REPORT

Management Accounting
Managerial accounting is explained to be a process wherein financial data is identified,
measured, analyzed, interpreted, and communicated in a manner that will allow managers to use
the information to help attain the goals of the organization. To be specific, it focuses on
informing management what the current operation metrics of the business are. Usually, these
metrics focus on financial data related to costs of production and other expenses. Budgets are
also used as a means to compare the forecasted costs with the actual costs incurred, providing
managers a tool of analysis for figuring out why the budget was exceeded or not reached
(Kenton, 2019).
It should be noted that there is a clear distinction between Managerial accounting and financial
accounting. Managerial accounting, as the term states, is a form of accounting that aims to assist
managers in making decisions within the organization. On the other hand, financial accounting
focuses more on displaying the transactions recorded in a summarized manner over a period of
time, allowing a display of the financial status of the organization (Kenton, 2019). Managerial
accounting uses tools such as product costing, trend analysis, margin analysis, and budgeting
while financial accounting uses income statement, balance sheet, and cash flow statements.
Management Accounting Systems
There are several management accounting systems present which are used in common practice
today. The ones that will be discussed are traditional cost accounting, lean accounting, and
throughput accounting.
Traditional Cost Accounting
Traditional Cost accounting is the traditional form of management accounting wherein there are
two main forms of tracking cost; process costing and job order. Process costing is when costs are
allocated via the number of processes used during the production of homogenous goods as the
production process is continuous. On the other hand, job order costing is used more on cases
where individual projects are present as the costs will be calculated per project. This
management accounting system is used in cases where the costs are divided into direct materials,
direct labor and manufacturing overhead (wiseGEEK, n.d.).
Lean Accounting
Lean accounting is a management accounting system that focuses on reducing wastes rather than
only on costs. This system requires inefficient areas to be identified so that any waste costs can
be eliminated. Immediate information will need to be provided by the accountants here so that
value streams can be assessed immediately and profitability measured (wiseGEEK, n.d.).
Throughput Accounting
This accounting system is not used as commonly as other forms of management accounting
systems and focuses on accountants mainly trying to identify what are the constraints present
within an organization’s production system. It will require looking at areas where insufficient
raw materials are present, where there is lack of labor or where production systems are not able
to be fully utilized. The goal is to reduce these constraints so that more “throughputs” are
available for production volume to increase (wiseGEEK, n.d.).

Management Accounting Reporting

When it comes to reporting under management accounting, there are various reports used that are
deemed useful by managers in making decisions. One of the most common report used are
budget reports. Budget reports are reports that focus on the performance of the organization and
attempt to control costs. This is done by providing an estimated budget over a certain time period
and then comparing it with the actual performance that took place during that period (Sullivan,
2018).
Another report that is also used is the accounts receivable aging report. This report revolves more
around cash flow and discusses information such as the categories of customers based on how
long they owe money to the company. It gives insights to the collection process of the
organization as well as ensures they are keeping their debt in check (Sullivan, 2018).
Lastly, Inventory and manufacturing reports are also common reports discussed. The inventory
reports give an insight on how fast inventory is liquidated and replenished while the
manufacturing report gives an indication of the production aspect of the firm. These are able to
give information on wastage of inventory, per unit over head costs and other metrics which may
be used to help improve performance (Sullivan, 2018).
Evaluation of Benefits of Management Accounting System
Management Accounting Systems were developed to provide the management of the
organization basis on which they can rely on to make just decisions. However, there are other
benefits that come along with it.
Planning
One of the main benefits of management accounting systems is that provides aid in planning for
the future of the organization. As managerial accounting can produce reports that focus on
budgets, competitor analysis and market research, they are able to plan their operations so that
they are effective. The use of plans is beneficial as it provides the organization a layout of
activities to accomplish so that they can reach their goals (Hutcherson, 2018).
However, there is a risk of only sticking to plans as it does not account for the factors that are not
seen in financial data. This can include buyer behavior, sudden natural disasters and the lack.
Hence, only relying on plans can be detrimental if the organization is not flexible (Hutcherson,
2018).
Decision-Making
With the various reports present in managerial accounting, it is seen that they can really aid in
decision making. As the data is considered concrete since there is evidence and a basis for the
reports, it helps give insights to managers in deciding which decision is more likely to produce
the desired outcome (Hutcherson, 2018).
However, the risk of only relying on reports for decision making despite the strong foundation of
these reports is it may promote a more conservative form of decision making. Management may
choose not to take risky decisions which may yield high returns as the reports may indicate them
to be too risky for use and would instead promote a lower risk but lower reward decision. This
can create large opportunity costs for the organization (Hutcherson, 2018).
Goal Setting
Another benefit that management accounting systems provide is that they can greatly aid in goal
setting. As there is previous data on the performance of the organization, it can give an accurate
description on what the capabilities of the organization are and their limits (Hutcherson, 2018).
Although goal setting can help give a direction for the performance, there is a risk that if the
goals are not met, staff motivation and morale could decrease which could negative impact
performance.
Integration of Accounting Management systems and Reports
Accounting management systems provide the basis upon which reports can be made. As different
systems analyse different data, each system is bound to end up producing different reports when
compared to one another.
When looking at systems such as traditional cost accounting, it can be seen that the reports
associated with it are the different marginal analysis reports which give an indication of what
percentage of costs make up the level of sales or profit. This is useful when trying to analysis
how much of the sales is being spent in operational costs. However, as this mainly focuses on
comparing margins, it does not necessarily take into account the wastes that are being incurred
through inefficient processes. In the case of lean management systems, as the focus is on
eradicating waste, it is able to solve the issue faced by traditional accounting systems since
inventory is most likely to be looked into. However there is another issue that arises from this it
does not necessarily provide the same analysis of how much expenses make up the sales. This
prevents the management from identifying areas that incur large costs, mainly administrative
expenses.
Based on the above, it can be seen that choosing the right accounting management system is
dependent on the type of organization. Organisations with a greater focus on efficiency will most
likely follow a lean management system whereas more traditional organisations may use
traditional cost accounting systems.
Reference List
Hutcherson, A. (2018). The Advantages of Managerial Accounting. [online] Yourbusiness.azcentral.com.
Available at: https://yourbusiness.azcentral.com/advantages-managerial-accounting-21281.html
[Accessed 5 Mar. 2019].
Kenton, W. (2019). Financial Accounting. [online] Investopedia. Available at:
https://www.investopedia.com/terms/f/financialaccounting.asp [Accessed 5 Mar. 2019].
Kenton, W. (2019). Managerial Accounting. [online] Investopedia. Available at:
https://www.investopedia.com/terms/m/managerialaccounting.asp [Accessed 5 Mar. 2019].
Sullivan, D. (2018). Types of Managerial Accounting Reports. [online] Smallbusiness.chron.com. Available at:
https://smallbusiness.chron.com/types-managerial-accounting-reports-58384.html [Accessed 5 Mar.
2019].
wiseGEEK. (n.d.). What are the Different Types of Management Accounting Systems?. [online] Available at:
https://www.wisegeek.com/what-are-the-different-types-of-management-accounting-systems.htm#
[Accessed 5 Mar. 2019].
CASE
Case 1
DIRECT MATERIAL COSTS:
Fabric used to upholster furniture $10,000
Lumber used to build product $82,000
Freight-in (on raw materials) $3,000
$95,000
DIRECT LABOR COSTS:
Wages paid to assembly-line workers $155,500
$155,500
MANUFACTURING OVERHEAD COSTS:
Wages paid to maintenance workers $115,000
Insurance costs for factory $21,000
Utilities in factory $54,500
Factory supervisor salary $50,500
Depreciation on factory equipment $16,000
Lubricants used in factory equipment $3,000
$260,000

Case 2
Weighted Average Contribution Margine
Weighted Average Contribution
Add Sales:  
Fudge $12,000
Caramels $38,400
Popcorn $28,800
Less VE: $79,200
Fudge $9,600
Caramels $24,000
Popcorn $21,600
Divide: $24,000
No of units 12000
$2
$2 per unit
Break Even Sales volume
Break even Sales = Fixed cost/contribution margin= $14,000/2= 7,000 units
Break Even sales dollars
Fudge= Sale price x sales price= 5 x (7000 x 1/5)= $7000
Caramel= 8 x (7000 x 2/5)= $22,400
Popcorn= 6 x (7000 x 2/5)= 16,800

Case 3
Direct Materials Price Variance
Direct Materials price variance= (Standard price – actual price) x Actual quantity
= (4.75 – 5) x 2450 = - $612.5 (unfavourable)
Direct Materials quantity variance
Direct Materials Quantity Variance = Standard Price x (Standard quantity – Actual quantity)
= 4.75 x (2,200 – 2,450) = - $ 1,187.5 (unfavourable)

Case 4
Income Statement

Income Statement Variable Costing

Sales $360,000
Less Cost of sales:  
VE manufacturing cost $135,000
Fixed manufacturing overhead $225,000
Less Expenses:  
Fixed selling and admin exp $4,000
VE selling and admin exp $30,000
Net Profit $191,000

Income Statement Absorption Costing

Sales $360,000
Less Cost of sales:  
VE manufacturing cost $135,000
Fixed Manufacturing overhead $20,250
Gross Profit $204,750
Less expense:  
VE selling and admin exp $30,000
Fixed Admin and Selling $4,000
Net Profit $170,750

Value of ending inventory

 Value of Ending inventory variable
Units in ending inventory 15000
Cost of inventery:  
unit variable manufacturing cost $4.5
Total Value $67,500

Value of Ending inventory variable

Units in ending inventory 15000
Cost of inventery:  
unit variable manufacturing cost $4.5
Fixed Manufacturing overhead $20,250
Total value $87,750

Case 5
Overhead cost per blender
Traditional Costing Blender
Unit Output 1500
Overhead Costs:  
Set Up costs $5,460.0
Engineering Costs $35,280
Maintenance Costs $27,000
Total $67,740
Cost per Blender $45

Activity Costing Blender

Unit Output 420
Overhead Costs:  
Set Up costs $5,460.0
Engineering Costs $35,280
Maintenance Costs $20,250
Total $60,990
Cost per Blender $41

Cost Pool Activity Rate for Engineering costs

Cost Pool Activity Rate for Engineering
costs      
(=) Activity
Activity Cost Pool Total OH Cost / Total Activity Rate
Engineering Costs $70,980 1690 $42
CASE 1