Benefits Of Management Accounting System


Management accounting refers to a process of preparing reports and accounts in a company. It provides necessary information which is used for further planning and controlling decisions. In context with small organizations, this concept helps in monitoring business performance (Kumarasiri and Jubb, 2016). The present report is going to make a discussion about management accounting with its various methods like planning and measurement tools. For this purpose, Aridri is taken, which deals in manufacturing sector and engage business in hand dryer production.

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This assignment highlights use of different planning tools for budgetary controls, which further help in preparing and forecasting budget of company. An explanation about different managerial accounting reports like budget, job cost, inventory and more is also given. Along with this, an income statement is prepared on the basis of calculations of costs by using absorption and marginal costing methods. A comparison is also made to show how companies under small sector use management accounting system for resolving financial issues.    


P1 Management accounting and its different types

The concept of Management accounting can be defined as process of preparing reports by which performance of business can be analysed. It provides timely and accurate information to managers of company so that they can take short-term and long-term decisions accordingly. Moreover, it determines, analyses, measures, interprets as well as communicates information that makes an organisation able to achieve their set goals. In an organisation, management accounting plays different role like forecasting the future and cash flows, making decisions, understanding performance variances and analyse rate of return (Pavlatos, 2015). In context with Aridri, as it deals business in small sector of UK so, it is necessary for managers of this company to timely prepare such reports. It will help in managing accounts and preparing budget in appropriate manner.

Aridri is considered as first hand dryer manufacturing company in the world, which receives Quiet MarkTM  from Noise Abatement Society. It uses unique and latest technologies in production field which extend lifespan of hand dryer products. So, to enhance and create more value of business, this enterprise uses management accounting system. In this regard, an explanation of different types of management accounting system and its importance is given as beneath:

Price optimising system: This system is generally used for determining how demand of a product will fluctuate at different-different price strategies (Christ and Burritt, 2017). It is also used to control price of raw materials and other resources for increasing efficiency of production. Therefore, managers of Aridri used this system of management accounting to evaluate how to retain loyal customers. Moreover, it also aids them in determining pricing structures for initial, promotional and discount pricing. Along with this, pricing optimisation also assist Aridri in selling short life-cycle products first which are subjected to seasonal and fashion trends.

Job costing system: This system of management accounting helps in assigning manufacturing to each unit of production (Banker and et. al., 2014). But it is generally used when manufactured goods are significantly different from each other. Managers of Aridri used this system for keeping track record of cost of each job and maintaining data as well. It includes following procedure:-

  • Receive enquiry-For placing order, customer used to look out first on quality of material and price rate.
  • Estimate price-Job costing is usually done by accountant who estimate price of each unit by identifying taste and preference of customers.
  • Order receive-If consumers give assurance for price, then they order will be placed accordingly.
  • Production order-It is placed for starting the process of production.
  • Cost recording-Each and every aspect related to cost is recorded in production process.
  • Completion of job-After completion, report will provide to accounts department of company for final costing of job.

Cost accounting system: This system provides a framework by which Aridri can estimate cost of different products for analysing profitability and inventory valuation. In manufacturing sector, different types of cost contribute for producing an output. Therefore, this concept involves two methodologies of cost accounting that are- job and process costing.

Inventory management system: This concept is concerned with management of stock and inventories in an enterprise. Therefore, organisational process of a company can be integrated by using inventory management system. It will help in achieving efficient and effective flow of inventory. In context with Aridri, it uses this management accounting system with aim to generate high return profitability by minimising the total cost of inventories. This system of management accounting includes many methods like LIFO (Last in first out), FIFO (First-In First-Out) and prioritise with ABC. Managers of Aridri use ABC analysis in order to give more attention on those products which give more profitability to business. In this era, products of A category required more and regular attention because impact of them is financially significant. Similarly, B and C category include moderate and low-value products respectively which have a high frequency of sales.

P2 Methods for management accounting Reporting

Accounting reports are most crucial part in business which helps in determining how company is performing. This concept assists small organizations to monitor the performance of business (Jack, 2015). In this regard, managers of a firm can prepare different reports either in quarterly, weekly or monthly manner. It will help in getting accurate and reliable statistical information through major decisions can be taken. In context with Aridri, different types of management accounting reports and their benefits for business are discussed in following manner:-

Budgeting report: This report sets out the plan for analysing performance of different departments and control costs. Estimated budget of a company is usually based on actual expenses. So, managers of Aridri design this report to analyse and compare how close budgeted performance of business during a financial period was to the actual one.

Job cost reports: It is concerned with determining expenses, costs and profitability of each job in manufacturing process. This report provides crucial information to a company about its current status of a particular job. As Aridri deals in manufacturing field and use a wide range of raw materials for producing high quality of hand dryer products. So, using job cost report, it can control addition expenses so that efficiency of production can be increased.   

Inventory and manufacturing report: This kind of management accounting report is generally used by manufacturing and construction companies (Smith, Brännström and Jansson, 2015). It contains information about labour cost, wastages and per unit overhead costs. Therefore, employers of Aridri prepare this report to see opportunities by which they can make improvement in manufacturing process.

M1 Benefits of management accounting system



Price Optimisation System

Since price is considered as the most adjustable element in marketing mix (Joshi and Li, 2016). So, using this method of management accounting, Aridri can outline behaviour of customers with different level of pricing.

Job Costing System

Integrated this system in business, managers of Aridri can access the expenses incurred on specific job. Through this process, they can develop strategies for controlling cost in better manner in future.

Cost Accounting System

This concept allow managers of Aridri to fix price of each products on the basis of production cost.

Inventory Management System

Using this system, Aridri can achieve productivity and efficiency in production by maintaining stock of inventories.  

D1 Critical evaluation on management accounting report integrated within organisational process

Types of reporting

Integrated within organisational process

Budgeting Report

By preparing this report, managers of Aridri can create a path by which set goals and objectives can be accomplished in given span of time.

Job Cost Report

This report helps in reducing and minimising overall cost of p

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