Running head: MANAGEMENT ACCOUNTING

MANAGEMENT ACCOUNTING

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 MANAGEMENT ACCOUNTING

Table of Contents
Task 1...........................................................................................................................2

Information booklet useful to understand the concept of management accounting

system and management accounting reporting........................................................2

Task 2.........................................................................................................................10

Management accounting techniques......................................................................10

Task 3.........................................................................................................................13

Evaluation of different planning tools and their application in budget preparation

and forecasting........................................................................................................13

Task 4.........................................................................................................................15
1
Comparison and use of two management accounting systems to solve financial
problems.................................................................................................................15

References.................................................................................................................18
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Task 1
Information booklet useful for understanding the concept of management
accounting system and management accounting report
The quantitative and qualitative information that is required for evaluating the
operational and financial performance is gathered from the managerial accounting
techniques. The managerial accounting is a sub division of the accounting system
which is used to make plans and strategy to control the usage of funds by the
managers. It supports in the decision making process by the application of budgeting
and after that it is used to control the budget by making comparison the budgeted
figures with the actual figures, and from the result of the difference between the
actual and the budgeted figures it can be possible to calculate the variances of the
budgeted and the decisions can be taken based on the outcome of such variances.
The managerial accounting techniques as a resource management tool give
emphasis on the estimation of the future and on the other hand as a technique for
2 controlling the resources it concentrates on the present situations.

Assisting the management to make improvements continuously

The management accounting helps the management to continuously monitor

the results of the budgets and that can help in continuous improvement of the
effectiveness of processes and systems and expand the superiority of the goods and
facilities provided by them. The improvement is to be made on continuous basis to
eliminate the adverse effect of abnormal waste of materials, time and efforts of the
labours, and increase the productivity (Otley 2016).

The management accounting is related with the methods of measurement,

identification, explanation, and communication of the financial data to the
management. The various management accounting system which is utilised by the
organizations are:

Inventory management system

This management accounting system is utilised by the company to manage

and control the goods that are kept in inventory of the organization. This system is
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required at various locations of an organization to maintain a planned course of

actions and maintaining the inventory (Cooper Ezzamel and Qu 2017).

product
management

inventory purchase
status report module

inventory
management
challan customer
management master

3 in and
outwards
inand
outwards

Cost accounting system

The cost accounting system is utilised by the manufacturers to write down

production activities by utilizing the system of perpetual inventory. The cost
accounting system is formed for manufacturers in order to monitor the continuous
flow of the stock used in the different process of manufacture.
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cost accounting
system

input cost
inventory cost flow recording interval
measurement accumulation
valuation method assumption capbility
basis method

Job costing system

4 The job costing process is formed to assign the cost that the organization has
to incur for a particular job which is related with the process of production. The job
costing system is mainly used in the industries like construction where costs are
allocated to various projects of the company (Amara and Benelifa 2017).
 MANAGEMENT ACCOUNTING

labour

other direct
materials
costs
job
costs

equipment
subcontracts
rental

5 Price optimization system

The method is used to detect the products, the price of which can be
increased even though the customer is not willing to pay. This method of
management accounting system helps to frame a strategy that will help the business
to sell the products quickly at a price which will fetch higher profit margin to the
organization.

In small organization it is very essential to make optimum utilization of funds

and for that reason it is essential to prepare a budget from which it will ne possible to
measure the inflow and out flow of cash easily. Managerial accounting reports can
assist the management by providing the necessary information that is required to
bring control in the costs, giving financial motivation to the efficient employees,
eliminating the products that are not useful and making investments in these types of
products which will provide higher return to the organization. Based on the nature of
the business and the sensitivity of time of the financial information that the
management or owner may require, that means that in what interval they want such
reports, monthly, quarterly weekly or on daily basis (Ax and Greve 2017).
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System produced quote

Rule 1
Client request code Quote recommendation
Rule 2

Rule 3

Optimised quote

Budget reports to monitor the performance of the business

This kind of reports provide assistance to small organizations to monitor the

6
output of the organization and bring control over the costs incurred for running the
operation of the business. The budget is made to make an estimation of the cost of
production of the coming days on the basis of the trend of the actual expenses made
in the past years. In case the organization in the previous year exceeded the
budgeted figure and fail to bring control over the increasing trend of costs then it may
be required to increase the fund to a more correct level (Nitzl 2016).

The budget reports may be utilised by the entrepreneurs to calculate the

inducements that is to be paid to the efficient employees. The budgeted funds are
given out as bonus to the employees as they have been able to achieve the goal
with an amount which is less than the budgeted amount.

Budget allocation
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adminstrative
overhead costs
directs cost

Receivable aging reports

7 The aging report is an important tool used by the management to control the
flow of cash in case the organization want to extend the period of credit that is
allowed to the customers. This report helps to categories the customers in
accordance to the period of credit allowed by them. In general, the aging reports
consists of separate columns in the bills, under three categories 30 days late, late for
60 days and the late for 90 days. The ageing report can be used by the managers to
identify the competence of the collection process of the firm.

There are many customers which are not capable to reimburse their balances,
then in that case the organizations may need to bring more control on the credit
policy. On analysing the accounts receivable balances on a periodic basis will help
the management from neglecting any debts that has not been paid by the customers
(Hopper and Bui 2016).
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Accounts receivable ageing

current 1 to 30 31 to 61 to 90 Over total

days 60days days 90days
200 400 0 0 0 600
0 500 100 0 0 600
0 0 1000 500 250 1750
200 900 1100 500 250 2950

Cost reports

From this report the management will be able to monitor the expenses for a
particular project which is funded by the small organization. These expenses are
matched with the forecasted revenue so that it can be possible to evaluate the profit
earning capacity of the organization. This assists to detect the potential areas from
8 which it can be possible to earn more revenue so that the organization can
concentrate more in increasing the profit earning sources and not on the areas which
can not fetch higher profits. The cost reports can be utilised for the analysis of the
expenses, simultaneously with the project so that the organization can rectify the
areas of waste before the cost goes out of control (Bromwich and Scapens 2016).

Inventory and manufacturing

In small organizations it is essential to maintain a physical inventory

management system, and that can be done through the managerial accounting
reports so that the manufacturing process can be made more efficient. The inventory
and management reporting system can be useful top record the waste of inventory,
labour cost per hour and overhead costs per hour.

Thus, by integrating the management accounting systems and the

management reporting system the organizations can bring control over the cost and
can increase the profit margin and bring more efficiency in the production process
(Wen and Mao 2019).
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Task 2
Management accounting techniques

9
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Introduction

Management accounting system is a technique that is adopted by the

organization to bring control over the expenditures and to intensify the efficiency of
the production process. The management accounting system assist the
management to make a budget on the basis of which the future trend of the
company is company is predicted which helps in decision making. The utilization of
the planning tools like fund flow analysis, cash flow analysis, standard costing,
marginal costing and budgetary control are used by the management of the
company to increase the margin profit and to predict the future trend of the financial
performances (Weetman 2019).

Discussion
10
The major uses of the management accounting are stated below

Productivity

To use of the management accounting system can be analysed by comparing

the productivity before the implementation of any machine or any other equipment
and the productivity after the implementation of the machine. To measure the
effectiveness of the labours and other machinery that are used in the process of
production it is essential to create a comparison between the projected figures and
the real one. If the actual production is more than the estimated one then it can be
said that the process of production is efficient and that can assist the management to
fulfil the objective of the organization (Dearman Lechner and Shanklin 2018).

Sales trends

The tools for planning of the management accounting also used to predict the
trend of the sales and take necessary actions as per the requirement to implement
any strategy to improve the sales figures as set by the organization. The
management accounting tool is also used to assess that which products are capable
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to bring more revenue. The analysis can also help to identify the nature of the
products and also toe assess the present market demand of the products and if the
demand is falling then what necessary changes are to be implemented so that it can
be possible to capture more market and attract more customers. The information that
can be gathered from management accounting will help the organizations to identify
the target market and to set the amount of units that is essential to sale to increase
the margin of profit (Jin 2017).

Financial planning

Management accounting can also used as a financial planning tool as it helps

to deliver data concerning the management of the expenditures, which includes the
process of making plan based on the fund available and how much funds the
organization can raise in the future, the organization can prepare a strategic plan
regarding the time when it may be required to take loan from the market and when to
go for long term investments. Financial planning can help the organization to
11
manage its working capital requirement and can save from the payment of
unnecessary penalties or late fees (Taylor and Scapens 2016).

Thus management accounting provide the necessary information from which

it can be possible for the management to identify the areas which are providing
revenue and help o improve the financial condition of the company and also
simultaneously help to detect the areas where more improvements will be required
so that the organization can increase its financial strength.

The most important factor that make managerial accounting reports more vital
than other kind of reports is that it provides accurate data to the managers from
which it can be possible to take decisions that will increase the level of productivity or
to increase the revenue. It provides numbers that are useful for taking any kind of
decisions (Malina 2017).

Conclusion

The management accounting unlike the tax reports or the conventional

financial reports are more useful for evaluation of the internal affairs of the business
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and help the management to organize the internal control process in the manner that
best fits with the objective of the company. The management can prepare the
management accounting report either on daily or on monthly basis (Alawattage
Wickramasinghe and Uddin 2017).

Task 3
Evaluation of different planning tools and their application in budget
preparation and forecasting.
Introduction

A budget contains a detailed information of the predicted financial outcomes

for a precise time frame in the coming days. The budget plans provide a complete
information about the forecasted sales figures and the expenditures for a particular
financial year.

As a planning tool budgetary control is utilized to bring control in the

12
production process and to encourage different departments to coordinate and build a
communication system that will help to motivate the managers and to assess the
overall performance of the organization (Mata Fialho and Eugénio 2018).

Discussion

The planning tools helps to crate a detailed plan of all the affairs of the
organization so that the financial objective of the respective company can be
achieved within a specified future time, to make the budgetary plan successful it is
essential to build up a strong communication system among all the departments and
to create coordination among the staffs to achieve forecasted goals, the
performances of the organization is evaluated as per the requirement mentioned in
the budget and if any differences occurs between the budgeted and actual figures
will be solved on the basis of the suggestions provided in the budget reports. The
managers often get motivated to achieve the estimated targets particularly if the
manager is assured that they will be awarded if they can achieve the budgeted
targets (Latan, et al 2017).

Advantages of the planning tools in budgetary control

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 It aids to coordinate the actions all around the sections of the organisation
 Aids to translate the strategic plans in to actions
 It assists to identify the resources, sales and actions that are essential to
execute the strategic plan.
 It helps in gathering the record the activities of the company.
 It aids to build communication with the staffs.
 It aids to facilitate the allocation of the resources.
 The planning tools helps the management to take corrective actions by the
reallocation of resources.

Disadvantages

 The major problem occurs when the budgetary control tools are implemented
mechanically.
 If the budgets are imposed arbitrarily then in such cases the employees will
13 not be able to understand the cause for the budgeted expenditures and will
not show their interest to execute the responsibility which is set for them.
 Can results into occurrence of unfairness.
 A rigid budget structure can reduce the motivation of the employees of the
lower level and for that reason the company may not be able to achieve its
financial aim or goal.

Conclusion

In conclusion it can be said that the budgetary control plan is an important tool
based on which the management take decisions that are essential to fulfil the
financial objective of the organization.

Task 4
Comparison and use of two management accounting systems to solve
financial problems.
Introduction
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The two management costing systems that is effective for a company to

resolve financial difficulties and in assisting the management to achieve sustainable
success are cost volume analysis and the marginal costing system.

Discussion

The cost volume profit analysis is a management accounting process which is

utilised to make analysis of the effect of the volume of sales and the cost of
production on the profit generated from the operating activities. It considers, that
costs may be categorized as fixed or variable costs, both the variable and fixed costs
are constant and it is expected that all the products that are manufactured will be
vended (Rikhardsson and Yigitbasioglu 2018).

The management use the cost volume profit analysis as a tool for planning to
forecast income from sales, costs and profits, the cost volume profit analysis reflects
the impact of the changes in the volume of sales and the changes in cost on the
14 profit that can be earned by the company in the coming financial years. This analysis
can be utilized by the management to calculate the break even point of a product, to
calculate the point at which the company will neither make profit nor incur loss.

Pricing strategy

Pricing strategy is another management accounting system that assist the

business to solve the financial glitches and to ensure that the company can attain
justifiable growth. Price means the value charged on a product or service which is
estimated on the basis of different complicated calculations and research. The
strategy of pricing includes the following factors

 Accounting
 Capability to settle dues
 Conditions of the market
 Action taken by the competitors
 Margins and
 Costs
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There are several pricing policies like the premium pricing, penetration pricing,
and economy and skimming pricing, the prices of the business are set on the basis
of the value delivered to the customers (ye Paul and Samuel 2018).

Comparison between cost volume pricing and pricing strategy

 It is easy to calculate as it uses a standard set of formula, this method is

flexible in nature so by changing the numbers it will be possible to identify the
changes in the variables quickly.
 It helps the management to make plans on the basis of the result of the break-
even point. The managers can predict the future expenses and how the
production will create a affect over the financial goal of the organization.
 It can assist the organization to take pronouncements on the price of the
product and the maximum and the minimum price the management can offer
15 to the customers to sustain in the competitive market.
 It also helps in the preparation of the budget as it assists in the estimation of
the volume of sales to fulfil the targeted profit. The management can prepare
a budget on the basis of the costs and the forecasted revenues at any point of
the level of production.
 Pricing strategy made on the basis of customer satisfaction looks for the need
of the customers to pay for the goods produced or services rendered by the
organization, this strategy will help to increase the volume of sales.
 The pricing made on the basis of costs give opportunity to the management to
detect the gross profit margin and costs covered.
 It allows the management to optimize the prices.
 The pricing strategy utilize the low prices to capture the market share and to
demoralize the competitors.

Conclusion
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Thus, it can be said that both the cost volume profit strategy and the pricing
strategy are the two useful management accounting tools that will aid in solving the
financial obstacles and support the business to attain justifiable accomplishment in
the future.

16

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