Advanced Management Accounting

This document provides an overview of advanced management accounting, including the purpose and presentation of financial information from a stakeholder perspective, different types of accounting microeconomic techniques, the concept of variance analysis and its importance for organizational budget control, and how external and internal factors impact management accounting.

ADVANCED MANAGEMENT
ACCOUNTING

Contents
INTRODUCTION...............................................................................................................................3
TASK 1.................................................................................................................................................3
P1 Purpose and presentation of financial information from stakeholder perspective.........................3
TASK 2.................................................................................................................................................5
P2 Evaluate the different type of accounting microeconomic techniques in application to support
organisation.......................................................................................................................................5
TASK 3.................................................................................................................................................6
P3 the concept of variance analysis and its importance for organizational budget control................6
P4 Analyse the actual and standard costs to control and correct variances........................................7
TASK 4.................................................................................................................................................8
P5 How external and internal factors changing the business environment impact upon management
accounting.........................................................................................................................................8
CONCLUSION..................................................................................................................................10
REFERENCES....................................................................................................................................11

INTRODUCTION
Management accounting is become a crucial element subject to managing and
operating the business. This is considered as an internal part and section of business which
assist mangers and accountants to manage departments and section of organisation, this
report is prepared to understand the dynamics of advanced management accounting system
subject to operating and management of business operations (Watts and McNair-Connolly,
2012). Purpose and presentation of financial information from stakeholders prospective
defined in this context. Various type of accounting microeconomics techniques in application
to assist organisational strcurure explained briefly.
Variance analysis and its importance subject to making budgets elaborated in
organisational context. Actual and standard cost is defined in this context with the
environmental impact upon management accoutring also defined in this context. How
external and internal factors changing the business environment impact upon management
accounting.
TASK 1
P1 Purpose and presentation of financial information from stakeholder perspective
Form the past years it is observed that the rules and regulations regarding financial
representation has become more authenticated. Professional accounting organisations are
becoming the part of legalised accounting format and structure. ISAB, European commission
are authorities which provides a basis legal structure subject to presenting financial
information to stakeholders of organisation and outer parties. Accoutring and financial
presentation provides overview and vision of organisation that where the organisations stands
and where to go. It makes accounting credibility, tangibility and credibility of organisation.
In organisational context stake holders are the persons which retain significant interest
in the growth and development of organisation. These are the parties which has some certain
needs and requirement in terms of financial and non-financial interest. Putting the interest of
stakeholders first is one of the essential retirement of organization. Because these are the
person who only remain responsible for sustainable development and growth of organisation.
Presentation of financial information become more important and crucial task for
organisations for stakeholders. Stakeholders can be found in various form such as share
Purpose of financial information and presentation
Financial reposing is one of the essential aspect within the organisational context.
Financial information not only remain essential for internal use of business but also remain
important for stakeholders of organisation too. Stakeholders interest is also plays vital role in
presenting financial information and financial projection of an organisation. To provide
accurate information and data subject to financial growth and development of organisation is
one of the key responsibility and objective of financial presentation (Tan and Lau, 2012).
Presenting financial information for stakeholders is one of the typical and complex task for
managers and Accountants because it contains large responsibility and credibility subject to
presenting financial statements and financial reports. Any kind of mistake and
misrepresentation may lead organisations towards declining path and may lose the faith of
organization.

Building install communication and shared with stakeholder’s organisation is one of
the key objective of financial representation. Making financial records and presenting
financial information is also one of the key aspect in organisational context. Financial
representation may affect the region in terms of making the main aspects which remain
associated with the financial projection and credibility of organisation. To attain stake
holder’s interest and make accounting viability of the organisation in effective and optimum
manner. Purpose of financial representation can be bifurcated in following aspect’s;
To Build credibility: there are to major characteristics remain associated with reporting task,
first is qualitative and second is quantitative. These concepts remain based upon concepts and
the prospection in respect of presenting financial information to stakeholders of organisation
(Jakobsen, 2012).
To Make accoutring structure viable: this is also one of the major purpose of
presenting financial reports in front of internal stake holders. It helps to make the
organisation’s structure flexible by gathering interest of employees and managers of
organization.
Reliability: it contains the observation in respect of presenting information by
following all the legal structure, legislation and terms. Which policies and structure is being
used is disclosed in front of stakeholders.
Intangibility: this objective remains associated with representing information and
details in terms of complex business structure which contains some technical knowledge and
subject.
Financial information presented for stakeholders
Cash flow statement: this statement contains the information related to cash. How
much cash rotated during the year or a particular duration is recorded in this statement. This
information remains important for the investors subject to analyse the liquidity and flow of
cash for to give credits and manage the operations. Information which received form this
statement remains essential to analyse the requirement of cash in long term and short-term
perspective. This is not a single hand procedure it contains a logical and regional aspects
while preparing and presenting financial statements to stakeholders and managers.
Income statement: this is one of the main financial statement which helps to
understand the profitability of organisation. With the help of this statement stakeholders be
able to determine the profit and earning structure.
Financial position statement: this statement helps to analyse the financial
performance of organization. Information which are presented through this statement remain
essential for both the internal and external stakeholders of organisation. Bank financial
institutions and firms remain associated with analysing the aspects and managing the
resources with the help of financial position statement. This statement basically defines all
the assets and the liabilities in a single format (Humphrey and Miller, 2012).
Change in equity: this is also one of the essentials aspect in terms of analysing
change in equity of organisation. Financial projection and analysing the performance depends
upon capital structure of organization. These statements contains shareholders fund, reserve

and surplus, security premium and details in terms of analysing performance also considered
in change in equity statement.
In summarised way it is seen that the different stakeholder groups needed different
financial information and presentation. Not all the aspects are considered in segment.
TASK 2
P2 Evaluate the different type of accounting microeconomic techniques in application
to support organisation
Microeconomic techniques in management accounting
This is one of the essential aspect in respect of analysing the performance of
organisation these are the main concepts which are considered in manage met accounting
system. There are type of techniques which are used in management accoutring as
microeconomic costing techniques;
Cost volume profit: cost volume and profit are a concept which is considered as essential in
respect of understating. A perfect combination of cost volume and profit helps accountants
and managers to make strategies and plans for generating income. This is one of the effective
and optimum technique in terms of analysing the profit margin and cost for production. This
technique is centralised around three major aspects such as margin of safety, break even point
in units and breakeven point in sales. There is a particular aspects and essential factors remain
associated with analysing the data and making profitability for better growth and
development (Grabner and Moers, 2013).
Breakeven analysis: this is an analysis which is based upon contribution. These
analyses correlate the fixed cost and contribution. Break even analysis helps to analyse the
optimum requirement of production units for making the optimum sales results. This is one of
the essential aspect considered effecytive subject to control the wastage scrape and the values
which remain essential subject to enhancing profitability and productivity.
This is basically analysed with the help of contribution per unit and contribution
margin. Contribution is calculated as per following formula
Sales – variable cost = contribution and contribution margin is analysed with the help
of sales and contribution = (contribution / Sales) *100
Flexible budgeting: this is the budget which is basically helps to analyse cost of
further events and transactions. This budget is prepared in such a way that there if any
incremental changes occurred dusting the year can be adjusted at the time. This basically
remains associated with analysing potential suppliers and customers in terms of managing the
cost and profit. Budgets provides a pre occuriong cost for upcoming years and time.
Cost variance: this is also one of the essential microeconomics technique which
helps to analyse the actual cost and standard cost. There is a difference and variances are
analysed by comparing the difference between the actual cost incurred in last year and
standard cost occurred in future. If actual cost remain less than standard cost then it is called
as favoiurable variance and the if actual cost is more than the actual cost is considered as
adverse result.

Cost allocation: this technique remains associated with the allocation or divination of
cost at different cost centres. Such as allocation of direct cost depends upon manufacturing
and production cost. This is one of the complex task in respect of managers and accountant
because they have to identify the relevance of the particular department and section.
Capital and capital budgeting
Capital budgeting is a technique which is used in organisational context subject to sort
out capital and business plans for better effectiveness and sustainability. This costing
techniques is also considered essential and plays natal role in decision making process. There
are type of investment appraisal techniques are used to identify best investment options and
plans for better organisational growth and development (Fullerton, Kennedy and Widener,
2013).
There are types of investment appraisal techniques are made which helps to analyse
the sustainability and relevance of capital investment. These helps to reduce uncertainties and
complex business situations and equations. Capital budgeting is a process of analysing short term
and long term and short-term capital investment.
NPV (Net present value): this is one of the commonly used investment appraisal
techniques which helps to analyse the net present value method of capital investment. This is
used with the help of cash inflows and the initial cash invested within the operations and
management. the difference between future value and meet present value is considered as net
present value of capital investment. Net present value is calculated by product sun of net
present value factor and outflows. It is calculated as per following formula;
NPV= ∑ {After-Tax Cash Flow / (1+r)^t} – Initial Investment
IRR (internal rate of return): this is considered as an internal part of the investment in which all
the essential aspects are considered subject to evaluate the profitability and comparability of capital
investment. This is the one of the capital budgeting metrics which is used to evaluate the cost of
investment by considering internal factors of change. It is a method which tells where the internal
rate and net present value is equal to zero.
DCF (Discounted cash flow): this method is basically used to analyse the value of project, task,
capital projects and business expansion plans. A discounted rate of return is taken to calculate the
discounted cash flow. This is one of the valuable method which is used to estimate and measure the
future opportunities for capital investment. This basically remain associated with the decreasing the
value of net cash outflows and inflows for better understanding. This is calculated with the help of
discounted cash flow.
Payback period: this method provides an opportunity for better growth and sustainable of
investment made on particular project or section. It assists mangers and accountants that how
much time it will take to recover the amount incurred on capital investment (Ernstberger, Stich
and Vogler, 2012).
TASK 3
P3 the concept of variance analysis and its importance for organizational budget
control
Variance analysis as a concept and a technique

This is the qualitative technique of analysing the difference between the planned and
actual behaviour. This analysis is basically used to maintain and control the overall
operational and management cost. It is considered by the example such as £ 10000 is
budgeted as a sales figure for the year of 2018 but an actual cost was recorded as £8000. Now
the variance yield is calculated as the difference of £2000. It is better understandable on
variance analysis at trendline. There are type of variances used in variance analysis technique
like purchase price variance, labour cost variance, variable hover head spending variance and
fixed variance.
Negative and positive variances: there are two results can be found with te analysis of variance
analysis such as positive and negative variance. If actual results remain more then the budgeted
results then it is considered as the negative variance and if the budgeted variance remains high then
the actual results then it is considered as positive variance (DRURY, 2013).
Controlling and correcting variances: this is basically used to analyse the
difference and identifying the difference creating factors. By analysing the differences and
reason precautions can be taken on time to control cost. With the help of variance analysis
there is a report prepared called as variance analysis report. This report is use to take
important decisions and decision-making process. [
Integrating variance analysis into budget monitoring across an organisation: this
is also one of the essential aspect in terms of analysing the difference and figure out the
result. These results are used in making important strategies and plans in order to make
accurate budgets and policies.
Schedule variance vs cost variance
Schedule variance is basically used to keep the project on schedule. It
basically helps to make schedule and plan for better effectiveness of task and projects.
It assists managers and accountants to track the project schedule and keep align the
cost allocation process. It is calculated as per following formula;
Schedule Variance = Earned Value – Planned Value
It is also considered essential in terms of approving the budget and complete
the task on time. It is observed that excess estimation of budget is not good for stakeholders
and organisation too. It mainly deals with the budget prepared for a particular project.
Cost Variance = Earned Value – Actual Cost
P4 Analyse the actual and standard costs to control and correct variances
Actual Costs: It refers to the actual amount paid or incurred in order to acquire an asset. It is an
accounting term that is mainly taken into account in order to determine actual amount of money
paid by business owner to acquire a product or assets. This cost either be past, historical or present
cost of the product. In simpler words, it is kind of costing methodology where the actual cost
incurred are used to determine the total cost of the production or the total cost of final product. It
includes the cost of raw material, overhead expenses and labour cost for the particular accounting
year. It is one of the simplest and most common method to taken into consideration by companies
as it mainly works on computing actual cost and does not need any pre-planning or any pre-defined
standards (Driouchi and Bennett, 2012). For example: For a plant producing pencil, company
needs to take into account factors like total working hour consumes, overhead cost, raw material
cost so to figure out actual cost of one pencil or total pencil

How actual cost is determined:
Actual Direct Cost Actual cost rates* Actual quantities used
Actual Indirect Cost Allocated Indirect Cost Rates*Actual Quantities
of the Cost Allocation Bases.
How it is different from estimated and standard cost:
Actual Cost Estimated Cost Standard Cost
It determine actual cost after
evaluating each and every
aspect related with acquiring a
new asset.
It presumes what will the total
cost
It focuses on “What should be
actual cost”
It is flexible in nature as it
depends upon the cost of
other factors raw material,
overhead, labour etc.
It is also flexible in nature and
changed at every change in
particular situation.
It is more stable in nature
It can only be computed once
the cost of another factor is
determined
It can be taken into account in
every situation
It can only be used once the
total cost of data is available
Standard Cost: It can be defined as an estimated expense that normally takes place or occurs at the
time of producing a product or performance of service. In simple words, it described the total sum of
money a business will have to spend in order to produce a product or perform a service. It is also
referred as present costs because it is mainly computed on the basis of management and statistics
experience (Meaning of managerial account, 2017). These costs are often used as target costs
and are normally generated from analysis of historical data. Standard Cost always vary from actual
costs because every time situation has some unpredictable factors.
How does it determined: (direct material+ direct labour + Overhead costs)*Price
Rate*Quantity Hours= Standard Cost.
How estimating and standard costs does results in variances: A variance is the difference that occurs
mainly between actual cost incurred and the standard cost against which it is measured or analyzed.
It can also be used so as to measure the difference between actual and expected sales of a particular
company. Thus, it can be used to evaluate the performance of both expenses and revenues.
Generally there are two type of variances that can be generated from a standard cost are discussed
below:
Rate Variance: It is also known as price variance as it compute the difference between the actual or
real price paid for something and the expected price and then multiplied by the actual quantity buy
or purchased. It is mostly used to measure actual cost of direct labour in comparison to the standard
cost of direct labour (Chen, Kök and Tong, 2013).
Volume Variance: It is the difference between actual quantity sold and the amount
budgeted, multiplied by cost per unit. If it is related with sales of products then it commonly
referred as sales volume variance, if it is related with direct material it is known as material
yield variance and lastly if it is concerned with application of overhead, then it is known as
overhead efficiency variance.

TASK 4
P5 How external and internal factors changing the business environment impact upon
management accounting
Internal and external analysis techniques
An organisation’s operations and management effect by internal and external
environmental factors which influenced the growth and development of organisation. These
factors understandable as further
External environmental factors
 Technical dimensions: Advancement new technology and new dimensions are the
aspects which are considered in technological factors. Basically these factors are
considered favourable in respect of organisation because it enhance productivity and
performance of organisation
 Economical dimensions: these factors basically remain associated with economic
growth and development of organisation. Inflation rate interest rates and
unemployment rate are the main aspects which are considered in economic factors
which affect overall performance of organisation and growth of organisation.
Socio culture: Moral values Trends demographic conditions are the aspects which are considered in
social culture factors (Cabantous and Gond, 2011). This environmental factor basically helps to
analyse the trend of product and Services within the Nation or a particular region.
 Political dimension: This is also considered as a General and via mental factor of
external environmental factor. Business laws, government rules and regulations
policies are the part of this external factor which influence management and
operations of organisation.
 International dimension: Global business environment, culture and product and
services nature are the part of the factor. At present there is a vast opportunities are
found at international or global business environment.
Internal environmental factors
 Competitors: Price of substitute products and services competitive business
Strategies and plans are the part of this internal environmental factor. This internal
factor basically helps to analyse the customer interest towards substitute product and
services.
 Customers: Quality product and services with effective Customer Management is
one of the internal aspect of this factor. Customer satisfaction and services directly
impact on the growth of product and services of organisation.
 Suppliers: These are considered as a party who supply goods raw material and basic
products to manufacture goods and services. Good and effective relationship with
suppliers lead organisation towards better communication and connectivity.
Owners: these are considered as shareholders and business partners. These partners contain some
specific interest in the growth and development of business. These are the only person who put
capital with in business (Ball, 2013).
 Employees: This is also considered as a work force which helps to manage and lead
operations and management of an organisation. By providing better facilities at
workplace for effective performance of employee’s employee satisfaction is tried to
achieve.

CONCLUSION
This report is prepared to analyse the concept of advanced management accounting.
Purpose for developing and presenting financial information is also defined in this context.
Use of management accounting techniques to support the organisational structure is also
defined in this context. Standard and the actual costing system are also discussed in this
context. Capital and capital budgeting techniques are also defined with effective management
and operation subject to control cost and how a changing the business environment impacts
on management accounting system is defined in this context. Internal and external factors
which are responsible for changing the business environment impact also discussed briefly.

REFERENCES
Books and Journals:
Watts, T., and McNair-Connolly, C. J., 2012. New performance measurement and
management control systems. Journal of Applied Accounting Research. 13(3). 226-
241.
Tan, S.L. and Lau, C.M., 2012. The impact of performance measures on employee fairness
perceptions, job satisfaction and organisational commitment. Journal of Applied
Management Accounting Research, 10(2). p.57.
Jakobsen, M., 2012. Intra-organisational management accounting for inter-organisational
control during negotiation processes. Qualitative Research in Accounting and
Management. 9(2), pp.96-122.
Humphrey, C. and Miller, P., 2012. Rethinking impact and redefining responsibility: The
parameters and coordinates of accounting and public management
reforms. Accounting, Auditing and Accountability Journal. 25(2). pp.295-327.
Grabner, I., and Moers, F., 2013. Management control as a system or a package? Conceptual
and empirical issues. Accounting, Organizations and Society. 38(6-7). 407-419.
Fullerton, R. R., Kennedy, F. A., and Widener, S. K., 2013. Management accounting and
control practices in a lean manufacturing environment. Accounting, Organizations
and Society. 38(1). 50-71.
Ernstberger, J., Stich, M., and Vogler, O., 2012. Economic consequences of accounting
enforcement reforms: the case of Germany. European accounting review. 21(2).
217-251.
DRURY, C. M., 2013. Management and cost accounting. Springer.
Driouchi, T., and Bennett, D. J., 2012. Real options in management and organizational
strategy: A review of decision‐making and performance implications. International
Journal of Management Reviews. 14(1). 39-62.
Chen, L., Kök, A. G., and Tong, J. D., 2013. The effect of payment schemes on inventory
decisions: The role of mental accounting. Management Science. 59(2). 436-451.
Cabantous, L., and Gond, J. P., 2011. Rational decision making as performative praxis:
Explaining rationality's Éternel Retour. Organization science. 22(3). 573-586.
Ball, R. (2013). Accounting informs investors and earnings management is rife: Two
questionable beliefs. Accounting Horizons. 27(4). 847-853.
Online
Meaning of managerial account, 2017. [Online]. Available through: <
https://www.investopedia.com/terms/m/managerialaccounting.asp>.