Management Accounting Report: Costing, Budgeting, and Strategy

This report delves into the core principles of management accounting, exploring its importance and various systems, such as job costing and inventory management, with a focus on their application within Imda Tech. It contrasts financial and management accounting, highlighting the significance of management accounting in decision-making, cost control, and strategic planning. The report examines costing methods, specifically marginal and absorption costing, and their implications on income statements. It also analyzes the advantages and disadvantages of budgetary control, along with the application of planning tools. Furthermore, the report covers the balance scorecard approach and its role in evaluating financial issues, providing a comprehensive overview of management accounting techniques and their practical application in a business context.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Importance and functions of management accounting.....................................................1
P2. Various systems used in management accounting...........................................................3
M1: Advantages of using management accounting system...................................................5
TASK 2............................................................................................................................................5
P3. Income statement by marginal and absorption costing....................................................5
M2: Analysis of management accounting techniques............................................................9
TASK 3............................................................................................................................................9
P4. Budgets and their merits and demerits.............................................................................9
M3: Analysis of using planning tools...................................................................................11
TASK 4..........................................................................................................................................12
P5. Balance scorecard approach...........................................................................................12
M4:Analysis of financial issues............................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is a process in which various operations are performed so that
accounts of organisation can be maintained in the most appropriate manner. This will be
including collection, recording, analysis and many other measures (Macintosh and Quattrone,
2010). By the help of it, all aspects which are related to finance will be considered. In this report,
various types of accounting and reporting are discussed. The use of costing methods in order to
determine net profit for the company is examine. Advantages and disadvantage of using planning
tools in budgetary control process are discuss under this project. The measure used to solve
financial issues are explain by using various techniques. All of these shall be undertaken with
reference to Imda Tech where budgetary control and manner of solving problems that arise in
business are also explained.
TASK 1
P1. Importance and functions of management accounting
In any business, there are various functions which are to be performed by them so that
company can enhance its value. So, all the processes that are taken to manage them are included
in management accounting. As the conduction of business will require different information so,
it is necessary to collect it in an appropriate manner and on time. For this purpose, various tools
can be utilised but most commonly used is systems which are there for management accounting.
There are several policies that are to be followed so that everything is done in the best possible
manner. As this information will be used for making relevant decisions, so, it is needed that all
the modifications which are taking place in environment shall be incorporated. By this, the latest
data will be available and this will help in carrying out the functions in such a way that yield
business maximum returns (Nandan, 2010). In addition to this, financial accounting is also used
in which only those matters which are related to finance will be included. In order to understand
the difference between management and financial accounting in an appropriate manner, a
comparison is made which is provided here as under:
Basis Financial accounting Management accounting
Reason The main reason for which
financial accounting is
undertaken is to make all
Managers in business need data
for performing different actions
and that is made possible with the

financial statements as all
persons use them for various
purposes.
help of it.
Type of data Information which is related to
financial aspects will only be
covered here.
In this all the data related to any
transaction shall be taken into
account.
Format Authorities have specified a
proper format in which recording
is required to be made.
Under this, all the data shall be
incorporated in accounts in a
manner as no specific format has
been established.
Legal requirement Various laws and regulations
define the need for financial
accounts and so, they are
required to be made
compulsorily.
They shall be made according to
perception of organisation as no
compulsory rule is provided in
respect of it.
Duration For them, a period is mentioned
for which preparation is to be
done and that is generally for
one financial year.
The duration for which it shall be
done is not fixed and can be
undertaken for any period.
Importance of management accounting
In the process of decision making, there is need to maintain all the accounts and for that,
management accounting is the best tool that can be used. All the actions which are performed
can be made in accordance with the pre decided structure and this will enhance the effectiveness
and efficiency of business as there will be no obstacles which will have to be faced by them. By
this, there are many benefits which are attained by Imda Tech and some of them are explained as
below:
 Cost is the most important factor and it is needed that it shall be controlled properly. So,
by the use of this, all costs which are not required but incurred and no additional benefit

is received due to them shall be identified. After this, such steps are undertaken by which
they will be avoided and cost with respect of them is saved.
 In order to carry out operations in a better manner, it is needed that different strategies
shall be formulated by the use of which it can be achieved. So, under this, information
collected is used and this results in proper policy making.
 As all the tasks will be carried out appropriately and planning is done, so this leads to
establishment of proper control which is very much necessary to maintain growth and
success in the long term.
P2. Various systems used in management accounting
As the main need is of information and that can only be fulfilled by using management
accounting systems, so it is required to have all knowledge regarding them (Parker, 2012). Then
only, managers will be able to incorporate them in the procedure which is followed in the
organisation. By the use of them, decisions which are best for company are taken and all the
goals and targets which are set can be achieved in a proper manner and in specified time limit.
After the collection and recording, it is needed that evaluation shall be made so that if any
shortcoming is there then it can be determined. All the data can only be used for the internal
processes of business and no sharing of it is made with the outside parties. So, for all this, major
systems that are used are described as below:
 Job costing system: In this, all the expenses which are incurred in Imda Tech shall be
incorporated. There are number of jobs which are performed and to have the knowledge
regarding them, this system is used. Here, all the expenses which are to be incurred with
respect to them cannot be determined for individual products. So, it is needed that total
amount will be determined and then allocation of it will be made among all the units
which are manufactured. By this, the unit cost will be identified that will be used in the
process of decision making. Also, the findings will be used to make the process better for
future so that any kind of activity which can be eliminated in coming period is identified
and avoided. This will result in further cost saving or can say increase in profitability.
 Inventory management systems- It is related to the managing stock as well as inventory
in a proper manner (Zimmerman and Yahya-Zadeh, 2011). It is a process that includes
managing and controlling the ordering stock, its storage and at last, control the cost of
products and services for selling. The business organisations manage and control their

inventory and stock on daily basis. Company maintains the record and keeps information
about the availability of inventory and neglect problems related to shortage inventory. In
context to it, the methods used are according to the costing so that a business organisation
can finish its activities in a reasonable cost and within particular period of time. It is
helpful in reducing the wastage from resources.
 Cost accounting system- In the process of production, there are two types of costs
involved i.e. variable and fixed. It is a structure used by companies to calculate the
product’s cost for determining profitability and control expenses (Renz, 2016). The
variable cost are those which are flexible and keep on fluctuating. On the other hand,
fixed costs are those which are not changed with the deviation in production unit. There
is an inverse relation in between profit and cost. If the cost will be enhanced, then the
profit level will be decreased and in case if cost will be reduced then profit will be
increased.
 Price optimisation system- It is a kind of mathematical evaluation through an
organisation to check the response and feedback of consumers about various processes of
different services and goods by different channels. It is necessary for company is to find
out another alternative with achieving high level of performance. The price optimisation
system is used for evaluation of costs that organisation can meet with its goals and
objectives. By using that, price shall be calculated which will be providing maximum
returns and would also be affordable for consumers. This is needed as otherwise the
demand will decline and in place of additional gain, negative impact will have to be
borne by business.
So, by the above discussion, it can be said that various systems are there and they will be
helpful in achievement of benefits which includes reduction in overall cost. As the information is
collected in an appropriate manner, so, it can be treated as reliable and used by managers for
different purposes.
As planning is needed for the attainment of objectives so, they will be made in order to
carry out processes in the most effective and efficient way (Ward, 2012). Performance is to be
evaluated so that such steps are taken by which competition in market can be dealt in a proper
manner. This will help in receiving additional advantages and by the same, further growth is
made possible.

M1: Advantages of using management accounting system
In an organisation, it is crucial for them to use right accounting system which can record
financial transaction of business operation. It will help them to increase efficiency and
profitability of an organisation.
TASK 2
P3. Income statement by marginal and absorption costing.
In the business, there is need to take various decisions for development of it and due to
this, it is essential that profits shall be calculated in a correct manner. With respect to same, there
are two reasons which are specified which includes marginal and absorption costing. In income
statements it will be needed that cost shall be allocated in appropriate manner (Banerjee, 2010).
There are many such things which are to be noted in these processes which will be discussed in
detail below:
Marginal costing: All the expenses which are incurred in business will be classified in
two categories which are fixed and variable. In respect of variable they can be identified on per
unit basis and so will be charged accordingly whereas fixed cost are not to be apportioned and
will have to be taken on total amount after the deduction of variable from sales. The decisions in
this are to be taken on basis of contribution per unit which is calculated.
Absorption costing: Under this all the cost shall be included and for that they will be
apportioned on the basis of total production which has been done. The main focus in this will be
on the allocation of fixed overheads and then by taking that under consideration it is needed that
profit shall be determined which will become base for decision making. By this all the relevant
information will be available with management.
There are various objectives which are required to be fulfilled and for that it is needed
that financial viability shall be identified. For that the methods which are described above will be
used. The main factor because of which profitability of company is affected is cost. So it is
needed that changes that are taking place in respect of it shall be identified and reasons for same
shall be determined (Haiza Muhammad Zawawi and Hoque, 2010). After this such measures
shall be taken which will reduce the effect and by that again profitability is taken to required
level. There are many such expenses which are incurred uselessly and are not necessary for
business. By following the proper methods they can be eliminated which will lead to reduction of

overall cost and that is beneficial for organisation. After all of this is done income statements are
required to be prepared and same are presented below:
Income statement on the basis of Absorption costing method
Selling Price per unit ￡35
Unit costs
Direct materials cost ￡8
Direct Labour cost ￡5
Variable Production overhead ￡2
Variable sales overhead ￡5.25
Budgeted production during the year is 3000
units
OAR= EBIT / Total level of activities = 15000/2000=7.5
Selling cost: In this budgeted cost is £10,000and Actual cost is £7875
Absorption costing working notes
Working Note 1: Calculate full production cost
Direct material ￡8
Direct labour ￡5
Variable cost ￡2
Fixed cost ￡5
Total ￡20
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40,000 500*20 = £10,000
Working Note 3: under/ over absorbed fixed production overhead
Actual fixed production: ￡10000
Fixed overhead: ￡7500

Total £2500 (over absorbed)
From the above information, it has been seen that with the total product units of 20 and
actual production is about 2000. The actual fixed cost over production is 10000 with total
overhead costs is 7500. It shows the over absorption situation in the production of process if the
company is using absorption costing.
Net profit using absorption costings ￡Amount £Amount
Sales value
Less: Cost of Sales:
Opening stock
Cost of production
Closing stock
(Under)/Over absorbed fixed prod. O/h
Gross Profit
Less: Selling Expenses
Variable sales expenses
Fixed selling expenses
NIL
40000
(10000)
7875
10000
52500
(30000)
2500
25000
17875
Net gain 7125
According to the above income statement which is done with using absorption costing
they are getting a profit of 7125 with the over absorption of 2500.
Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production expenses 2
Total Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory

Nil 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing ￡Amount £ Amount
Sales value
Less: Variable costs
Stock at the opening
Cost of production
Stock at the closing
Variable sales overheads
Contribution
Less: Fixed costs:
Fixed Production overheads (1500*5)
Fixed Selling overheads
NIL
30000
(7500)
7500
10000
52500
(22500)
(7875)
22125
(17500)
Net Gain 4625
From the above costing method whcih is used by Imda Tech they are getting a profit of
4625 with the same line of units. Because fixed costs are not making any huge impact.
There are various types of information which are needed in order to make the best
decision and for that, it is necessary that all the reports shall be formulated in which complete
data is to be recorded (van der Steen, 2011). The main reports that can be made are performance
report and income statements. By that the profits made will be identified and then on basis of
there evaluation it will be possible for management to know the level of performance which is
maintained by them. By using all this it is possible to use all resources in best possible manner
by which growth of company is enhanced and in this all factors are taken into consideration.
In the above calculation it can be noted that profits which have been derived by the help
of two methods are different. The main reason for this is the manner in which allocation of fixed
overheads is made. The reconciliation of this can be made in following manner:
Profit from absorption costing 7125

Difference (500*5) 2500
Profit from marginal costing 4625
so it can be noted that difference is just because of fixed overheads in relation to closing
inventory.
M2: Analysis of management accounting techniques
In an organisation, it is necessary to use accounting techniques so that estimation of total
costs and expenses can be determined. The other important aspects of using this techniques is to
gain long term objectives and better outcomes. This will bring great chances to increase
efficiency and profitability of an organisation.
TASK 3
P4. Budgets and their merits and demerits
The manner in which performance is done by business is required to be evaluated and
then on that basis decisions are taken. There are various such measures which can be used to
achieve development in performance and to know reasons which are affecting it. The main
among all the available tools is budgets in which estimates are mentioned in respect of all
incomes and expenses which are there in company. By this it is possible to have proper control
on them and this will help in overall improvement in performance. For this, research will have to
be carried out so that all the past figures can be evaluated and projections can be made in relation
to coming period (Ajibolade, Arowomole and Ojikutu, 2010). Then on basis of findings amounts
will be entered in budgets which define the limit till which all expenses shall be maintained for a
specified period of time. After this all the actual figures that are there for current period will have
to be compared with the amounts mentioned in budgets. This will help in identification of
variances and then reasons for the same are to be identified so that measures can be taken to
remove them. Various budgets which are to be prepared by company are described below:
Cash flow budget: There are many operations which are to be performed and in all of them
there will be requirement of cash. With the help of this budget it will be determined that how
much cash is required and then it will have to be arranged in that manner. By this all the
problems which are related to cash such as shortage can be resolved.

 Merits: The main benefit of this budget is that work will be carried with full
effectiveness as all the issues which are face due to funds will now not be there
(DRURY, 2013). With the help of them best option which is there for obtaining cash
shall be selected. This will be that by which cost to company shall be least so as to reduce
the overall expenses and increase profits.
 Demerits: As the amounts which will be recorded are based on estimates so there are
high chances that risk is there of using wrong data. So the results which will be drawn by
using it are also not correct and this leads to losses for company.
Master budget: This is the budget which is made so that all the transactions which are related to
various departments are summarised at one place. Due to this it is also identified as summary
budget. All the divisions can use this as data related to all is mentioned in it.
 Merits: By this time will be saved as all the data will be made available at single place
and so the time which used to be wasted in moving from one place to another is reduced.
The saved time can be utilised by business for other projects which will be giving
additional advantages. The obtained data can be used in many ways and that is beneficial
for it.
 Demerits: The making of alteration in this budget is difficult as there is data which is
related to different categories and it is not possible to make modification in all of them at
same time. In order to maintain the proper control it is needed that proper check should
be kept and by that additional cost is t be incurred.
Operating budget: All the operations which are performed shall be recorded in this so that they
can be carried out according to it and by this overall efficiency and effectiveness will be
enhanced (Management Accounting, 2017). Management of all expenses can be improved with
the help of this.
 Merits: By this, all the expenses which are to be met are identified and so planning will
be done accordingly so that there is no default which is made in this respect.
 Demerits: The operations keep on changing and it is not possible that they will be
identified in accurate manner so this leads to attainment of wrong results which is not
good for any business.
By doing so all the work will be performed in manner that increases the sustainability of
company as formulation of plan is done in best manner.