(PDF) Introduction to Management Accounting

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting is an approach used by companies to analyse their cost and
spending so that financial reports would be produce which would assist manager to take their
decision accordingly. For this report, manufacturing company Unilever is taken for discussion
which deals in food, households, personal care etc and co headquarter in United Kingdom and
Netherlands (UK’s Biggest Manufacturing Companies, 2019) Details analysis of Management
accounting will be done by considering its types, advantages, disadvantage, techniques etc.
Besides this, various approach would be explained in the latter part which assist companies to
save their profits and cost. At last, comparison will be done on different companies on the basis
of their management accounting systems.
LO1
P1: Management accounting and various type of its structure
Management accounting is way of presenting information regarding the accounting of the
company so that management would be able to plan their goals and objective accordingly. Main
role of it is to plan and organise the business operations according to company available funds so
that maximum utilisation of resources would be attain. For instance, if Unilever specific product
is not achieving its pre sales target then management accounting helps to identity the problems
product is making and then make strategies according to their strengths and weakness. Different
types of management accounting is given below,
 Job costing system: Job costing is a type of system in which manufacturing cost of each
product will be calculated instead of the whole process (Otley, 2016). But in JC system,
whole process cost is accumulated and then analyse it with each product cost with the
aim of finding the reason due to which more or less cost is incurred. It can assist Unilever
to reduce their cost as they have hundred of specific product which they sell in the
market. This costing system is necessary for Unilever to get exact estimation of their cost
composition in given point of time and also to adjust profit making in same context. Job
costing system is majorly calculated, when each and every items or level of product in
manufacturing on specific basis. Main aim of this system is to reduce the production cost
so that more profitability would be achieved by company.

 Inventory management system: It is a combination of technology and accounting in
which main role is to track the status of the products and services available in the
company so that demand analysis would be accomplished. Inventory management system
is basically taken into consideration, when any inventory has been bought from supplier's
and also which needs to be store area. In this, proper techniques of its management is
important. It would be helpful for Unilever as they are into manufacturing so that they
can track the record of inventory present in the company and how much is requires in the
future. Also, this will be choice for Unilever to manage their inventory on an optimised
basis along with suitability to save cost and expenses on acquisition of more inventory.
Aim of using this is to manage the inventory according to the goals so that inuring cost
would be reduced to a certain level thus increasing profitability of Unilever.
 Cost accounting system: Cost accounting system is a framework which is used by firms
to estimate cots of production & maintenance of their products or services to generate
adequate profitability. This cost system is generally prepared, when firm's are looking to
increase its business performance & enhance major productivity in return of cost incurred
in production of any defined goods or services. It will assist Unilever to identification of
the whole cost incur for making the product like fixed, variable cost etc. If all the cost
incurred is identified then it becomes easier for company to analyse their profits or loss
and how they could improved in the future. For instance, it would be easier for Unilever
at the time of doing cost benefit analysis or finding break even point.
 Price optimisation system: It is an approach which provides the cost to the company
which they should charge from the customer so that higher profits would be acquired by
providing highest value proposition. Price optimisation system is taken into care, when
Unilever will go in process of maximising their profit generation at an optimised level. It
will assist Unilever to find cost where company can earn the profit without disturbing the
demand of it. For instance, Unilever can set their product price with the help of price
optimisation so that their profitability would increase in the future.
Difference between financial & management accounting
Basis Financial accounting Management accounting
Meaning Financial accounting is a system that
majorly focuses on preparation of
This type of accounting provides
relevant information to a manager's to