Management Accounting Systems and Techniques: A Report for Synergy

This report provides a comprehensive evaluation of management accounting systems within Synergy Manufacturing Co. Ltd, a UK-based manufacturing company. It explores the integration of management accounting systems and reporting within the organization, highlighting the benefits and applications of these systems in cost management, decision-making, and performance evaluation. The report also discusses key management accounting principles and their importance, along with various reporting techniques such as budget reports and accounts receivable aging reports. Furthermore, it presents an income statement prepared using both marginal and absorption costing techniques, demonstrating the impact of different costing methods on the firm's profitability. The analysis concludes that effective management accounting systems are crucial for cost control, informed decision-making, and ultimately, achieving higher profitability.

The importance and
application of
management
accounting system

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Integrate management accounting system and reporting in organisation...................................3
Evaluate advantages of management accounting system and its application.............................4
Principles of management accounting and its importance of integrating this system in
organisation. Also, specify different techniques for its reporting...............................................4
Prepare income statement by applying technique of marginal and absorption costing..............5
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
Management accounting system can be defined as a process of controlling cost of
organisation, so that its objectives cane be achieved optimally. It helps in determining the
efficiency of firm for handling its daily financial operations (Scott, 2019). The company chosen
in this report is Synergy manufacturing Co. Ltd. It is a UK based company with a single officer
named– Jonathan David. The report covers a critical evaluation on the integration of
management accounting and its system, along with providing their benefits and application. It
also discusses about its principles and why is it important to integrate it, in addition to different
techniques of reporting. It further presents income statement of company by using different
techniques.
MAIN BODY
Integrate management accounting system and reporting in organisation.
These are systems which helps in managing cost, inventory and prices of organisation
so that organisational objectives can be achieved with minimum cost and maximum profits. This
system is properly consolidated in Synergy. It makes use of this tool in preparing statistics
through which it can identify the most profitable product and projects which are not yielding
much and demand some special attention. It also helps firm at time of launching new product
because on the basis of this arrangement companies frame their plans and execute them as it
helps in collecting whole financial picture of market. Salaries and wages of staff and labourers is
also based on calculations made under this system only (Tan, 2019).
Management accounting reporting refers to process of analysing financial statements of
firm to ascertain pattern and trend of position firm and taking various decisions. This system is
also fully integrated in Synergy. Through these reports, firm reviews its cash management
system and checks areas of its inflow and outflow. This further helps it in knowing places where
money has been wasted. Firm also gather information about its all long as well as short term
liabilities, assets and capital by making use of these reports only. They further assists in
generating knowledge about incomes and expenses of firm, through which it frames plans for
transactions which are incurring extra cost. Synergy makes use of these reports to understand its
financial position so that it can know that whether it is capable of capturing opportunities
prevalent in market or not.

Evaluate advantages of management accounting system and its application.
It is a systematic process which is applied by firms to control costs of various operations
of business so that it can attain its target optimally. It is used by Synergy in various aspects like
determining prices, reducing cost and many more which has been discussed below.
Benefits of management accounting system along with its application with context to
Synergy.
 Increases revenue- Synergy applies it, to determine areas where expenses are incurring
lavishly and no one is trying control them. Managers by identifying such costs tries to
reduce them which further helps in decreasing overall loss and results in improvement of
revenue generation capacity of firm (Nørreklit, 2017).
 Helps in decision making- This system is applied by Synergy for viewing financial
performance of business and generating information about its monetary strengths and
weaknesses. This helps it in taking various decisions like investment in projects, any sort
of improvement in organisation, its capacity etc.
 Identifying discrepancies- By applying tools of this arrangement, Synergy prepares
budgets for its various project and tries to work accordingly. This pre-determines values
are then compared with actual results, which helps it in identifying all types of
differences occurring in them. On the basis of this, firm takes corrective actions so that
variances cam be filled.
 Ascertaining cost of product- Synergy makes use of this system like job costing to
know actual expenses incurred on product while manufacturing it. It identifies its cost at
every single stage which helps it in attaining real value of product . On the basis of this,
business fixes price of product through which it gain enough profit.
Principles of management accounting and its importance of integrating this system in
organisation. Also, specify different techniques for its reporting.
It is a process of preparing reports through which administration of company takes
various financial decisions. Important accounting principals are discussed below:
 Relevance- According to this rule, Synergy must make sure that it presents only that
information in books of accounts which is relevant for its users. Any unwanted data
should not be present in them as it can impact decisions of parties (McDonald, 2020).

 Full disclosure- It urge Synergy to provide all information in its financial statements
without hiding any transaction as each and every data which is relevant for users effects
their analysis about firm. It further helps them in taking their decisions.
Importance of integrating management accounting system
 Saves Money- It helps Synergy in identifying areas of over expenditure, so that its cost
can be controlled. Thus it helps organisation in saving its money.
 Improves inventory management- It helps Synergy in reviewing optimum level of
stock it should keep, so that it is neither holding excess of it and nor in shortage. This
assists it in fulfilling demand of customers in time and also reducing its cost of
warehousing (De Lautour, 2018).
 Improves decision taking process- It provides information about position of various
operations to Synergy from time- to-time which further helps it in taking corrective
decision in between process only.
Different techniques of management accounting reporting.
 Budget Report- It is statement which measures performance of Synergy by comparing
with pre defined value of budget. It calculates all discrepancies and guides managers to
check reason behind those variations. It can be negative as well as positive.
 Accounts receivable aging report- It ascertains time period in which business has to
collect money for its debtors. It classifies clients on the basis of their remaining balance
and time allocated to them (Fang and et. al., 2021).
Prepare income statement by applying technique of marginal and absorption costing.
Income statement
Particulars £s £s £s £s
Product A Product B
Turnover 828000 4800000
Less : cost of goods sold 303600 146400
Direct materials 150000 84000
Direct labour 180000 76800
Less Closing Stock 26400 14400

Gross profit 524400 333600
Less Fixed cost 264000 264000
Production 210000 210000
Administrative 54000 54000
Less: Variable overhead 129200 62400
Production 120000 56000
Selling 9200 6400
Profit 131200 7200
Income statement under absorption costing
Particulars £s £s £s £s
Product A Product B
Turnover 828000 480000
Less Full cost of sales 690000 332800
Fixed production overhead 300000 140000
Direct material 150000 84000
Direct Labour 180000 84000
Variable Production
overhead
120000 56000
Less Closing Stock 60000 31200
Adjustment
Over absorption/(under-
absorption)
90000 (70000)
Gross profit 228000 77200
Less Non-production cost 63200 60400

Variable cost 9200 6400
Fixed cost 54000 54000
Profit 164800 16800
Income statement under marginal costing
Particulars £s £s £s £s
Product A Product B
Turnover 828000 480000
Less variable cost of sales 422400 210600
Direct material 150000 84000
Direct Labour 180000 84000
Variable Production overhead 120000 56000
Variable selling overhead 9200 6400
Less closing stock 36800 19800
Contribution 405600 269400
Less Fixed cost 354000 194000
Production 300000 140000
Non-Production 54000 54000
Profit 51600 75400

The above statements show that profit of firm changes with change in method applied on
it. Also, value of stock tends to alter with it and with a great extent. Profits according to
absorption costing is more than under marginal costing and that too with a great difference.
CONCLUSION
It can be concluded from the above report that there are various systems and reports
under management accounting that helps it in managing its costs and earning higher amount of
profits. This assists managers in taking various financial decisions and calculating price of
product at every stage. All these reports work according to the principles framed for them. On
applying different techniques of income statement, the impact of various transaction on profit
can be reviewed.

REFERENCES
Books and Journals
De Lautour, V.J., 2018. Strategic Management Accounting, Volume II: Beyond the
Numbers (Vol. 2). Springer.
Fang, L. and et. al., 2021. Corporate Monitoring and Misreporting: The Role of Rules-based and
Principles-based Accounting Standards. Available at SSRN 3125008.
McDonald, H.A., 2020. The Investor Looks at Accounting. In Federal Securities Law and
Accounting 1933–1970: Selected Addresses (pp. 182-197). Routledge.
Nørreklit, H. ed., 2017. A philosophy of management accounting: A pragmatic constructivist
approach. Taylor & Francis.
Scott, P., 2019. Introduction to Management Accounting. Oxford University Press, USA.
Tan, H.C., 2019. Using a structured collaborative learning approach in a case-based management
accounting course. Journal of Accounting education. 49. p.100638.