Types of Management Accounting Information

This presentation discusses the types of management accounting information that can be used in the travel and tourism industry. It covers cost allocation reports, budgets, and forecasting. The use of management accounting information in decision making is also explored.

Finance and funding in TTM
TASK 2

P2.1 Types of management accounting information
 Management Accounting is the function of internal business that is responsible for
collecting and reporting financial information for the internal uses of the organisation.
 This information is often related to the direct cost of services and products that are sold
to customers. Management accounting information is necessary for companies in order
to determine the efficiency and effectiveness of organisational operations.
 It also helps in determining the level of profits earned based on the assets that are used
to produce consumer products and services.
 This information is specific for all the owners and managers that need to review the
information for the purpose of decision-making.

CONTD…
Types of Management Accounting Information that can be used for travel and tourism
industry are:
 Cost allocation reports
 Budgets
 Forecasting

CONTD…
Cost Allocation reports:
 It is the primary function of management accounting. This report is prepared
by the accountants to show the allocation of capital amount to all the types of economic
resources.
 This report is also prepared to show how the business will be allocating its economic
resource costs to its goods and services. Common cost allocation method includes:
Job costing :
This method of costing records the cost of manufacturing and not the cost of process.
This type of costing is generally not popular in service industries like Merlin Entertainment
plc.

CONTD…
Process Costing:
 It is the method of assigning the cost to unit of production to those companies
producing large quantity of homogeneous products.
 Merlin Enterprises plc provides services that are homogeneous in nature and therefore
it can use process costing technique.
Activity Based Costing :
 It is also known as Activity based management. This system is expensive and difficult
to operate and manage in small businesses.
 But this is more
 popular in service industries like Merlin Entertainment plc.

CONTD…
Budgets: They are often prepared by management accountants to determine the volume of
money a business should spend on its business activities. Budgets are prepared to set
certain business expenditures to ensure the company is not over utilizing its financial
resources.
 Most common types of budgets used in management accounting are:
 Master Budgets : includes all financial expenditures of the company
 Standard budgets : specifically related to the production process of company
 Flexible Budgets : specifically related to the production process of company
Merlin Entertainment plc may use master budgets as its fixed expenses are
relatively high.

CONTD…
Forecasting : It is an important function of management accounting. Under this
management accountants prepare economic forecasts. The forecasts are made to determine
the expected sale of goods and services to customers in specific market situations.
Forecasting information helpd the management in making decisions regarding increase of
production or expansion of business operations.
 Common forecasting reports includes:
 Decision Trees
 Net present Value calculations
 Other statistical and forecasting methods.
Management of Merlin can use this technique in forecasting future events and
packages can be prepared accordingly.

P2.2 Use of Management Accounting
information in decision making
Though use of management accounting information is not compulsory in accounting
regulation but that does not mean that the information is not useful. Small business owners
faces countless of decisions in their day to day business activities. Management
accounting information helps in providing data driven information to these decisions. This
can improve decision making over the period of long run.
 The management accounting information helps the management in comparing the
trends over the years. This enables the management in making decisions regarding the
causes of negative changes in trends.
 Management uses management accounting information in forecasting the future
business activities. Through this management is intended to prepare plans for future
uncertainities.

CONTD…
 The information of management accounting also enable the management in making
decisions regarding investments. The information allows the management in
determining the areas and the limit of investments a company can make. For example
management of Merlin with the help of management accounting information can take
decision regarding purchasing of more land for rides and theme parks.
 The management accounting information provides the management the information
about capital structure of the company. Through help of various ratios, it enables the
management to know whether the company needs top raise the capital or not. And
through what sources company need to raise capital.

CONTD…
 The use of management accounting information can also be taken to determine whether
the company need to produce more products and services. The Merlin company can use
this information in order to determine in what kind of services it is lacking behind and
reasons for the same.
 The most important use of management accounting information is in meeting the
organisational goals and objectives. It provides the information related to all the
financial activities of the organisation. Merlin can identify that whether the activities of
the company are towards the achievement of its organisational goals and objectives
through this information.

REFERENCES
Otley, D., 2016. The contingency theory of management accounting and control:
1980–2014. Management accounting research. 31. pp.45-62.
Weetman, P., 2016. Financial and Management Accounting with
MyAccountingLab Access Card. Pearson/Education.
Messner, M., 2016. Does industry matter? How industry context shapes
management accounting practice. Management Accounting Research. 31.
pp.103-111.