international market.
TASK 3
P4 Advantages and disadvantages of different planning tools used for budgetary control:
Budgetary control: Budgetary control helps in formulation as well as implementation of
various plans, policies, strategies with the objective of coordinating, evaluating and controlling
all organizational operations in order to achieve profitability along with providing standards for

measuring the actual performances. The managers of the Mc Goff Construction considers
internal and external factors while estimating the expenditures and incomes as well as
coordinates various activities from the planning till controlling. There are various planning tools
for budgetary control which the selected organization applies and some are as follows:
Budget: Budget is a technique used for estimating the incomes and expenditures for a specific
time period. It gives an overview of the transactions which helps the managers of an organization
to forecast the results and financial position for some future periods. A budget is prepared by the
managers of the organization with the help of previous year data and current market trends to
provide information to the stakeholders (Taipaleenmäki, 2014).
Advantages: Advantages of budgets are as follows:
 Budget helps in providing guidance related to the costs associated with various
transactions.
 Provides tools for controlling income and expenditures to Mc Goff Construction.
Disadvantages: Disadvantages of budgets are as follows:
 Budgets are based on assumptions which leads to inaccurate decision making.
 The figure mentioned are not accurate and this is the major disadvantage of the budgets.
Flexible Budget: Flexible budget is a type of budget where changes are done according to the
variations in production or sales levels. Such budgets is prepared after considering the fixed and
variable elements at each stage of operation. The managers of any organization modifies in there
budgets during an accounting year on the basis of the changes occurred in the business
operations. The managers of Mc Goff Construction uses flexible budget to predict the successful
and unsuccessful operations for completion of projects in an accounting period (Kokubu and
Tachikawa, 2013).
Advantages: Advantages of flexible budgets are as follows:
 Flexible budget helps in controlling cost by analysing the deviations from actual results
from the expected results.
 Such budget benefits the Mc Goff Construction by providing the information of original
as well as actual performance.
Disadvantages: Various disadvantages of flexible budgets are as follows:

 Such budget only shows the differences but fails to disclose the reasons behind any
differences also relies on the assumptions when changes may occur in discontinues
manner.
 The selected budget requires many predictions where the selected organization may fail
to make accurate predictions as well as it takes huge time to make the predictions.
Zero Based Budgeting: Zero based budgeting is a type of budgeting having its base as zero at
the beginning of each financial period. Such budget is generally preferred by non profit
organizations to save the costs for inefficient transactions. It analyses the needs and costs of each
function at different operations to allocate funds without considering the previous year budgets
in an organization. Such budgets requires careful planning and provides clear image about the
finance requirements and the consequences related to raising them. These are flexible budgets
which focuses on operations to lower the costs to achieve efficiency. Such budgeting planning
helps to allocate the funds based on the operational efficiency rather than focussing the
operational history. The managers of Mc Goff Constructions to improve its resource planning
and organizational collaborations (Mitchell, Nørreklit and Jakobsen, 2013).
Advantages: Advantages of Zero based budgeting are as described:
 Zero based budgeting helps an organization to examine various costs associated with the
present operations and accordingly allocate the funds to various activities.
 Such budgets helps in improving efficiency along with performance by examining the
assumed expenditures.
Disadvantages: zero based budgeting includes various disadvantages:
 Zero based budgeting requires qualified and experienced managers to implement its
operations which is very costly and time consuming.
 It is very complex for Mc Goff constructions to begin with zero base in order to pursue
its transactions in the budget which may harm the organizational image.
M3 Analysis of different planning tools and their applications:
Budgetary control describes various important tools to control costs and maximising
profits in any organization. There are various tools which helps in preparation and forecasting
budgets such as budgets, flexible budgets and zero based budgeting. Budgets gives an overview
of all transactions which helps the managers of Mc Goff Construction to forecast the results and
financial position for some future periods. Flexible budgets are prepared after considering the

fixed and variable elements at each stage of operation. The managers of the selected organization
modifies in there budgets during an accounting year on the basis of the changes occurred in the
business operations. Zero based budgeting is generally preferred by non profit organizations to
save the costs for inefficient transactions and it analyses the needs and costs of each function at
different operations to allocate funds without considering the previous year budgets in the
selected organization (Wagner, 2015).
P5 Organisations are adapting management accounting systems to respond to financial problems:
Financial Problem- Financial problems are those problems which are related to the lack of fund
or money in an organisation. These problems arise due to many reasons, like if a business does
not make effective plans or policies then it may be create a situation of financial problem. These
problems effects business negatively. It impacts on growth and as well as on profitability of
company. These problems can be resolve by implementing effective plans and strategies. Mc
Goff construction faces some financial problems which are following:
 Lack of working capital- Working capital is a kind of capital which is required to
complete day to day activities. In the absence of this capital, organisation may faces
many problems. Mc Goff construction is facing the problem of lower working capital
which is effecting their day to day transactions (Renz, D. O., 2016).
 Late payment of bills- Due to financial problems organisations fail to pay bills on time.
This is why, because bills require money and financial problems make it hard for
companies to pay on time. Managers of Mc Goff construction are trying to overcome this
financial problem but they are fail to overcome from this situation.
Financial Governance- Financial governance may be defined as a system of control and
manage the financial information. This consists a way in which companies track their financial
transactions, monitor and control them. In the absence of this, organisation may face many
problems like fraud, material errors, low confidence of stakeholders etc.
Management accounting approach- Management accounting approach makes the effective
use accounting techniques which helps in solving organisational problems. Mc Goff construction
uses following management accounting approaches, whose description is below:
 Benchmarking- Benchmarking is the method of comparing a company's process,
operations with competitors. This provides a competitive advantage to an organisation. It
is the best comparison tool to make policies and plans. Mc Goff construction use this

tool to make comparison over its rivalry competitors. This helps them to make new and
innovative strategies to get competitive advantages as well as it helps in finding a way to
increase in working capital.
 KPI( Key Performance Indicator)- Key performance indicators are very crucial for a
company's growth and success. It helps companies in measure performance and force
activities towards goal achieving of organisation. Mc Goff construction use this tool to
analyse their performance and progress. In addition it helps them in identify an area in
which their performance is high. On the basis of that, they convert their high performance
into great advantage to solve financial issues which they face (McDougald and
Greenwood, 2012).
Comparison between Mc Goff construction and Arden construction limited
Mc Goff construction Arden construction limited
Problem: This company is facing the many
financial problem, which is effecting them
negatively. They don't have any idea of their
competitors plans and process. Due to this
they don't have any innovative plan or strategy
which may help them in solving financial
issues. They are facing the problem of lack of
capital and insufficient money to pay bill.
Problem: This company is facing the problem
of higher cost in construction of new buildings.
This problem is effecting their profitability.
They are not able to calculate about total cost
of construction and due to this their project's
actual cost crossing the limit of estimated cost.
Approach- Approach refers to a way of solving
organisation's problem. Management
department of Mc Goff construction is using
approach of benchmarking. It is helping them
in making comparison with competitors. With
the use of this approach they are improving
their way of work. Like innovative system in
constructing a new building. This is why,
because benchmarking helps in identifying
competitors plans and policies which helps the
Company need to overcome from this situation.
For this they need to implement right
management accounting system. They need to
apply cost accounting system. This the system
which helps in recording the total cost of
construction, if cost is high then it gives
appropriate solution to make effective plans.
This system will help Arden construction
limited in reduction cost of construction.

company in to get advantage. This approach
will help in solving financial issues and
problems.
M4 Management accounting in response to financial problem can lead organisations to
sustainable success:
Management accounting system helps organisations in solving financial problem and as
well as in achieve their objectives. This system includes various systems within it. All those
systems can be apply according the nature of financial problem. In addition, this accounting
system is applicable in all kind of organisations. This system, helps in identify the issue that is
becoming a reason for low growth, then it provides solution to overcome from that issue. So this
system helps organisations in achieving goals and objectives with solving the many issues which
impact on company's performance. Mc Goff construction uses many management accounting
approaches and techniques to solve their issues. They use benchmarking in getting competitive
advantage over rivalry companies (Miller, Proctor and Fulton, 2013).
D3 Various Planning tool to resolve financial problems:
Planning tools have their own importance in solving financial problems. It is necessary to
solve the financial problems as soon as possible because it impact negatively to the organisation.
Mc Goff construction use many different planning tools to solve financial issues. They make
budgets which helps them in measurement of performance and as well as in to make future plans
and policies on the basis of budgeted estimation.
CONCLUSION
From above report its has been concluded that management accounting is significant
aspect of an business organisation. Various accounting management systems helps to attain
organisation's objectives and goals. For reporting purpose managerial personnels generally uses
different report as per their requirements. Reporting and management accounting operations are
interconnected and helps to manage different operations. Reporting under management
accounting process provide assistance in creation of framework for decision-making. Different
planning tools assist in evaluation of project viability and budgets prepared by organisation. It
also act as an early warning system for business organisation because its detects potential threats
may affect performance of business organisation. Beside this consideration of profit computed

using absorption and marginal costing supports different functions of organisation and helps to
optimise cost which affects profit of organisation.

REFRENCES
Books and journals:
Kraus, K. and Strömsten, T., 2012. Going public: The role of accounting and shareholder value
in making sense of an IPO. Management Accounting Research. 23(3). pp. 186-201.
Laksmana, I., Tietz, W. and Yang, Y.W., 2012. Compensation discussion and analysis (CD&A):
Readability and management obfuscation. Journal of Accounting and Public
Policy, 31(2). pp. 185-203.
Jones, M. ed., 2014. Accounting for biodiversity. Routledge.
Englund, H., Gerdin, J. and Abrahamsson, G., 2013. Accounting ambiguity and structural
change. Accounting, Auditing & Accountability Journal. 26(3). pp. 423-448.
Busco, C. and Quattrone, P., 2015. Exploring how the balanced scorecard engages and unfolds:
articulating the visual power of accounting inscriptions. Contemporary Accounting
Research. 32(3). pp. 1236-1262.
Uyar, A. and Kuzey, C., 2016. Does management accounting mediate the relationship between
cost system design and performance?. Advances in accounting. 35. pp. 170-176.
Brierley, J.A. and Gwilliam, D., 2017. Human Resource Management Issues in Accounting and
Auditing Firms: A Research Perspective: A Research Perspective. Routledge.
Fiondella, C. et.al. , 2016, September. Successful changes in management accounting systems: A
healthcare case study. In Accounting Forum (Vol. 40, No. 3. pp. 186-204). Elsevier.
Taipaleenmäki, J., 2014. Absence and variant modes of presence of management accounting in
new product development–theoretical refinement and some empirical
evidence. European Accounting Review. 23(2). pp. 291-334.
Mitchell, F., Nørreklit, H. and Jakobsen, M. eds., 2013. The Routledge companion to cost
management. Routledge.
Wagner, B., 2015. A report on the origins of Material Flow Cost Accounting (MFCA) research
activities. Journal of Cleaner Production. 108. pp. 1255-1261.
McDougald, M.S. and Greenwood, R., 2012. Cuckoo in the nest? The rise of management
consulting in large accounting firms. The Oxford handbook of management consulting.
pp. 93-116.
Miller, K.C., Proctor, T.Y. and Fulton, B., 2013. Teaching managerial responsibilities for
internal controls: Perception gaps between accounting and management
professors. Journal of Accounting Education, 31(1). pp. 1-16.
Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons
Kokubu, K. and Tachikawa, H., 2013. Material Flow Cost Accounting: Significance and
Practical Approach .∗ Handbook of sustainable engineering. pp. 351-369.
Vom Brocke, J. and Rosemann, M. eds., 2014. Handbook on business process management 2:
strategic alignment, governance, people and culture. Springer.