Management Accounting Practices and Tools

The provided project report explores the concept of management accounting, its importance in organizational performance, and different types of management reports. It also discusses various planning tools used in budgetary control and techniques to handle financial problems such as late payments by clients and unexpected expenses.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Concepts of various types of management accounting systems and their application..........1
P2: Different types of accounting reporting method...................................................................3
M1: Different benefits of using management accounting system...............................................4
D1: Critical evaluation of reporting methods and accounting system.........................................5
TASK 2............................................................................................................................................5
P3: Costing methods used for computing net profitability..........................................................5
M2: Analysis of various types of management accounting techniques.......................................7
D2: Critical evaluation of interpretation of income statement....................................................8
TASK 3............................................................................................................................................8
P4: Advantage and disadvantage of using planning tools to control budgets.............................8
M3: Analysis of the planning tools............................................................................................10
TASK 4..........................................................................................................................................10
P5: Comparison with other organisation about the financial issues..........................................10
M4: Analysis of the financial issues..........................................................................................11
D3: Critical evaluation of planning tools...................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
In the present scenario, managers of an organisation are facing various issues regarding
finance related matter because of ineffective management accounting system. It is associated
with providing timely financial and numerical data to business managers so that they can easily
be able to make short or long term decisions. The primary motive of using accounting system is
to maintain and control proper balance among the various financial statements. Basically, it
would be easy for “Airdri company” to record, summarise and evaluate different data into their
respective format. This will be easily helpful for managing their entire business transaction in
effective management of transaction of the company (Amoako, 2013).
This project report aimed at evaluating various types of accounting and reporting system.
Apart from this, use of costing system in calculating net profit for the company is done
effectively in this report. Along with this, use of planning tools is controlling budgets are also
examining clearly. At the end of the report, analysis of all finance related issues and measure to
overcome them are discussed properly.
TASK 1
P1: Concepts of various types of management accounting systems and their application
In every business organisation, it has been seen that most of the business whether operating as
small or large in working with the motive of earning maximum amount of earning from their
available resources. Management accounting is the one which is based on effective presentation
of financial data from the use of accurate financial system in order to operate business
accordingly. The owner of the company need to follow certain roles and responsibilities with the
help of using effective policies and regulations. It is basically associated with the accounting
method, tools and techniques that coupled with the increasing worth for the company by the help
of valuable resources. Statistical analysis of the statements is required to be done that can be
crucial part of the management in future planning and operations. Accounting is the most
valuable data system that is related with some kind of process that can examine, measure and
analysing the economic data of Airdri company (Brewer, Sorensen and Stout, 2014). It is
associated with the evaluation of all kind of transaction that is done within the company to have
specific results that can lead to achieve maximum possibility in coming period of time.
1

Definition: Management refers as effective aspects which is considered as effective
branch of accounting that can deliver particular data regarding recording, summarising,
evaluating and communicating with the upper level of the management. It would assist in
effective administration to perform their day to day operation within an organisation.
Significance of MA:
Formulation of plan: It has been seen that planning is one of the essential part of any
organisation. It can be used to attain every objective those are set by Airdri. With the help of
management accounting system manager can easily able to prepare statements according to the
plan.
Easy to make decision: The department of Airdri can take specific decision in positive
manner in respect to gain valuable results in near future time.
Types of management accounting system:
Cost accounting system: It is said to be framework which is used by Aridri to estimate
the cost of their products for the purpose of analysing profitability, inventory valuation and
controlling cost. As it is much more difficult task for the manager to estimate accurately the cost
of a one unit of production. Its goal is to advise the management on the most appropriate course
of action that depends on the cost efficiency and proficiency. There are various types of cost that
is needed to be taken into account such as normal, standard and budgeted (JOSHI and et. al.,
2011).
Inventory management system; It refers as one of the reliable system which is used by
Airdri for the purpose of analysing the overall management of their stock that are kept by the
company. On the other hand, it seems to be effective procedure that looks after the maintenance
of stock items, whether those products are vital for the Airdri. It is basically associated with the
manufacturing sectors where there is requirement of various work orders, bill of items as well as
other production related invoices. There are specific tools those are required to be taken into
account such as FIFO, LIFO and AVCO.
Price optimisation system: This has been analysing that proper utilisation of resources
can lead to generation of maximum outcomes for the company. All those products that are
manufactured by Airdri can be used in areas of pricing that can used to provide crucial
application associated with the cost of the products. It is related with numerical analysis that is
done through the company to evaluate responses of client after using the prices of products and
2

services. They are basically associated with the best possible prices selection which can be
predict total revenue incurred from the total sale of goods.
Job costing system: It refers as effective process which is taken into considered for
assigning cost which are incurred during a specific job perform during the time. This seems to be
wide term which aimed globally in manufacturing sectors. Airdri can easily be able to analyse
their one unit cost by the help of using batch costing, standard, process and product costing
(Klemstine and Maher, 2014).
P2: Different types of accounting reporting method
In most of the manufacturing or services sectors, it has been viewed that in the absence of
ineffective accounting reporting they are not being able to generate sufficient amount of profit
during the period of time. In order to deal with overall implication those are affecting the overall
growth of the company. In would provide huge opportunity to all department that can held
responsible for delivering particular data regarding the internal and external factors. Reporting is
simply said to be recording of all data that collected by the company during a financial year
(Lim, 2011). On the basis of overall performance of the company, managers or financial account
can prepare reports to make future decision. Most of the shareholders or investors tend to uses
these reports to analyse the financial position of Airdri and make their valuable investment
decision that are helpful in future for earning maximum amount of profit. In the effective
formulation of report, the role of accountant is more important as they are liable for any changes
or entries that are made by them while analysing the performance of the company.
In accordance with attaining maximum growth opportunity, it is vital for the manager to
collect all the data which is real and accurate for the making effective decision. Positive use of
accounting report includes different role and responsibility to manager that can help in most
critical situation while preparing any specific reports. The main motive behind accounting
reporting is to move the company on right track. The Airdri need to prepare reports by taking
help from the different statements such as profit and loss, balance sheet and changes in cash flow
statements. There are various types of accounting reporting system which would be crucial for
the department to record essential data regarding the Airdri overall performance. Some of them
are covered below:
Performance report: It is more crucial activity that is associated with the communication
administration of the project (Tessier and Otley, 2012). It more valuable for collecting and
3

disseminating different elements schemes, proper utilisation of resources and overall estimation
of future growth. A yearly performance reports can be used to deliver for each employees of
Airdri for the aim of analysing their work performance. It will assist them to examine, whether
they are working effectively in the given period of time.
Inventory management report: This reports is basically based on recording of total stock
position, whether opening or closing inventory hold by Airdri. Basically, these reports are overall
summary of items that are related with business, industry and organisation. It used to provide a
comprehensive account of inventory or its supply in different location. They can be mentioned in
several forms and lengths. It has been found that a good and simple report must show great
strength for the inner potential of the company. There are certain techniques which are needed to
be taken into account such as EOQ, Inventory turnover ratio and ABC costing to analysing the
reports.
Account receivable report: It has been said that list of unpaid customer invoices as well
as unused credit memos are mentioned under this report. These particular statements are
considered as primary tool which would be used through collections personnel to analyse whose
invoices are remain overdue for payment. This aging report is the primary tool used through
overall collection of personnel to analyse which invoices is remaining overdue for longer period
of time (Van der Stede, 2015). Account receivables is one of the payments which the company
would be from their customers and have overall purchase their goods and services on credit. The
amounts of a company which is having right to collect amount because, it would have sold their
goods and services on credits.
Job cost report: it refers as that reports which will be produced by the company to
determine the total cost they are incurred on the production of one units. The report list each job
details that an individual is working on and prepare list of total cost that are levied on last period.
Under this, each job cost is being broken into various categories such as labour and material cost.
By the help of this, overall profitability level of Airdri can easily be determined to each job
number.
M1: Different benefits of using management accounting system
From the above discussed various types of accounting system that can be helpful in
attainment of future goal of an organisation. They all are equally beneficial for Airdri company
in respect to manage and organise resources at the given period of time.
4

Costing accounting system can assist in evaluating cost in different situation by using
certain tools and costing system. Analyse the selling prices in production process.
Inventory management system can be beneficial in improve the accuracy of inventory
orders and create maximum safety for keeping warehouse in control.
Price optimisation is another important system that can help the company to determine
their overall perception of clients.
With the help of Job costing system proper accessibility can be analysing towards the
financial condition of Airdir in manufacturing the products.
D1: Critical evaluation of reporting methods and accounting system.
According to Zoni, Dossi and Morelli, 2012 accounting system and reporting both are
directly related with one another. By the help of these two, investors can easily be able to get all
their essential information about Airdri business. It is vital for the accountant to make reliable
data regarding integrating about the system. As in case all the statements of are recorded by
using proper accounting systems then manager can easily be able to proper reports without
facing any kind of difficulties in making future decision. Account receivable reports can help
Airdri to determine total time needed to receive their balance amount. By the use of inventory
reports, Airdri can examine position of stock kept by the company.
TASK 2
P3: Costing methods used for computing net profitability
In the production process, most of the company is facing issues regarding the cost they are
incurring during the manufacturing time. In accordance to this, manager use to collect essential
value of raw material or other crucial requirements from the concern parties. These are all taken
into account for the production of particular products within an accounting period of time. It used
to play one of the crucial in operative processes of business action. In Airdri, cost that is taken
into consideration or proper acquisition in which total amount of value would be required for
expanding in relation to attain more reliable results in near future. There are various types of
costing methods that can be used for the purpose of computing total net profit of Airdri. Some of
them are given below:
Absorption costing: It is said to be specific kind of costs that are generated on the
manufacturing of product and services of Airdri. It would consist of both variable and fixed cost
5

during the time of production process. It is also termed as full costing because of having both
variables. In respect to the marginal cost, this seems to be more effective method that can be
used to absorb with each cost those are either associated with fixed or variable. It seems to be
one of the best method that can deliver reliable results in coming period of time so that future
targets can be attaining more efficiently (Absorption costing, 2018).
Marginal costing: It would be analysing as the most reliable costing tools and techniques
that can be taken into consideration at the time of production process. It consists of only variable
cost rather than fixed cost as, it gets write off at the time of calculation of net profit. It has been
analysed that company can get maximum benefit with the use of this particular costing method
as most of the decision are made on the basis of this costing only (Lavia López and Hiebl, 2014).
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue 33000
Marginal COGS 9600
Production 12800
closing stock 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Computation of net income by using absorption costing method:
Particulars Amount
Sales 33000
COGS 14025
Gross profit 18975
Selling & Administrative expenses 3300
Net profit/ operating income 15675
Break even analysis: It is said to be one of the reliable point at which revenue generated
by airdri is equal to expenses incurred during the period of time. It is a financial calculation that
has been used to determine the overall number of products a company is selling during the period
of time.
A. Total number of product sold
Sales in units 40
6

Variable costs 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. Calculation of breakeven point in accordance to sales revenue
Sales 40
Variable costs 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
c. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: It is basically said to be difference among intrinsic value of stock and
their market cost. In case of breakeven analysis, from the discipline of accounting is basically
related with the margin of output generated from the sale of products.
d. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Total : Total sales – BES 300
Margin of safety 37.5
M2: Analysis of various types of management accounting techniques
There are various basic techniques of effective management accounting which are all
surrounded with proper planning and budgeting. It will assist in overall attainment of long as
well as short term aims of Airdri. Marginal costing is one of the techniques which can provide
more accurate results to the company. While, another is related with standard costing on which
company can make their future plan for production process. There are some many other
techniques which will be used by the company for the purpose of attaining maximum outcomes
in coming period of time.
7

D2: Critical evaluation of interpretation of income statement
From the above calculation, it has been seen that the company can used majorly two
costing methods for the purpose of evaluating net profit for the period. Absorption costing can
provide net profit of 15675. While by the help of using marginal costing they are able to get a
total earning of 17500. As the profit is more from the use of marginal cost so it will be
effectively helpful for Airdri Company to make further investment in their coming projects. The
major effects can be made on the overall decision making within an organisation.
TASK 3
P4: Advantage and disadvantage of using planning tools to control budgets
Budget: It refers as the estimation of future investments that are made by Airdri in the
production process. It is continuous process which will be vital for the company in short as well
as long term period. Basically, it is a financial plan that can define period that is often for mainly
one year. It can also be planned with sales volumes, earnings and cash-flow statements. One of
the most crucial administrative techniques and budget used to serve all their specific action for
attaining quantified objectives. In order to control the budget most of the time, manager tends to
use various planning tools which are mentioned under this report.
Planning tools: It is said to be valuable guide Airdri action that is related with the
implementation of an initiative, program or intervention. It can provide detailed description
regarding the nation through implementing effective tools to control the negative impacts that are
affecting the business organisation of the company (DRURY, 2013). There are various tools
which will be helpful for the Airdri Company to control their budgets. Some of them are mention
below:
Forecasting tools: It refers as one of the reliable planning tool that can help the
management in their attempts to deal with the uncertainty of the coming, relying mainly on data.
It begins with certain assumption which will be based on management experience, knowledge
and overall judgments made by the company in context to overcome certain issues that are arises
within an organisation. This particular technique is frequently associated with the development
and overall distribution on both latest and existing products of the company.
Advantage: This business must employ with a diverse with certain array of estimation
method to analyse potential outcomes by stemming from their overall decisions. The most
8

notable benefits is related with the quantitative forecasting method which is based on the
projection level of the company.
Disadvantage: The main limitation of forecasting is the similar as that of any other
method of predicting the future results. It has been seen that no one can surely predict the future.
Thus, sometimes it can provide negative outcomes for the company.
Scenario tools: This seems to be strategic planning method that some organisation can be
use to make more flexible while making long term planning. It is wide part or an adaptation of
classic methods. It can be consist of various aspects of system thinking which is specifically the
recognition which can have many factors can combine in tough ways to create more effective
future. It would acts according to the situation made developed within Airdri that can lead to
control situation effects of the company.
Advantage: The best idea behind them is to establish proper thinking regarding best
possible future which can reduce surprises and broaden the wide span of managers about
thinking about their possible future (Boyns and Edwards, 2013).
Disadvantage: In some of the situation, manager cannot be able to deal with the tough
situation that is arises internally within Airdri. There are certain categories which are developed
to compare the various ways to examine the best purpose for the manager.
Contingency tools: It is known as effective plan that is devised for results other than in the
usual case. It is basically used for the risk management for an unconditional or exceptional risk
through which all the business consequences. These are mostly devised through any kind of legal
and businesses entity.
Advantage: The one of the reliable aspects of these tools is responsible for facing the
unethical risk with the use of reliable tools. In the current competitive world, there are small
organisations that are not being able to get their names on the top charts. Enhance the
competition through providing customers with better services and wide range of products that are
due with the customers.
Disadvantage: There is huge chance of rigidity. Planning has tendency to make proper
administration which would remain inflexible for longer period of time. More time consuming
for the company to detect all the unethical issues those are affecting the business operation of
Airdri.
9

M3: Analysis of the planning tools
From the above mentioned tools, it has been seen that there are various planning tools that
can helpful for the manager to overcome all the budget related issues that are occurred with the
company. As forecasting is entirely based on the estimation thus it vital to make use of early
planning to reduce future losses. There are certain other tools such as scenario and contingency
which will be used to analyse other kind of crucial risks that are associated with the business.
TASK 4
P5: Comparison with other organisation about the financial issues
In an organisation there are various issues those are related with finance can affect the
profitability position of the Company. Some of them are mention below:
 Unexpected expenses: There is huge financial issue which is related with the unexpected
expenditure which is done by Airdri during the production of their products.
 Late payment by client: Sometime, the company have to face certain issues related with
the late payment made by the creditors or their customers.
 Improper money measurement: Another issue is associated with the money measurement
which is not done effectively by the manager of Airdri.
In other resolve the above issues below mentioned tools are required to be taken into account.
Some of them are:
KPI: It is basically used to overcome the unexpected expenses which are incurred by the
company as compare to the last year performance.
Benchmarking: The benefit of using these tools is to set benchmarking in accordance to reduce
the late payment of customers.
Comparison
Airdri Unicorn grocery
This company is basically related with hair dry
they are having issues related with the financial
performance of the company. it can be resolve
through using KPI financial tools.
As this particular company deal in production
of grocery products. Sometime, they can have
to face issue related with stock. Thus, Just-in-
time is best tool to resolve the issues.
10

M4: Analysis of the financial issues
Organization is facing three different types of problems like unexpected expenses, late
payments by clients and improper money management system. Managers are using various
techniques like benchmarking, KPI and financial governance to resolve all the issues. All the
techniques guide managers to be more attentive about the financial position of the company so
that appropriate strategies can be formulated in order to deal with financial crisis. It is very
important for the organization to take immediate actions so that issues can be dealt effectively.
D3: Critical evaluation of planning tools
Planning tools are mainly used in budgetary control but all of them can be used to estimate
financial problems. Forecasting, contingency and scenario tools may help the managers to
predict possible financial issues that may take place in future and then managers can formulate
strategies in advance so that all of them can be resolved effectively. These planning tools may
guide the managers of the organization to deal with all the financial problems like unexpected
expenses, late payments by clients and improper money management system in an effective
manners so that they may not arise again and affect organizational performance.
CONCLUSION
From the above project report, it has been concluded that management accounting is the
process of analyzing, recoding and controlling management information the management reports
so that organizational performance can be determined. Different types of management reports are
generated by managers. These are inventory management, account receivable aging etc. reports.
An organization may use different types of planning tools in budgetary control as they help to
management and forecast budgets of the organization. These tools are contingency, forecasting
and scenario tools. Every organization have to face financial problems like late payments made
by clients, improper money management system and unexpected expenses and three different
techniques like benchmarking, KPI and financial governance are used to deal with them.
11

REFERENCES
Books and Journals:
Amoako, G.K., 2013. Accounting practices of SMEs: A case study of Kumasi Metropolis in
Ghana. International Journal of Business and Management. 8(24). p.73.
Brewer, P. C., Sorensen, J. E. and Stout, D. E., 2014. The future of accounting education:
Addressing the competency crisis. Strategic Finance. 96(2). pp.29-38.
JOSHI, P.L. and et. al., 2011. Diffusion of management accounting practices in gulf cooperation
council countries. Accounting Perspectives. 10(1). pp.23-53.
Klemstine, C. F. and Maher, M., 2014. Management Accounting Research (RLE Accounting): A
Review and Annotated Bibliography. Routledge.
Lim, M., 2011. Full cost accounting in solid waste management: the gap in the literature on
newly industrialised countries. Journal of Applied Management Accounting Research.
9(1). p.21.
Tessier, S. and Otley, D., 2012. A conceptual development of Simons’ Levers of Control
framework. Management Accounting Research. 23(3). pp.171-185.
Van der Stede, W. A., 2015. Management accounting: Where from, where now, where to?.
Journal of Management Accounting Research. 27(1). pp.171-176.
Zoni, L., Dossi, A. and Morelli, M., 2012. Management accounting system (MAS) change: field
evidence. Asia-Pacific Journal of Accounting & Economics. 19(1). pp.119-138.
Lavia López, O. and Hiebl, M.R., 2014. Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of Management
Accounting Research, 27(1), pp.81-119.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Boyns, T. and Edwards, J.R., 2013. A history of management accounting: The British
experience (Vol. 12). Routledge.
Online
Absorption costing. 2018.[Online]. Available through:
<http://www.businessdictionary.com/definition/absorption-costing.html>.
12