Analysis of Cost Accounting Practices

The provided document is an extensive compilation of research papers and articles related to cost accounting and management. It includes a list of references from 2013 to 2019, covering various topics such as cost accounting benefits, management accounting theory and practice, quality in qualitative management accounting research, and the influence of management accounting departments on environmental management accounting change. The document also provides a brief overview of types of financial problems and their solutions.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
Task1................................................................................................................................................1
P1 Types of management accounting system and its needs .......................................................1
P2 Management accounting reporting method............................................................................3
M1 Benefits of management accounting system and its application...........................................4
D1 Integration of management accounting system and accounting report .................................4
Task 2...............................................................................................................................................5
P3 Income statement by using marginal and absorption costing (See brief in appendix)...........5
M2 Financial reporting documents..............................................................................................8
D2 Financial report and interpretation of data ...........................................................................8
Task 3...............................................................................................................................................8
P4 Advantages and disadvantages of planning tools...................................................................8
M3 Planning tools and application............................................................................................10
Task 4.............................................................................................................................................10
P5 Management accounting to respond the financial problems................................................10
M4 Responding the financial problems by applying management accounting.........................13
D3 Evaluation of planing techniques to solve the problems......................................................13
CONCLUSION..............................................................................................................................13
......................................................................................................................................................14
REFERENCE.................................................................................................................................15

INTRODUCTION
Managerial accounting is the basic foundation of every business that helps to decide cost
of goods and services and manage all the required information which are related to business
transaction. The managers collects, records and control over business data and cost. Management
of accounts and cost control is important in each industry that help to define profitable situation
and also suggest to expand the business (Andon, Baxter and Chua, 2015). The main aim of this
report is to understand the value of management accounting and how it help to control the
budget. To understand this Imperial Tobacco has been select that is UK based company and
manufactures Tobaccos and cigarettes. This is multinational company which is undergoing major
restructuring in United Kingdom. This report will include system of management accounting,
planning tools that is used to control over budget and management reports that helps to solve
financial problems by using management accounting system.
Task1
P1 Types of management accounting system and its needs
Management accounting is the process of defining the cost of business activities and
operate the business through managing the accounts and other information. The manager of
Imperial Tobacco prepare internal financial report, records the transaction and make effective
decision in order to achieve goals and objectives (Aryee and et.al., 2015).
The main purpose of management accounting is to provide the financial information
which help to plan accurately in order to achieve future goals. Moreover to make effective
business decision for expanding the business.
Difference between management accounting and financial accounting
Basis Management accounting financial accounting
Definition It is used to make planning,
organising and controlling the
financial data.
It classify, analyses, records and
summarize the financial
information.
Application It help managers to take
meaningful steps and strategy.
It help to prepare financial
accounts with appropriateness.
Nature Quantitative and qualitative Quantitative
1

Dependence It take help from financial
accounting to make correct
decision.
It does not depend on management
accounting.
Management accounting system is the systematic tools which is used to record and
analysis the financial information and run a business at market place. Such as The manager of
Imperial Tobacco are using this system to maintain accounts properly and provide information
timely. For preparing financial reports managers collects data on certain process to control the
excess cost and make business decision. Imperial Tobacco apply different different types of
management accounting system such as-
Inventory management system: This is most important system which is used to track
the inventory and maintain supply chain of goods and services. This system is useful in
manufacturing industries where number and quality of products are produced. The manager use
it to keep track record of inventory and place next order of raw material for manufacturing
products. Such as Imperial Tobacco is manufacturing industry that manufacture tobacco,
cigarettes and other smoking products. It use this system to track the inventory and maintain
properly that help to place further raw material order to manufacture the products. Moreover, it
use FIFO method to sale the products that means first in first out. According to this method
material which purchased first should be sold first rather than other material (Ashraf and Uddin,
2015).
Cost accounting system: It is used to calculate the accurate cost of products and services
that helps to define the profits. The manager of any organisation estimate the cost of products for
profitability evaluation, control the cost and inventory valuation. The manager of Imperial
Tobacco used this system to analysis the profitability by controlling the cost. Managers prepares
budgets and financial reports with the help of standard cost and actual cost. It is essential in
every organisation because it helps to define the profitability through inventory valuation and
cost control. The manager of Imperial Tobacco analysis past, present and future information in
order to make managerial decision.
Price optimisation system: This is mathematical programme that is used to set the prices
of products and services. This is the effective system which states how demand is decreasing
2

because of different price level and collect the cost and inventory data in order to set the prices of
goods and services. The manager of Imperial Tobacco set the prices of products with the help of
this system and maintain demand and supply of products equally. Moreover, this system help to
calculate the up coming profits through fixing the pricing strategy. The manager of Imperial
Tobacco focuses on pricing strategy and set the cost of products that help to attract the customers
(Gow, Larcker and Reiss, 2016).
P2 Management accounting reporting method
Management accounting report are the essential documents of the company which is
prepared by the manager of the organisation in order to keep records. It is used to maintain the
historical and current information about customers, products and services and all transaction
which is important for business industry. Such as the manager of Imperial Tobacco prepares
different types of management reports that helps to to provide internal and external stakeholders
information.
Inventory manufacturing reports: This is the summary of goods and services which
belongs to a business activities. Manager need to prepare a separate account of inventory or
supply of goods that help to provide information about goods and services. Inventory report must
be true and fair, simple and complete in order to provide information about goods and services.
The accountant of Imperial Tobacco prepares inventory management report and shows to
managers in order to maintain inventory. By using this report manager can take further decision
for ordering the raw material and finished goods (Järvenpää and Länsiluoto, 2016).
Cost accounting reports: This types of reports is used to provide information about total
incomes and expenses which is arising in the organisation. It is prepared by the accountant by
collecting the all information which relates to business's incomes and expenses. In Imperial
Tobacco accountant prepares cost accounting reports by including revenues and expenses that
help to assume the profits from business activities. Moreover, cost report is the structure of
future profits that is prepared with the help of financial information.
Account receivable reports: This report states unpaid customer invoices who does not
paid the amount of products and services. This is basis tools which is used to collection
managers in order to collect the overdue payments. Such as in Imperial Tobacco mangers built
this report on daily basis and record all dues transaction also mention collecting date of due
payments (Leotta, Rizza and Ruggeri, 2017). It contains information in columns that reveals 61-
3

90 days old invoices. Is is required because it help to generate account receivable report that
shows ageing process for not receiving memos whose goods and services are supplied.
Budget report: This is called internal report that is used by managers in order to
compare the estimated cost with actual cost or performance during a period. As budgets are the
financial objectives which is based on future and estimated performance that needs to be achieve
in a particular period of time. Such as Imperial Tobacco's manager prepares budget reports with
the help of income statement that help to show the difference between budgeted project and
actual projects. Manager can change the budget if needed in order to improving productivity.
M1 Benefits of management accounting system and its application
Inventory management system: This is beneficial in each organisation such as Imperial
Tobacco use this system to track the inventory and maintain properly. By applying this
organisation can save time and money that help to increase the productivity (Luft, 2016).
Cost accounting system: It help Imperial Tobacco company in order to control the cost
of products and services. Moreover, it give a benefit to calculate the actual cost of business
activities that help to increase the production. By applying this system manager can control the
excess cost and use it to produce more units.
Price optimisation system: It is more beneficial in each organisation that help to set the
prices and maintain the equal demand and supply of products. Imperial Tobacco is getting
benefits by fixing the prices of products that help to attract the customer. As it set reasonable
prices of products customer purchase more products that helps to increase productivity and
profitability.
D1 Integration of management accounting system and accounting report
From the above mentioned management accounting system and reports it has been
concluded that both are integrated with each other such as Imperial Tobacco use inventory
management system and prepare inventory manufacturing report with the helps to this system
that give information about manufacturing products. Moreover, cost accounting report and
budget report are prepared by using cost accounting system and price optimisation system that
help to provide information about income and expenses moreover it used to set the prises of
products. The manager firstly used system then prepares report by using management accounting
system that helps to give information and increase the productivity (Leitner, 2013).
4

Task 2
P3 Income statement by using marginal and absorption costing (See brief in appendix)
Cost: This is the monetary value which is spent by an organisation, person or group of
people in order to purchase goods and services. Moreover, it is the consideration that need to be
pay by a buyer to seller. Seller sales products to customers and receives cost or prices.
Marginal costing: This is costing method that help to make decision by calculating
profit through marginal cost. In this method variable cost are charged to costs unit and fixed cost
in a specified period (Mahesha and Akash, 2013).
Absorption costing: This is also costing method that is used to calculate the profit after
evaluating the cost of organisation. It is connected with production process that help to absorb
the overall cost of manufacturing industry. Variable cost includes direct labour, direct material
and production overhead in order to define profits.
Calculation of cost by marginal costing
Calculation of cost by Absorption costing method
5

6

Interpretation: From the above calculation it has been analysed that company should
adopt absorption cost method because by using this method organisation is getting profit £50000
and through marginal costing method it has to face loss situation as shown in numericals. And
income statement by absorption and marginal costing provide equal profitability situation such as
£50000. Therefore managers can use absorption costing method in order to gain profits.
7

M2 Financial reporting documents
Management accounting techniques helps to calculate the overall cost of organisation by
including income and expenses. Such as Imperial Tobacco use different types of management
accounting technique that help to create the financial reports by including all financial
transaction. It also help to provide accurate position such as-
Financial planning: By using management technique Imperial Tobacco can produce
financial report that states future profitability and productivity. Moreover, it helps to make
further business planning in order to increase business activities.
Historical planning: Imperial Tobacco also produce financial report by using this
technique such as it calculate the profit through marginal and absorption costing that helps to
define which method is best to get maximum profits (McLellan, 2014).
D2 Financial report and interpretation of data
From the above information it has been concluded that Imperial Tobacco produce
financial reports by using financial information such as occurred cost and revenues that help to
define how much profit it can generate in future through financial reports. Additionally, this help
to increase the business activities in order to perform business function. Such as Imperial
Tobacco used marginal and absorption costing method for preparing the income statement that
states how much profit it can obtain in future period.
Task 3
P4 Advantages and disadvantages of planning tools
Budget – It is a formal statement which can present estimate income and expenses to
achieve organisation goals and objectives. A budget predicts the financial result and financial
position of a company for one or more future periods (Nørreklit, 2014).
Budgetary Control – It is the process of preparation of budgets in several activities and
comparing budgeted figures with actual figures to control business activities in effective manner.
Budgetary control is continuing process which helps in planning and coordination.
Zero based budget – It is an approach to plan and prepare the budget from the scratch.
Zero based budgeting goes as a method of budgeting and where are recording amounts on the
basis of actual expenses for new accounting period. It involves few changes in reference to
8

expenses and their operational activity. Through the budget, Imperial Tobacco analysis their
needs and objectives in reference to future.
Advantages – Zero based budget can take amount of real basis situation and analysis of
each department as per requirement. So it can help to improve next period and make sure about
the expenses in ZBB. The Imperial tobacco manufacturing company so for new branch they can
prepare budget from zero which can help to know their efficiency.
Disadvantages – In reference to Zero based budgeting arises conflict in management
because they wants large amount of time and efforts for the executive and managerial staff. The
Imperial Tobacco face conflicts in new management because they all are predicting according to
their skills and experience.
Static Budget – A static budget is a type budget that figures may vary widely from the
actual figures during particular period of time. It is prepared at the beginning of he year and it
could not change until it's time to make a new one at the start of the next year. In reference to
Imperial Tobacco company can prepare budget in the starting of the business and it will remain
same in particular accounting period.
Advantages – The main advantage of this budget that it's easy to implement and follow
and in static budget do not ned time to time update all information about the company. Static
budget can specify when Imperial Tobacco in struggle with debt due to pas financial choices.
Disadvantages – This type of budgeting is affected by the ability of an organization to
accurately predict to understand their needs. In the budget lack of flexibility so as per the
situation can not change in budget. In reference to Imperial Tobacco can not easily track all
expenses in right way due to exceeding of stress (Pavlatos and Kostakis, 2015).
Flexible budget – It is a budget that can adjust or flex with the changes in volume or
activity. Flexible budget considers as financial plan where predict revenues and expenses on the
basis of current actual amount of output. It can modify during to accounting period and time to
time update income and expenses as per requirement. In the scenario of Imperial Tobacco
company can apply the budget because they can easily modified budget and estimate sales levels,
cost of production and changes in operation conditions.
Advantages – The advantage of this budget control of the cost ans time to time adjust
changing costs and profit margins. The imperial Tobacco can update current data ans their
9

operation conditions. Manager of the company continuously monitor of business activities and
on the basis predict future income and expenses and update in flexible budget.
Disadvantages – It can be time consuming to figure out variable cost in accounting
period and in flexible budget do not easy to estimate future expenses of company. Imperial
Tobacco can not easily forecast their income and expenses.
M3 Planning tools and application
Planning tools are most useful in any organisation that help to set the forecasting budget
such as Imperial Tobacco can use zero base budget that will helps to make accurate budget by
including actual cost. By applying flexible budget it could make changes in existing budget that
will help to increase the productivity. Moreover, by applying static budget it can get actual cost
of business activities that remain fixed in whole accounting period. By application of these
budget any industry can assume future budget and maintain cost of business activities. The
manager of Imperial Tobacco can forecast the budget that will helps to maximize the production
as well as profitability.
Task 4
P5 Management accounting to respond the financial problems
Financial issues are the major issue in every organisation that decides what needs to do in
order to solve the financial problems. If organisation have enough money to spend it means
business can run for long period of time. It is a situation of financial pressure where money
become a reason of stress and depression in any organisation. For instance, Imperial Tobacco is
multinational manufacturing company which is under restructuring, it need to more capital for
restructuring and expanding the business across United Kingdom. The manager need to arrange
the capital for restructure and improving productivity. For running a business effectively it is
compulsory to overcome the financial problems by arranging the capital and control over the cost
in manufacturing industries. The manager of Imperial Tobacco uses different types of techniques
and tools to reduce the financial issues and increase profitability (Gibassier, 2017).
Financial issues are the major factors which impacts directly on business activities as
result less production. Imperial Tobacco is facing different type of financial issues such such as-
Increasing Debt: This means overdue or owed of money. Any organisation can face
financial problems because of increasing debt. If organisation sold goods and services on credit
10

and not received outstanding money after completing the credit period then organisation faces
money problem. Such as Imperial Tobacco is manufacturing and distributor company who sold
finished goods on credit for 60 days. After completed 60 days it did not received outstanding
amount that called debt. As result financial problems arises in this organisation (Schaltegger and
Zvezdov, 2015).
Lack of money management: This is a major factor that creates financial problems in
any organisation because managers managers do not knows how to manage the money and
available resources within organisation. To run a business effective it is mandatory to manage
the money and should invest where it needs in order to get maximum returns. Imperial Tobacco
is manufacturing restructuring company who needs to arrange and utilize the money for gaining
profits. It is facing financial problem because managers do not have idea and skills to manage
money properly. The managers are spending more money on unnecessary items than needed.
That's why its spending is more than revenues which creates financial problems in industries
(Types of financial problems 2019).
Management accounting approaches: This means a systematic mathematical technique
which helps to analyse and understand the relationship among employees and managers. By
using this approach any organisation can solve the financial problems which is arising during
business activities. Such as Imperial Tobacco company can use number of management
approaches for solving financial problems and maintaining profits like as-
Benchmarking: This is the management practices to compare business processes and
performance from other company's performance. Basically, it helps to compare the performance
of two organisation and get ideas to make improvements. For instance, Imperial Tobacco use this
approach to improve the business practices through comparing with other enterprise. After
comparing it can develop business plan to get improvement in business performance that will
help to increase the productivity by solving financial problem and other issues (Hilton and Platt,
2013).
KPI: Key Performance Indicator is a management practice which is used to measure the
performance of company as well as employees. It helps to rewarded employees who are
performing well in business organisation. Such as Imperial Tobacco uses this techniques to
measure the performance and give appraisal or rewards after evaluating the performance.
11

Balance scorecard: This is management approach which is used in strategic
management to define and improving the internal functions of a business in order to receive
external outcomes. It helps to evaluate the performance of organisation through strategic
planning and get improve in order to maximize the profitability. Imperial Tobacco is
manufacturing company that can use this technique to improve the productivity and restructure
the organisation easily. Moreover, it can used to measure and provide the feedback to industry
that make decision to get improvement and increasing productivity.
It is good in perspective for above discussed financial problems and approaches such as it
is a performance strategic tools used to make strategy to identify and improve the internal and
external performance of business organisation as well as employees. Mainly it is helpful to
measure and provide feedback to organisation. So Imperial Tobacco can use this to recover the
bad debt and manage the fund within industry.
Financial governance: This contains governing body that helps to solve financial
problems by collecting, managing, recording, monitoring and controlling the financial
information. It help Imperial Tobacco to track the financial transaction by managing
performance and controlling information (Hirsch, Nitzl and Schauß, 2015).
Compare between Imperial Tobacco and Zylla
Basis Imperial Tobacco Bright star
Problems This is manufacturing
company which is facing
money management problems
because its spent more money
on restructuring and
purchasing raw material in
advance that create financial
problems.
This is finance advising company who
give suggestion to invest and also
provides finance to small size of
entrepreneur. It is facing financial
problem because of not recovery of
debt amount.
Approach It should use Key performance
indicator management
approach that will helps to
identify the problems and get
It need to use Bench marking
approach that will helps to guide to
whom loan can be provided and
decide the time period.
12

improvement for solving the
problems by evaluating the
performance. By using this it
can get the best performer who
help to increase the
profitability.
Reports and system Imperial Tobacco uses
inventory management system
that help to track the inventory
and give full information.
It should use Ageing receivable report
that will help to give information
about outstanding payment and
creditors as result debt amount will
decrease.
M4 Responding the financial problems by applying management accounting
Management accounting system help to solve the financial problems such as in Imperial
Tobacco manager can use Balance scorecard that will help to measure the performance and by
applying Benchmarking it compare the performance with other organisation that will help to
improve the productivity and profitability. Moreover, it should use cost accounting, inventory
management system that will help to keep manage inventory by controlling cost that will lead the
sustainable success.
D3 Evaluation of planing techniques to solve the problems
Imperial Tobacco should use zero base budgeting planning tool that will help to quickly
respond the financial problem such as by using this budget in restructuring it can get actual cost
of business activities which are occurred in organisation. Moreover, it helps to keep records of
all financial transaction that solve financial problems in order to sustainable success of the
organisation.
CONCLUSION
From the above report it has been concluded that managerial accounting are helpful in all
industries because it helps to maintain the record of all transaction and manage it systematically.
This report contained various topics such as planning tools to control the budget and
management approach or system to solve the financial problems. Moreover, it helps to calculate
13

the profits by marginal and absorption costing method that defines which is best method to
obtain the maximum profits.
14

REFERENCE
Books and Journal
Andon, P., Baxter, J. and Chua, W. F., 2015. Accounting for stakeholders and making
accounting useful. Journal of Management Studies. 52(7). pp.986-1002.
Aryee, S., and et.al., 2015. Accounting for the influence of overall justice on job performance:
Integrating self‐determination and social exchange theories. Journal of Management
Studies. 52(2). pp.231-252.
Ashraf, J. and Uddin, S., 2015. Management accounting research and structuration theory: a
critical realist critique. journal of critical realism. 14(5). pp.485-507.
Gibassier, D., 2017. From écobilan to LCA: The elite’s institutional work in the creation of an
environmental management accounting tool. Critical Perspectives on Accounting. 42,
pp.36-58.
Gow, I. D., Larcker, D. F. and Reiss, P. C., 2016. Causal inference in accounting
research. Journal of Accounting Research. 54(2). pp.477-523.
Hilton, R. W. and Platt, D. E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Hirsch, B., Nitzl, C. and Schauß, J., 2015. The influence of management accounting departments
within German municipal administrations. Financial Accountability & Management.
31(2). pp.192-218.
Järvenpää, M. and Länsiluoto, A., 2016. Collective identity, institutional logic and
environmental management accounting change. Journal of Accounting &
Organizational Change. 12(2). pp.152-176.
Leitner, S., 2013. Information Quality and Management Accounting: A Simulation Analysis of
Biases in Costing Systems (Vol. 664). Springer Science & Business Media.
Leotta, A., Rizza, C. and Ruggeri, D., 2017. Management accounting and leadership
construction in family firms. Qualitative Research in Accounting & Management. 14(2).
pp.189-207.
Luft, J., 2016. Cooperation and competition among employees: Experimental evidence on the
role of management control systems. Management Accounting Research. 31. pp.75-85.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136.
pp.237-248.
Mahesha, V. and Akash, S. B., 2013. Management Accounting Benefits: ERP Environment.
SCMS Journal of Indian Management. 10(3).
McLellan, J. D., 2014. Management Accounting Theory and Practice: Measuring the Gap in
United States Businesses. Journal of Accounting, Business & Management. 21(1).
Nørreklit, H., 2014. Quality in qualitative management accounting research. Qualitative
Research in Accounting & Management. 11(1). pp.29-39.
Pavlatos, O. and Kostakis, H., 2015. Management accounting practices before and during
economic crisis: Evidence from Greece. Advances in accounting. 31(1). pp.150-164.
Schaltegger, S. and Zvezdov, D., 2015. Expanding material flow cost accounting. Framework,
review and potentials. Journal of Cleaner Production. 108. pp.1333-1341.
15

Online
Types of financial problems.2019. [Online]. Available through:
<https://www.solveyourdebts.com/blog/5-leading-causes-of-financial-problems-and-what-to-do-
about-them/>
APPENDIX
The brief of cost
16

17