Management Accounting Report

This report examines the role of management accounting in Southern Business Technologies Ltd, a small medium enterprise in the communication sector. It analyzes different types of management accounting systems, their benefits, and requirements for SMEs. The report also analyzes planning tools used for budgetary control and evaluates how they can be used to solve financial problems. It concludes by discussing how management accounting can lead to organizational sustainable success.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
1. Explain management accounting and essential requirements of different types of
management accounting.........................................................................................................1
2.) Techniques and methods for management accounting reporting with integration to
organization process...............................................................................................................3
PART 2............................................................................................................................................5
1.) Advantages and disadvantages of types of planning tools used for budgetary control .. .5
2.) Evaluation of how planning tool can be used to solve financial problems in the
organization............................................................................................................................6
3.) Comparison of organizations on adapting management accounting system in respond to
financial problems..................................................................................................................7
4.) Management accounting leads to organization sustainable success.................................7
CONCLUSIONS..............................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Management accounting is a process of examining cost of operations and business to
make strategic decisions which helps in attaining organizational goals effectively and efficiently.
Southern Business Technologies Ltd is a small medium enterprise communication sector
company. It is a part of telecom industry and is headquartered in England. This company aims at
providing communication services.
This study highlights different types of management accounting system and their benefits
and requirement on SME. It also includes techniques for management accounting reporting.
Further it also highlights planning tools used for budgetary control and also analyse
organizational sustainability in respond to financial problem.
PART 1
1. Explain management accounting and essential requirements of different types of management
accounting.
Management Accounting is of significant importance in the organization to make key
strategic decisions to achieve organizational goals and objective. It is the process of examining
cost of business and operations in order to make statistical analysis to take inform decision.
Analysis is done by preparing internal financial reports, records and account which help
managers in taking inform decision to achieve organizational goals effectively and efficiently.
Management accounting takes into consideration both financial and non-financial data for
efficient analysis and records all activities which are internal for the company to increase
operational efficiency and productivity. This helps in framing new policies in the organization
for effective working in the day to day operations of the business(Malina, ed., 2018).
Different types of management accounting systems and their benefits
Management accounting system provide strategic information which are important for
decision making and welfare of the organization. Management accounting is done to analyze the
records and reports of the cash, sales, revenue generated and also provide accurate information
timely which helps in strategic planning and management.
Each management accounting system provide varied information to make strategic
decision making to increase operational efficiency and productivity of the Southern Business
Technologies.
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 Cost Accounting System: It is an accounting system used to maintain the records and
monitor cost of the business. It is an art of recording, classifying, summarizing and
analyzing cost to help management take strategic decision to increase productivity of
business. Cost accounting system is further divided into job order costing, process costing
, traditional costing system and activity based costing.
Job order costing: This system involves detail accretion of the cost of production to identify
cost attributed to each specific unit(Otley, 2016).
Process costing: This method is assigned to attribute cost of the entire production process.
Traditional costing: This method calculates single overhead applied to each department.
Activity based costing: Small medium enterprises use this method of cost accounting to identify
the total cost which is necessary to produce a particular product. This method provides more
accurate information by taking important factors into consideration by assigning cost to a
product.
Essential requirements of cost accounting system in Southern Business Technologies:
 This system of management accounting is required to enhance the level of productivity
and minimize wastage by effectively attributing cost to each unit.
 This method analyzes cost attributed in production of particular unit.
 This method is required to analyze profitable and non profitable units or departments.
Benefits of cost accounting system:
 This method helps in attributing price of each unit to cover the cost and achieve desired
level of profit.
 This method helps in providing data for preparation of periodic financial
statements(Cooper, Ezzamel and Qu, 2017).
 Inventory management system:
Inventory management system is the process of ordering, storing and effectively using Southern
Business Technologies inventory resources like raw materials and other components.
Essential requirements of inventory management system in Southern Business
Technologies:
 This system is required to manage stock and orders effectively.
 This system is required to reduce costs and wastage which leads to maximization of sales
and profit in SME(Maas, Schaltegger and Crutzen, 2016).
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Benefits of inventory management system:
 This helps to effectively manage inventory of business.
 This helps in improving inventory accuracy and company workflow.
 Job costing system:
This method of management accounting analysis the cost associated with each job or department.
Essential requirements of job costing system in Southern Business Technologies:
 this system analyses whether the specific job should be carried in future or not.
 This method is required to analyze the true cost associated with each job.
Benefits of job costing system:
 This method helps to measure profitability of the job and department at any stage of
production.
 This method helps management to track individual's performance.
Price optimization system:
This method aims at pricing product according to the particular product demand and customer's
willingness to pay.
Essential requirements of Price optimization system in Southern Business Technologies.
 This method helps analyzing buying pattern of the customers which will increase SME's
operational efficiency.
 This method is essential to improve profits by simulating customer segment(Pavlatos and
Kostakis, 2015).
Benefits:
 This method helps in increasing profit by analysing demand for product.
 This method helps in controlling cost.
2.) Techniques and methods for management accounting reporting with integration to
organization process.
Management needs reliable information to manage and understand financial operations
and performance of business(Quattrone, 2016). Management accounting reports are confidential
which are made to understand the operations of business and also leads to plan out various
strategies to achieve organizational goals and objectives.
 Budget reports: These management accounting reports are very significant in measuring
performance of the company . It helps Southern Business Technologies in evaluating
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past performance and estimate budgets for future period. Budget report helps in analyzing
all source of gain and losses and also help management in analyzing business and
departments performance by evaluating cost control measures and productivity. Budget
report helps in controlling cost and set budget within which company has to work to
achieve desired target.
 Job cost reports: This report shows cost associated with each project and this helps
management of Southern Business Technologies to analyze expenses related with each
job and estimated revenue generation from specific job to evaluate job's profitability.
This helps SME's to identify profitable areas of business which leads to increase in
economies of scale and productivity and profitability of business. This report of
management accounting helps in identifying and analyzing expenses while the project is
in continuation.
 Inventory and manufacturing report: this report is used by Southern Business
Technologies to make the manufacturing process more effective and efficient which leads
to increase in operational efficiency and productivity(Sponem and Lambert, 2016). This
reports help management of small business enterprises in analyzing inventory cost, labor
and overhead attached to produce each unit of products. This method also helps in
effectively managing stocks and order effectively.
 Performance report: This report is created to analyze the performance of the company
as a whole. This report measures the performance of each employee and department in
the organization. Performance report is useful for the Southern Business Technologies in
making strategic decision for the development of organizational efficiency. Management
compares actual results with the set plan to analyze whether goals are achieved and in
case of any deviation necessary actions are taken into consideration(Messner, 2016).
PART 2
1.) Advantages and disadvantages of types of planning tools used for budgetary control .
Budgetary report refers to analyzing actual results with budgeted figures for determining
deviation and finding necessary solution to achieve desired results effectively. Budgetary control
helps management in future planning by operating cost centers and departments with efficacy
and efficiency. This helps in reducing wastage which leads to increase in profitability.
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 Operating budget: This budget helps management in analyzing revenue and expenses
associated with Southern Business Technologies for future period. This shows operations
from sales, production and finished goods inventory. An operating budget shows clear
picture of company's expenses, income generation and estimated cost of project.
Advantages of operating budget:
 Operating budget helps small business in keeping track of the business as a whole.
 It aid at smooth functioning of the organization by analyzing all operating cost attached
with the project(Malmi, 2016).
 This helps in making more informed decision and help achieve targets of the company.
 This helps in managing current expenses and projecting future expenses.
Disadvantages of operating budget:
 Operating budget major drawback is that it does not show how much money is needed for
a particular department.
 It does not show the exact profits for the period.
Cash budget: This method of budgetary control is important to estimate the amount of cash
needed to carry on day to day operations of business to increases operational efficiency and
productivity so that goals and objectives of Southern Business Technologies can be achieved. It
also helps to analyzing the cash inflows and outflows and determining that cash is not spent on
unproductive activities.
Advantages of Cash budget:
 This method helps in determining how much cash is needed to carry out certain projects.
 It is helpful in effective communication of the current financial position of the company.
 This method helps in controlling cash expenditure and maintaining cash balance.
Disadvantages of Cash budget:
 Cash budget completely relies on estimates which may limit the effectiveness of the
budget plan.
 Non-financial factors are omitted which may not give accurate information.
Financial budget: This report helps management of Southern Business Technologies in making
strategic plan for managing cash flow, asset, income and expense. Financial budget shows clear
picture of company's financial health and also analyze the capital requirement for smooth
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functioning of business. This report ensures that fund is available in each department to carry out
the work effectively and efficiently to increase operational productivity and efficiency.
Advantages of Financial budget:
 It helps management in analyzing the financial position of business.
 This also helps management in recognizing opportunities for business which will help
SME expand their business.
Disadvantages of Financial budget:
 It does not take into account future uncertainties.
 It takes into consideration past performance of the business which do not optimally focus
on the actual performance of the finances and the cash needed in each department.
Ratio analysis: It is a form of quantitative measurement tool used to measure the financial
performance of the organization using various financial ratios. Ratio analysis helps in measuring
profitability and evaluate operational efficiency of the organization.
Advantages of ratio analysis
 It is a systematic approach which simplifies accounting statements into simple ratios
which helps analyse financial performance of the company.
 It helps in comparison of current performance with previous year effectively and
efficiently for effective decision making.
Disadvantages of ratio analysis
 Ratio analysis do not consider qualitative aspect of the organization.
 Ratio analysis lack standard for comparison.
Variance analysis: It is a quantitative tool used to analyse the actual performance with the
budgeted plan to analyse deviations and take necessary actions accordingly.
Advantages of variance analysis
 It helps in managing actual performance by evaluating budgeted figures.
 The cause of actual variance can be easily evaluated and can take remedial action plan on
a timely manner.
Disadvantages of variance analysis
 Variance analysis leads to delay in decision making.
 This leads to unrealistic assumptions of standards which leads to increase in variance.
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2.) Evaluation of how planning tool can be used to solve financial problems in the organisation.
 Cash flow problem: This problem can be reduced by effectively implementing cash
budget planning tool. This tool helps in reducing high overhead expenses by cost
controlling and achieving economies of scale. Complete cash budget is made and
analyzed where cost cutting can be done. There should be complete sync in cash inflows
and outflows. Expenses should not be more than revenues which leads to reduce in
productivity and profitability of business. Southern Business Technologies also aim at
m,maintaining cash reserves so that company do not run out of cash(van Helden and
Uddin, 2016).
 Imbalance in departmental wise fund allocation: This problem can be eliminated by
effectively maintaining financial budget. Southern Business Technologies should
completely analyze the need of each department and make them available with adequate
capital and resources for coordination in different department of organization who work
effectively to achieve desired goals and objective of company. This also helps in
identifying those departments which are more profitable for the growth and expansion of
company.
 Significant fall in profits: Operating budget helps in controlling the fall in the profits of
the company by completely analyzing the various operations of business like sales,
production, inventory, raw material within which it works. It will help analyze the cost
attached with each operations and also helps in managing current expenses and projecting
future expenses which will help in strategic decision making to control losses and
increase productivity and profitability of the company(Miller, G., 2018).
3.) Comparison of organizations on adapting management accounting system in respond to
financial problems.
 Oxford Gene Technology IP: This company uses balance scorecard method to measure
the performance of the company by taking into consideration key elements of the
company like mission, vision and core values of business. They aim at focusing on
strategic business areas which are profitable for the growth and expansion of the
company. The management of the company keeps a track on the performance of
employees and measures taken to control cost effectively. In case of any deviation by
prioritizing the project and monitor the performance which help attain financial targets.
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 Southern Business Technologies: This company measures performance using
benchmarking performance metric. They aim at setting desired objective of the company
within which an organization has to work. In case of any deviation in the actual
performance company make necessary action plan to find solution to the problem which
help company in maintaining competitive edge by achieving economies of
scale(Armitage, Webb and Glynn, 2016).
4.) Management accounting leads to organisation sustainable success.
Management accounting is of significant importance in achieving organizational goals
and objective effectively. This helps in reducing cost and improve efficiency of the Southern
Business Technologies my maximizing their profits. The management accounting system assist
the organization in mitigating and the financial problem on time and even it ascertains the
uncertainties that the business can face in the near future. With identification of the future
uncertainties the management accounting system provides effective manner to cope up with this
through its budgetary control and planing tools. With identification of the problems the business
take significant measure to over comes them. Also, with determining a future issues that can be
faced by the firm this system proved effective ways to avoid the same(Cools, Stouthuysen and
Van den Abbeele, 2017). With this the organisation is dealing with its financial problems on time
and that too with effective means and sources. This directly results in the facts that organisation
is always ready to mitigate and solve and financial problems which can hamper the smooth
running of the business as well as can endanger the survival in long run. But with the
management accounting system the business overcomes this issues and this directs the entity
toward long teem sustainability and survival. With this it can be stated that the business with the
help of management accounting system lead the organisation in sustainable success with
addressing the financial problems on time effectively.
Management accounting can lead to sustainable success after addressing financial
problems by effectively linking business challenges with the business models and strategies for
outsourcing the performance and higher productivity. Management accountant must develop key
performance indicators to achieve desired goals and objectives of the company. Development of
reporting strategies that comply with sustainable issues for effective disclosure of financial and
non financial information for effective sustainable growth.
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CONCLUSIONS
From the above study it has been summarized that management accounting is of
significance importance which is prepared to make strategic decisions for achieving
organizational goals and objectives.
This study also concludes that management accounting system provide various reports
and records which are essential for decision making and helps in strategic planning. It further
states various methods and techniques used for management accounting for more reliable
information and also helps in effectively evaluating operations and performance of SME's.
Furthermore, it also concludes that there are various planning tools which are used for
budgetary control. This helps in analysing the financial position of business and managing cost.
It also sates various financial problem and how they can be effectively resolved by taking
necessary action.
It also states that performance of the company can be measured through various
performance metrics and in case of any deviation necessary action plan is taken into
consideration.
Lastly, it concludes that management accounting is an effective measure which leads
organization to sustainable success effectively and efficiently. It can be done by taking cost
controlling measures and attain economies of scales.
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REFERENCES
Books and journals
Armitage, H. M., Webb, A. and Glynn, J., 2016. The use of management accounting techniques
by small and medium‐sized enterprises: a field study of Canadian and Australian
practice. Accounting Perspectives. 15(1). pp.31-69.
Cools, M., Stouthuysen, K. and Van den Abbeele, A., 2017. Management control for stimulating
different types of creativity: The role of budgets. Journal of Management Accounting
Research. 29(3). pp.1-21.
Cooper, D. J., Ezzamel, M. and Qu, S. Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research. 34(2). pp.991-
1025.
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.
Malina, M. A. ed., 2018. Advances in management accounting. Emerald Publishing Limited.
Malmi, T., 2016. Managerialist studies in management accounting: 1990–2014. Management
Accounting Research. 31. pp.31-44.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice. Management Accounting Research. 31. pp.103-111.
Miller, G., 2018. Performance based budgeting. Routledge.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
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.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
Sponem, S. and Lambert, C., 2016. Exploring differences in budget characteristics, roles and
satisfaction: A configurational approach. Management Accounting Research. 30. pp.47-61.
van Helden, J. and Uddin, S., 2016. Public sector management accounting in emerging
economies: A literature review. Critical Perspectives on Accounting. 41. pp.34-62.
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