Table of Contents
P1. Explain management accounting and give the essential requirements of different types of management accounting systems.
Cost accounting system.
Inventory management system.
Job costing system.
Price optimization systems.
P2. Explain different methods used for management accounting reporting.
Task 2 (Report)
2.1 Calculate costs using appropriate techniques of cost analysis to prepare an income statement using marginal and absorption costs (P3)
2.2 Explain the advantages and disadvantages of different types of planning tools used for budgetary control (P4)
Use of different planning tools and their application for preparing and forecasting budgets.
2.3 Compare how organizations are adapting management accounting systems to respond to financial problems (P5)
The term ‘Management accounting’ helps the managers of business organizations to evaluate a company’s performance. Appelbaum and Kogan (2017) said that management accounting is a process of identifying, measuring, analyzing, communicating and interpreting financial data in pursuit of the goals of a company. This assignment focuses on different key parts. The first part of this assignment explains management accounting and gives essential requirements of different management accounting systems. The second part of this assignment explains different methods which are used for management accounting reporting. The third part calculates the costs by using proper techniques of cost analysis to prepare an income statement by using both marginal and absorption costs. Then, the fourth part explains the advantages and disadvantages of different planning tools used for budgetary control. Finally, the last part gives a comparison of how organizations are acclimatizing management accounting to respond to financial problems.
P1. Explain management accounting and give the essential requirements of different types of management accounting systems
Appelbaum and Kogan (2017) said that management accounting is a process of identifying, measuring, analyzing, communicating and interpreting financial data in pursuit of the goals of a company. Management accounting is also known as cost accounting. The key way to prepare management accounts is to offer accurate financial information as well as statistical data to the managers to make effective decisions for a business.
Blocher (2016) said that cost accounting system, inventory management system, job costing system and price optimization system are different types of management accounting systems which are described as follows:
Cost accounting system
The cost accounting system is an effective framework that is used by business organizations to estimate costs for the products to estimate inventory, analyze the company’s profitability and control the cost (Blocher, 2016). Cost accounting is a type of accounting system that mainly aims to capture the production cost of a company by considering each of the production steps’ input costs with the fixed costs. Managers of business organizations focus on accounting data. The cost accounting system is also perceived as a significant concept in management accounting because it provides different analytical tools such as marginal costing, budgetary control, standard costing, inventory control and operating costing.
Inventory management system
Inventory management is the system of managing and controlling the ordering of a company, storage and use of different products that a company uses in its production system. Drury (2015) said that it is also a system of managing or controlling products’ quantity for sale. The key aim of the inventory management system is to recognize the current inventory level as well as to minimize the situation of overstock and understock. The inventory management system’s key functions are: a) to make the purchasing orders, b) make sales orders, packaging and shipping of the purchasing products, c) create and manage the inventory reports with the printing barcode label. The key benefit of the inventory management system is to improve the company’s bottom line by improving the accuracy of the inventory (Drury, 2015).
Job costing system
Job costing is a type of accounting system that allocates the manufacturing costs to different products. In addition, a job costing system involves the practice of gathering cost data that is related to specific products/services. Information related to the job costing system is necessary to determine the accuracy of a company’s estimating system (Drury, 2015). In addition, the job costing system focuses on the direct information labor, overhead and direct materials.
Price optimization systems
Price optimization is a system of management accounting for mathematical analysis to a company to define how the customers react to the prices of different products (Edmonds and Olds, 2013). A price optimization system also helps a company to determine prices that helps to achieve the organizational goal and business profit.
P2. Explain different methods used for management accounting reporting
Management accounting concentrates on the internal information that is mainly gathered through financial accounting. Edmonds and Olds (2013) said that management accounting relies on financial statements that are including income statements, cash flow statements and balance sheets. There are different methods that are used for management accounting reports such as cost reports, performance reports and budgets which are described as follows:
The term ‘Management accounting’ analyzes the products’ costs that are manufactured by a company. The cost report is calculated by summarizing the costs of raw products, labor costs and other costs (Edmonds and Olds, 2013). The cost reports allow the managers’ ability to observe the products’ cost value with products’ selling price. This also helps the control of the managers as well as plans the profit margin of a company.
The other method of management accounting is budget planning and preparation. A company’s budget focuses on all revenues and expenses. A company attempts to achieve its organizational goals and objectives by focusing on the budgeted amounts (Edmonds and Olds, 2013). On the other hand, the manager of a business organization considers the new vendors to buy the raw materials for saving money. Effective budget preparation helps to increase sales by minimizing expenses…………………….