Management Accounting Techniques and Tools

This assignment delves into the realm of management accounting, examining different techniques like marginal costing and budgeting tools. It analyzes the pros and cons of various planning methods used in budgetary control. The report also explores strategies for implementing a robust management accounting system to effectively tackle financial problems within an organization.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Meaning of management accounting and diverse type of management accounting system 1
P2. Types of methods used in management accounting reporting..............................................2
TASK 2............................................................................................................................................4
P3 Evaluation of cost using appropriate technique as marginal costing and absorption costing4
TASK 3............................................................................................................................................6
P4 Disadvantages and advantages of various type of planning tools used in budgetary control6
P5 Comparison how organisations are adapting management accounting systems subject to
financial problems.......................................................................................................................7
CONCLUSION ...............................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Accounting is one of the essential part of the organisation subject to managing the
financial resources and deal with day to day business activities (Benson and et. al., 2015).
Management accounting plays a managing role subject to dealing the business operations and
activities. This report defines the meaning of accounting system and its importance in
organisational context. Various type of management accounting systems are illustrated. Methods
used for management accounting reporting also highlighted. Cost evaluation techniques such as
marginal costing and absorption costing defined subject to practical scenario. Pros and cons of
various type of planning tools used in budgetary control also explained in this context. How the
organisations are adapting management accounting system to respond financial problems
discussed in this report.
TASK 1
P1. Meaning of management accounting and diverse type of management accounting system
Management accounting
This is considered as a systematic accounting tool which is made of various financial
provisions, accounting rules, standards and articles (Granlund, 2011). Management accounting
system provides a structure to frame the departments and divisions of an organisation in single
form. Management accounting system is also considered as managerial accounting system. It is a
process of keeping the day to day records, summering the information and data in the end of the
month and year, preparing accoutring reports and analysing the performance and growth of
entity.
As per the definition given by Institute of Management Accountants (IMA),
“Management accounting system is a professional study of management and operation of an
organisation. It contains management decision making, devise planning, analysation of financial
problems and accounting norms.” it helps the managers and accountants to makes financial and
strategic decisions. Various type of management accounting systems are used by the organisation
now a days such as:
MIS (Management Information System): this accounting system is used for resolving
the complex business problems and accounting challenges (Hilton and Platt, 2013). This is the
system which contains the informations software, tracking devices are used in this management
accounting system.
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Cost accounting: in large manufacturing and production organisations cost accounting
systems are majorly used to calculate the cost per product and unit. In large multinational and
international manufacturing organisations production process remain divided in various job s and
cost centres. Cost accounting system helps to bifurcate the separate cost for each department and
job centres.
Inventory management system: To manage the requirement of stock and inventories for
manufacturing and production process this accounting system is widely used in production and
manufacturing entities (Islam and Hu, 2012). Bar code tracking, warehouse control and
inventory management, RFID are the new inventory management tools using by the companies
widely. Marginal reporting is one of the part of inventory management reporting which helps to
reduce the extra carrying cost of inventory in stores.
Financial risk management: This accounting system is plays essential role to those
organisations which deals in securities, share markets, lending and borrowings. Financial risk
management system provides the relevant information regarding financial risk and uncertain
market conditions. It helps the managers to get summarised information regarding potential risk
and management of financial resources
Accounting system for Non profit organisations: Non profit organisation are the
organisations which work for social welfare and helping underprivileged communities and
societies. There is a specific reporting standard and system is required for the organisations and
entities. Donations, subscription and charity are the main sources of income in non profit
organisations. A donation statement are prepared for those organisations.
Industry specific accounting system: there are some organisation which deals in
specific services and products. For these type of organisations industry specific accounting
system is used which helps to track the day to day business transactions and activities. There is a
specific software and program are used to record and calculate the cost of particular cost group
and cost centre.
P2. Types of methods used in management accounting reporting
Management accounting reporting is the part of managerial accounting. There are some
reports prepared by the departmental managers, cost centres and divisions (Kotas, 2014). All
these reports remain essential in respect of decision making and strategic planning process.
Accounting reports reflect the image of organisation subject to performance and growth. These
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reports are provided to managers and senior level authorities. Management and authorities
analyse management reports and try to sort out the financial and accounting issues. Various type
of reporting methods are used by the accountants and departmental managers subject to
management accounting reports.
Budgetary reporting: These are the reports which produce the information and date
related to future transactions and events. A forecasted and projected information provided to
managers and senior level management and authority to make effective plans and strategies
(Parker, 2012). It provides an estimation of income and expenditure related to specific project
and task. Budget reports are considered as fundamental reports form managerial accounting
perspective. It assist the managers and accountants to control the cost of operations and
management. Last years records and information are taken to help for making budget reports.
With the helps of previous year income and expenditure budget reports are prepared and
submitted to managers.
Reporting of accounts receivable: This reporting helps the accountants to determine the
lag in time of collection from debtors and customers. With the helps of this reporting method
managers and accountants become eligible to decide the credit limit and duration to their
potential customers. Three type of basic customer categories are categorised in this reporting
method such as 30, 60 and 90 days. Credit limit and time period depends upon the credibility and
collection from debtors.
Job cost reports: job cost reports provides the information and cost details from various
cost centres and departments. This is considered as side by side evaluation of cost. Single
projects cost and revenues are evaluated and cost analysation made. Job cost reports contains the
over all cost related to labour, wages and other reforms. By this reporting method managers and
accounts can easily found the profitability of each and every cost department. This helps to
identify the earning areas and sectors in respect of cost centres. These reports provides required
information subject to utilising the income and expenditure on various job centres.
Manufacturing and inventory reports: This reporting method helps to track the day to
day transactions, inventory reports, requisition note and stock order and supply and demand
details in daily basis. This is regular accounting report system which is operated parallel with
production and manufacturing process. Production managers prepared the inventory and
manufacturing reports which contains the daily requirement of inputs to produce desired amount
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of out put. These reports helps to reduce the extra cost and time utilised in manufacturing and
production process.
TASK 2
P3 Evaluation of cost using appropriate technique as marginal costing and absorption costing
Absorption costing: this is one of the essential cost evaluating technique used by
manufacturing and production organisations. This costing technique is also considered as overall
cost evaluation technique (Parker, 2012). All the variable and fixed cost are considered in
absorption costing while calculating the cost of per unit and product. It helps the managers to
ascertain the cost and decide the cost margin on desired sales units. This cost evaluation method
is helpful for those organisations which deals in variable and fixed both kind of products and
services.
Marginal costing: This cost evaluation techniques is commonly used by the
organisations to evaluate the cost of variable products and services. All the variable factors and
cost are included in this costing technique such as direct material, labour and overheads.
Combination of direct material, direct labour and overheads are called as prime cost (Qian,
Burritt and Monroe, 2011). It helps the managers to bifurcate the cost of variable and semi
variable products. Cost accountants become eligible to determine the internal profit margin and
contribution per unit by evaluating the cost under marginal costing technique.
Calculation of profit by using absorption costing technique
Particulars Calculation Amount
Sales 52500
Less: cost of goods sold (W/N 1)
Cost of opening inventory
Direct labour 10000
Direct material 16000
Variable production overheads 4000
Fixed overheads 10000
Less: cost of closing inventory -10000 -30000
Profit before deduction fixed
overheads and selling and
distribution expenses 22500
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Less: under/over absorption -5000
17500
Less: selling and distribution
expense
fixed overheads -10000
variable overheads -7875
Net profit or loss -375
Calculation of profit by using marginal costing technique
Particulars Amount
Sales 52500
Less: cost of goods sold
Cost of opening inventory
Direct labour 10000
Direct material 16000
Variable production overheads 4000
Less: cost of closing inventory (500*15) -7500 -22500
Profit before selling and distribution expenses 30000
Less: selling and distribution expense
variable overheads -7875
Net profit or loss 22125
Less: Fixed cost -25000
Profit/loss -2875
Working Notes:
1. Calculation of cost of goods sold under absorption costing technique
Particulars Details Amount
Cost of opening inventory -
Direct labour (2000* 5) 10000
Direct material (2000*8) 16000
Variable production overheads (2000*2) 4000
Fixed overheads (2000*5) 10000
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Less: cost of closing inventory (500*20) -10000
Cost of goods sold 30000
2. Calculation of selling and distribution expenses
Particulars Details Amount
fixed overheads 10000
variable overheads (52500*15%) 7875
Total selling and distribution expenses 17875
3. Calculation of cost of goods sold under marginal costing technique
Particulars Details Amount
Cost of opening inventory -
Direct labour (2000* 5) 10000
Direct material (2000*8) 16000
Variable production overheads (2000*2) 4000
Less: cost of closing inventory (500*15) 7500
Cost of goods sold 22500
TASK 3
P4 Disadvantages and advantages of various type of planning tools used in budgetary control
Budgeting is considered as formulating the informations and data as per the projected
score and information. Various type of budgets are prepared in budgetary control process such as
Financial budgets: these are the budgets which helps to determine the financial
requirement for further management and operation process (Routledge, Tucker and Lowe, 2014).
Cash budgets, capital expenditure budget and balance sheet budget are the parts of financial
budgets.
Operating budgets: Sales budgets, expenses budgets, project budgets are the essential
elements of operation budgets.
Non monetary budgets: these are the budgets prepared to record the non monetary
transfection and non cash sales such as anticipated profit figures and sales budget.
Fixed and variable budgets: these are the budgets which helps to ascertain projected
the fixed cost and variable cost to be incurred in operations.
Advantages of planning tools
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 Planning tools helps to bifurcate the budgetary control process in several past to access
the information among different departments.
 Budgets clarify the sustainability and credibility of management and operations in respect
of future aspects. It makes the organisational strength strong in respect of forecasting and
projecting the future aspect.
 It assist the managers and accountants to determine the future project cost and
expenditure to be incurred in tasks and projects (Sargent, Borthick and Lederberg, 2011).
Mangers would become eligible to grab the future growth and development opportunities.
 It Provides a prior image of future task and projects and helps to make strategies and
plans.
 Planning leads the organisational departments subject to sustainable development and
growth.
 Forecasted income and expenditure statements helps to utilise the resources in significant
manner.
Disadvantages of planning tools
 Budgets are not the surety of guaranteed success, there is lack of certainty and credibility
found in respect preparing budgets. These provided the forecasted information subject to
future risk and uncertainties.
 Organisations have to pay large amount of financial and non financial resources to
prepare budgets and forecasting future circumstances. Future risk and variable factors
remain uncountable in making the plans and strategies.
 It requires the team of experts and knowledgable persons and mangers to understand the
dynamics of forecasting systems. There is a lack of experts, professionals and
knowledgeable employees to illustrate the forecasting process and plans and making
budgets. Cost of hiring experts and professional also remain high.
 Accurate information, data and details are required for forecasting and accurate
prediction of events and task. There is a lack of exact information found in the process
which creates complex situations for managers and accountants.
Zero based planning: This strategy is worried about estimation of all costs and pay for
advocated period. All exercises worried about spending plan are begin mind zero. There are
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distinctive favourable circumstances and hindrances of zero based spending which are given
beneath:
Advantages:
 There are diverse cost which are spared while performing different task.
 This techniques help to decide different open doors so as to evacuate inefficient
exercises of association.
Disadvantage
 This strategy is extremely tedious process.
 This strategies needs different specialists keeping in mind the end goal to make
spending plan.
P5 Comparison how organisations are adapting management accounting systems subject to
financial problems
Management accounting is becoming the essential part of business and organisations in
present situation. To achieve expertise and core competence organisations are adapting
management accounting systems (van der Steen, 2011). This is one of the branch of management
which helps the managers and accountants to frame the organisational structure as per vision and
mission. Management accounting system is not only helps in aligning the functions and
operations in systematic manner but also support to resolve the financial problems. It helps the
organisation to respond the financial problems in three ways such as
Financial governance: it helps to monitor the financial changes and alternations and
help mangers to make policies and plans accordingly (Implementation of management
accounting tool in organisation, 2017). Managers would be able to predict future financial
changes prior to period.
Management accounting skills sets: it improve the skills of managers and accountants
subject to operating financial risk.
Appropriate system and strategy: It helps to build the flexible business structure to
absorb the financial challenges and uncertainties in positive manner.
Balance scorecard approach
Adjusted score card is an approach which is utilized to set to follow activities and execution of
workers in association. It is an organization of semi organized report which helps in executing
the plans and technique in proficient way. There are plans and systems are made to accomplish
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objectives and targets of association. Equalization score card helps in overseeing, checking and
examining the activities and execution of workers.
Essentially this approach is executed and used to centre around administration and
operational exercises of association. According to late records and figures 60% respondents are
records who actualized adjusted scorecard way to deal with influence successful and agreeable
administration to structure and 40% utilize this approach in overseeing working branch of
association.
CONCLUSION
Management accounting meaning and dimensions are defined in this context. Various
type of management accounting systems are defined in respect of small and medium size
industries and organisations. Various type of reporting methods which are used in management
accounting reporting elaborated in this report. Cost evaluation methods defined subject to small
and medium size organisation. Absorption costing techniques and marginal costing techniques
are defined subject to evacuation cost per product and unit. Pros and cons of various type of
planning tools used in budgetary control also illustrated in this report. Ways are compare in
respect of implementing management accounting system to respond financial problems with in
the organisation also discussed in this context.
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REFERENCES
Books and Journals:
Benson, K. and et. al., 2015. A review of accounting research in the Asia Pacific region.
Australian Journal of Management. 40(1), pp.36-88.
Granlund, M., 2011. Extending AIS research to management accounting and control issues: A
research note. International Journal of Accounting Information Systems. 12(1). pp.3-19.
Hilton, R. W. and Platt, D. E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Islam, J. and Hu, H., 2012. A review of literature on contingency theory in managerial
accounting. African Journal of Business Management. 6(15). p.5159.
Kotas, R., 2014. Management accounting for hotels and restaurants.
Parker, L. D., 2012. Qualitative management accounting research: Assessing deliverables and
relevance. Critical perspectives on accounting. 23(1). pp.54-70.
Parker, L. D., 2012. Qualitative management accounting research: Assessing deliverables and
relevance. Critical perspectives on accounting. 23(1). pp.54-70.
Qian, W., Burritt, R. and Monroe, G., 2011. Environmental management accounting in local
government: A case of waste management. Accounting, Auditing & Accountability
Journal. 24(1). pp.93-128.
Routledge.P. Tucker, B. and D. Lowe, A., 2014. Practitioners are from Mars; academics are
from Venus? An investigation of the research-practice gap in management accounting.
Accounting, Auditing & Accountability Journal. 27(3). pp.394-425.
Sargent, C. S., Borthick, A. F. and Lederberg, A. R., 2011. Improving retention for principles of
accounting students: Ultra-short online tutorials for motivating effort and improving
performance. Issues in Accounting Education. 26(4). pp.657-679.
van der Steen, M., 2011. The emergence and change of management accounting routines.
Accounting, Auditing & Accountability Journal. 24(4). pp.502-547.
Online
Implementation of management accounting tool in organisation, 2017. [Online]. Available
through: <https://www.mckinsey.com/business-functions/sustainability-and-resource-
productivity/our-insights/how-companies-can-adapt-to-climate-change>.
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