LO1: Understanding of Management Accounting Systems

MANAGEMENT ACCOUNTING
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LO1: Understanding of Management Accounting Systems
1 Introduction
Management accounting systems remains an approach that is primarily concerned with the gathering of financial materials from different commercial procedures such as transfers in stock, deals facts, and the deviations in rough sully expenses that fluctuate over figures with the aim of inspecting information. Management accountants therefore ensure that unbiased reports that provide facts to execute are developed for the sole purpose of making critical decisions, regulating, scheduling, and measuring the performance of an organizationADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "dropping-particle" : "", "family" : "Walker", "given" : "J.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "id" : "ITEM-1", "issued" : { "date-parts" : [ [ "2011" ] ] }, "publisher" : "CIMA Publishing", "publisher-place" : "Amsterdam", "title" : "Accounting in a Nutshell : Accounting for the Non-specialist.", "type" : "book" }, "uris" : [ "/documents/?uuid=0c07373b-0094-43df-a2ba-19609759bd52" ] } ], "mendeley" : { "formattedCitation" : "(Walker, 2011)", "plainTextFormattedCitation" : "(Walker, 2011)", "previouslyFormattedCitation" : "(Walker, 2011)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(Walker, 2011). Management bookkeeping in this case remains apprehensive in ensuring that the administrators have the evidence required in designing and observing the appropriate courses of actions for their businesses.
* Management Accounting Systems
Management accounting systems (MAS) infers to the formal structures that provide facts to the directors and executives to aid in accomplishing the goals of an organization in generating significant worth for a company’s stockholders and clients. In other words, it refers to the elements of organizations entire information structuresADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "dropping-particle" : "", "family" : "M\u00e1rquez-Ramos", "given" : "L.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Aparisi-Caudeli", "given" : "J. A.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "container-title" : "Journal of Applied Management Accounting Research", "id" : "ITEM-1", "issue" : "2", "issued" : { "date-parts" : [ [ "2013" ] ] }, "page" : "5-27", "title" : "The Impact of Management Accounting Systems on International Markets: Theory and Evidence Using the Balanced Scorecard Approach", "type" : "article-journal", "volume" : "11" }, "uris" : [ "/documents/?uuid=d850695f-39b7-4e0f-a6e8-227f446aa493" ] } ], "mendeley" : { "formattedCitation" : "(M\u00e1rquez-Ramos and Aparisi-Caudeli, 2013)", "plainTextFormattedCitation" : "(M\u00e1rquez-Ramos and Aparisi-Caudeli, 2013)", "previouslyFormattedCitation" : "(M\u00e1rquez-Ramos and Aparisi-Caudeli, 2013)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(Márquez-Ramos and Aparisi-Caudeli, 2013). Systems for Management Accounting therefore concentrates mainly on an organization following or next expenses which are connected with the formation of enterprises as well as organizational goods.
* Integration of Management Accounting Systems in Organizations
The most widely used management accounting systems incorporate the element of throughput bookkeeping, conventional cost bookkeeping, exchange estimating, and lean bookkeeping in an organization. These supervisory bookkeeping systems enable organizations to develop techniques that allow expenses to fabricate enterprises and products at the least costs attainableADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "dropping-particle" : "", "family" : "Mad\u017ear", "given" : "D.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "container-title" : "Tourism In Southern & Eastern Europe", "id" : "ITEM-1", "issued" : { "date-parts" : [ [ "2015" ] ] }, "page" : "3175-182", "title" : "Contribution of Knowledge Management To The Development Of Enterprises", "type" : "article-journal" }, "uris" : [ "/documents/?uuid=b7fb96da-2a44-4b2b-a251-ac699b269aba" ] } ], "mendeley" : { "formattedCitation" : "(Mad\u017ear, 2015)", "plainTextFormattedCitation" : "(Mad\u017ear, 2015)", "previouslyFormattedCitation" : "(Mad\u017ear, 2015)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(Madžar, 2015). Given this, organizations are in a position to track costs through regular administration of accounting systems. In other words, these systems help organizations in dispensing costs while identifying, coordinating, and assembling overhead work.
* Different Types of Management Accounting Systems
Management accounting systems indicates the costs incurred in a specific venture. Given this, the management accounting systems support business ventures and their directors to keep track of their execution strategies, an aspect that is evident in the masterminding of these systems through the inclusion of accounting periods requiredADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "DOI" : "10.1016/j.bar.2016.02.001", "author" : [ { "dropping-particle" : "", "family" : "McLaren", "given" : "J.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Appleyard", "given" : "T.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Mitchell", "given" : "F.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "container-title" : "British Accounting Review", "id" : "ITEM-1", "issue" : "3", "issued" : { "date-parts" : [ [ "2016" ] ] }, "page" : "341-358", "title" : "The rise and fall of management accounting systems: A case study investigation of EVA\u2122", "type" : "article-journal", "volume" : "48" }, "uris" : [ "/documents/?uuid=db4691fb-d834-40fc-8287-8f69fa11c54b" ] } ], "mendeley" : { "formattedCitation" : "(McLaren, Appleyard and Mitchell, 2016)", "plainTextFormattedCitation" : "(McLaren, Appleyard and Mitchell, 2016)", "previouslyFormattedCitation" : "(McLaren, Appleyard and Mitchell, 2016)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(McLaren, Appleyard and Mitchell, 2016). Management accounting systems are therefore comprised of computerized and manual records that are primarily used for recording categorizing and reporting updated data for financial management. There are different kinds of management accounting and they include:
1 Systems of Cost Accounting
2 Systems for Managing Inventory
3 Systems for Optimizing Prices
4 Systems for Job Costing
* Benefits of the Management Accounting Systems
Management accounting systems are beneficial in the sense that they have the capacity to:
i. Increase Efficiency
Management accounting systems increases organizations efficiency in its operationsADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "dropping-particle" : "", "family" : "Dyball", "given" : "M. C.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Reid", "given" : "A.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Ross", "given" : "P.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Schoch", "given" : "H.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "container-title" : "Accounting Education", "id" : "ITEM-1", "issue" : "2", "issued" : { "date-parts" : [ [ "2012" ] ] }, "page" : "145-162", "title" : "Evaluating Assessed Group-work in a Second-year Management Accounting Subject", "type" : "article-journal", "volume" : "16" }, "uris" : [ "/documents/?uuid=427e3cf9-6667-4cac-b3de-41020faa181a" ] } ], "mendeley" : { "formattedCitation" : "(Dyball et al., 2012)", "manualFormatting" : "(Dyball et al., 2012, pp.146)", "plainTextFormattedCitation" : "(Dyball et al., 2012)", "previouslyFormattedCitation" : "(Dyball et al., 2012)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(Dyball et al., 2012, pp.146). This therefore involves the use of scientific systems in the evaluation and comparison of an organizations performance.
ii. Maximizing Profitability
The use of capital budgetary tools and management accounting budget control enables organizations to easily succeed in the reduction of their capital and operating expensesADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "dropping-particle" : "", "family" : "Watts", "given" : "D.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Senarath Yapa", "given" : "P. W.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Dellaportas", "given" : "S.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "container-title" : "Australasian Accounting Business & Finance Journal", "id" : "ITEM-1", "issue" : "2", "issued" : { "date-parts" : [ [ "2014" ] ] }, "page" : "121-137", "title" : "The Case of a Newly Implemented Modern Management Accounting System in a Multinational Manufacturing Company", "type" : "article-journal", "volume" : "8" }, "uris" : [ "/documents/?uuid=7ba854d2-df2e-4d07-9d84-c18ec24198f7" ] } ], "mendeley" : { "formattedCitation" : "(Watts, Senarath Yapa and Dellaportas, 2014)", "manualFormatting" : "(Watts, Senarath Yapa and Dellaportas, 2014, pp 124)", "plainTextFormattedCitation" : "(Watts, Senarath Yapa and Dellaportas, 2014)", "previouslyFormattedCitation" : "(Watts, Senarath Yapa and Dellaportas, 2014)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(Watts, Senarath Yapa and Dellaportas, 2014, pp 124)
. This enables companies to reduce their prices and make profits
iii. Control of an Organizations Cash Flow
Management accounting systems are used by organizations to control their business’s cash flow by determining the sources of money and the manner in which the money is spent.
* Presenting Financial Information
Managerial accounting reports help in indicating the costs of specified ventures. In other words, the principles of managerial accounting support organizations help in the execution of accounting principles are required through quarterly reports, monthly reports, or everyday reports. This therefore helps organizations to analyze the manner in which it executes its functionsADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "DOI" : "10.1590/1808-057x201410810", "author" : [ { "dropping-particle" : "", "family" : "Angonese", "given" : "R.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Lavarda", "given" : "C. F.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "container-title" : "Revista Contabilidade & Finan\u00e7as - USP", "id" : "ITEM-1", "issue" : "66", "issued" : { "date-parts" : [ [ "2014" ] ] }, "page" : "214-226", "title" : "Analysis of the Factors Affecting Resistance to Changes in Management Accounting Systems", "type" : "article-journal", "volume" : "25" }, "uris" : [ "/documents/?uuid=0d734e56-9ec0-42e9-9fc2-5907a2fb3316" ] } ], "mendeley" : { "formattedCitation" : "(Angonese and Lavarda, 2014)", "manualFormatting" : "(Angonese and Lavarda, 2014, pp. 230)", "plainTextFormattedCitation" : "(Angonese and Lavarda, 2014)", "previouslyFormattedCitation" : "(Angonese and Lavarda, 2014)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(Angonese and Lavarda, 2014, pp. 230)).It plays an important management accounting has got an important role process of management by enabling the managers to lead the organization in a well-organized for conducting essential management functions like organizing, controlling, planning, coordinating, motivating and communicating.
Planning: The system for management accounting can be used without any moment of hesitation. The orchestrating technique through the association to an extra ordinary degree is stressed without practical and masterminding that drives the business to achieve the intended resultsADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "dropping-particle" : "", "family" : "Yl\u00e4-Kujala", "given" : "A.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Kinnunen", "given" : "S.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Hyv\u00e4rinen", "given" : "T.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Tynninen", "given" : "L.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Karri", "given" : "T.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Ryyn\u00e4nen", "given" : "H.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "container-title" : "Nordic Journal Of Business", "id" : "ITEM-1", "issue" : "3/4", "issued" : { "date-parts" : [ [ "2016" ] ] }, "page" : "55-75", "title" : "The state of management accounting symbolized by five clusters of companies", "type" : "article-journal", "volume" : "65" }, "uris" : [ "/documents/?uuid=7884f8de-95f7-41c3-b28c-4515493e7fcb" ] } ], "mendeley" : { "formattedCitation" : "(Yl\u00e4-Kujala et al., 2016)", "manualFormatting" : "(Yl\u00e4-Kujala et al., 2016, pp. 58)", "plainTextFormattedCitation" : "(Yl\u00e4-Kujala et al., 2016)", "previouslyFormattedCitation" : "(Yl\u00e4-Kujala et al., 2016)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(Ylä-Kujala et al., 2016, pp. 58).An industry association that uses masterminding can be able to see where it stands and what it takes to create the next course of action as has been fated.
Organizing: the systems of management accounting has got techniques which include the whole connection parts into several benefits and the cost is mainly focusing in the choice of outcomes, as it encourages measures for figuring out measures for different costsADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "dropping-particle" : "", "family" : "Steffan", "given" : "B.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "id" : "ITEM-1", "issued" : { "date-parts" : [ [ "2013" ] ] }, "publisher" : "Kogan Page", "publisher-place" : "London", "title" : "Essential Management Accounting: How to Maximize Profit and Boost Financial Performance.", "type" : "book" }, "uris" : [ "/documents/?uuid=89d56878-e1c5-467b-aca4-1206e03fb61f" ] } ], "mendeley" : { "formattedCitation" : "(Steffan, 2013)", "plainTextFormattedCitation" : "(Steffan, 2013)", "previouslyFormattedCitation" : "(Steffan, 2013)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(Steffan, 2013). It consistdifferentiating fundamentals of the established hierarchy so that bookkeeping elements of administration may be executed in a desirable way.
Coordinating: It concentrates on the need of office spending plan as well as reporting, it gives essential data that encourages association in fulfilling its unique needs.
Motivating: It entails getting immediate long time needed benefits and records of misfortune, spending plans and other necessary reports. Along the lines, administration of bookkeeping is used to motivate workers of different departments to achieve the target goals of the organization as well as enabling every member of the organization to contribute towards the shared objectives of the organization ADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "dropping-particle" : "", "family" : "George", "given" : "K. W", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "container-title" : "Collegiate Aviation Review", "id" : "ITEM-1", "issue" : "1", "issued" : { "date-parts" : [ [ "2013" ] ] }, "page" : "128-139", "title" : "Economic Modeling to Improve Estimates of the Benefits of Safety Management Systems", "type" : "article-journal", "volume" : "31" }, "uris" : [ "/documents/?uuid=bf272824-ebc9-4315-adb0-9bd9dfebc5dd" ] } ], "mendeley" : { "formattedCitation" : "(George, 2013)", "plainTextFormattedCitation" : "(George, 2013)", "previouslyFormattedCitation" : "(George, 2013)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(George, 2013).
LO2 Application of Range Of Management Accounting Techniques
* Microeconomics Techniques
Costs as established in this case are used in measuring the benefits of an organization’s objective. In this case, a steady cost infers to the costs achieved over a given duration that are unaffected by any changes. On the other hand, a variable is considered as a cost that stands out from a level of development. Representations in this case are unrefined materials and work that are incorporated in an organization’s data collecting methods. Semi-variable costs are known to contain both the settled and variable costs, with an instance of this evident in the yearly costs available in the working of a vehicleADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "dropping-particle" : "", "family" : "Capelo", "given" : "C.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Lopes", "given" : "A.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Mata", "given" : "A.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "container-title" : "Accounting Education", "id" : "ITEM-1", "issue" : "1", "issued" : { "date-parts" : [ [ "2015" ] ] }, "page" : "1-26", "title" : "A Simulation-Based Approach for Teaching the Systems Perspective of Strategic Performance Management", "type" : "article-journal", "volume" : "24" }, "uris" : [ "/documents/?uuid=296a1826-c1d4-4226-9846-65594c423c97" ] } ], "mendeley" : { "formattedCitation" : "(Capelo, Lopes and Mata, 2015)", "manualFormatting" : "(Capelo, Lopes and Mata, 2015, pp.26)", "plainTextFormattedCitation" : "(Capelo, Lopes and Mata, 2015)", "previouslyFormattedCitation" : "(Capelo, Lopes and Mata, 2015)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(Capelo, Lopes and Mata, 2015, pp.26). A phase settled cost on the other hand is defined as a cost that has been settled over a given period of development. For example, a settled cost can be evident when starting other activities that fuse utilities and compensation rates of trade executives. An instance of marginal costing is established below:
Income Statement under Marginal Costing
Income Statement
For the year Ending
31-08-2016

Details

Amount

Total

Sales


10,670,000

Less: Variable Cost:



Cost of goods manufactured

4,850,000


Variable Selling Expenses

3,00,000


Variable Administration Expenses

50,000







15,50,000




Contribution


9,50,000

Less: Fixed Cost:






Fixed Administration Expenses

70,000


Fixed Selling Expenses

1,30,000

2,00,000




Profit/Loss


7,50,000

There are two distinguishing features in cost absorption as evident in a fixed factory expense that include:
* Unit Costs
* Inventory Value
Ascertainment of Profit under Absorption Costing:
This technique of costing incorporates the following preform in the ascertainment of profit:
* Illustration 1:
Following data are collected from XYZ Company:
Normal capacity 40,000 units per month
Variable cost per single £6
Actual production of close to 44, 000 units
Sales of approximately 40,000 units @ £15 per unit
Fixed manufacturing overheads of about £1, 00,000 per month or £2.50 per unit at normal capacity
Other expenses £2, 40,000 per month.
* Prepare an Income Statement as Established in a Absorption Costing
Solution:
* Application of Management Accounting Techniques in Appropriating Financial Reporting
The elements of budgetary control and standard costing play a significant role in estimating an organization’s execution. Standard costing enables administrators to determine the deviations between genuine and standard costs. Through the use of budgetary control measures, an organization remains in a position to measure the proficiency of its employeesADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "dropping-particle" : "", "family" : "Tarantino", "given" : "A.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Cernauskas", "given" : "D.", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "id" : "ITEM-1", "issued" : { "date-parts" : [ [ "2011" ] ] }, "publisher" : "Wiley", "publisher-place" : "Hoboken, N.J", "title" : "Risk Management In Finance : Six Sigma And Other Next Generation Tech...