Management Accounting (Unit 5) Assignment

(J-A 2021) RQFBM-MA0602053 03.2021
Submission Front Sheet
Programme BTEC Higher National Diploma (HND) in Business (RQF)
Unit Title and Number: Management Accounting (Unit 5)
Assignment title Management Accounting Assignment Brief
Unit RQF level/Code Level 4
H/508/0489
Module Tutor Name
/Email
Dr Ayodele Aluko
[e-mail].u
k
Credit Value 15
Assignment Brief Code (J-A 2021) RQFBM-
MA0602053
Cohort Name Sept 20B Assignment Date Set 5th Jan 2021
Student’s Name
Bianca
AndreeaPresicare
anu
Student’sRegistration
Number
25467
Submission Date
04.03.2021
Distribution Date 18/01/21
Is this a first
submission
Is this a referral
submission
Word Count
3338
Learner’s statement of authenticity
I certify that the work submitted for this assignment is my own. Where the work of others has
been used to support my work then credit has been acknowledged.I have identified and
acknowledged all sources used in this assignment and have referenced according to the
Harvard referencing system. I have read and understood the Plagiarism and Collusion section
provided with the assignment brief and understood the consequences of plagiarising.
Student’s Signature
Presicareanu Date 04.03.2021
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Table of Contents
Introduction..............................................................................................................................4
Demonstrate an understanding of management accounting systems.................................4
Explain management accounting and give the essential requirements of different types of
management accounting systems...........................................................................................4
Explain different methods used for management accounting reporting...............................5
Evaluate the benefits of management accounting systems and their application within an
organisational context............................................................................................................5
Apply a range of management accounting techniques........................................................6
Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs......................................................................6
Marginal costing technique................................................................................................6
Absorption costing technique.............................................................................................6
Reconciliation statement....................................................................................................7
Interpretation of the income statements.............................................................................8
Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents................................................................................................8
Marginal costing method....................................................................................................8
Absorption costing method................................................................................................8
Explain the use of planning tools used in management accounting....................................9
Explain the advantages and disadvantages of different types of planning tools used for
budgetary control...................................................................................................................9
Traditional budget..............................................................................................................9
Activity based budget.........................................................................................................9
Zero based budget............................................................................................................10
Rolling budget..................................................................................................................10
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Analyse the use of different planning tools and their application for preparing and
forecasting budgets...............................................................................................................10
Compare ways in which organisations could use management accounting to respond to
financial problems..................................................................................................................10
Compare how organisations are adapting management accounting systems to respond to
financial problems................................................................................................................10
Cost accounting................................................................................................................11
Pricing strategy.................................................................................................................11
Budgetary control.............................................................................................................11
Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success.....................................................................................11
Financial governance.......................................................................................................12
Key performance indicator...............................................................................................12
Benchmark system...........................................................................................................12
Conclusion................................................................................................................................13
Reference..................................................................................................................................14
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Introduction
In the business organisation, making play a significant role as to contribute in the growth and
development planning of the business. For the business organisation the use of different tools
and techniques for preparation of the different strategies to execute in the market is a
significant part as the wrong choice of tools and technique can create significant impact on
the decision making of the business. As a result, the growth and development of the business
organisation will also be hampered. For the financial decision making, the financial manager
and the management of the business organisation uses financial management. This is why,
along with the financial management the use of management accounting is important for the
business organisation to maintain the confidentiality of the preparation of strategies and
planning as well as to improve the efficiency level of the decision making system of the
business. In this report, the discussion regarding the management accounting has been
conducted to evaluate the integration of the management accounting system with
organisational processes. Also how the business organisation response to solve differing
financial problems of the business by the tools and techniques of management accounting and
achieve the sustainable success has been mentioned in the report.
Demonstrate an understanding of management accounting systems
Management accounting system (MAS) is engaged with the process of collection, analysis
and interpretation of both financial and non-financial data which are instrumental for the
managers to undertake important strategic decisions. A manufacturing company uses MAS to
evaluate the profitable cost of production as well as to fix the prices of its products and
services by analysing the performance of the company in the past along with the performance
of its competitors in the market. MAS prepares reports in accordance with the needs of the
management
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Methods used for management accounting reporting
Management accounting reports plays a crucial role for the growth and development of any
organisation as well as efficient operation of any business. The management accounting
reporting is done according to the needs of the organisation and can be done in various
methods. Some of them are discussed below:
Budget Report
Budget report is prepared keeping in mind the performance of the organisation in previous
years. A perfect budget takes into account the probability of the occurrence of any unforeseen
circumstances.
Account Receivable Aging Report
This report helps to understand the defaulters so that strict actions can be taken with respect
to the credit policies.
Cost Report
This report includes all the expenses which are involved in the production process. It helps
the managers to optimally allocate its resources.
Performance Report
This report gives an idea about how the company performed as well as how the workers have
performed. The managers uses this report to analyze the shortcomings and make strategic
decisions regarding how they can improve in the upcoming period of cycle.
Evaluate the benefits of management accounting systems and their application within
an organisational context
Detailed analysis of both financial and non-financial data and interpretation of these data with
the help of charts, tables and graph helps the management team in having a detailed and clear
understanding of the operations of any business and helps them in undertaking important
strategic decisions. It creates a linkage between different departments of an organisation and
makes them work as a team. Detailed cost analysis reduces the cost involved in the operations
of the business as well as improving the efficiency in its operations. It helps the organisation
in maintaining its standard and improving the profit margin for both short term and long term.
(Ameen et al., 2018)
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Apply a range of management accounting techniques
Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs.
Cost analysis can be done in mainly two ways- marginal costing and absorption costing.
Marginal costing method
Marginal costing method which is also known as variable costing method is prepared based
on the behaviour of the cost. Dependent on the volume of the output, the cost of the
production can also change. In this process, the contribution for per unit of product is
calculated by the user. It is noticeable that other than the fixed and variable cost any other
type of cost is not used in this method (Myers, 2021).
Absorption costing method
Absorption costing method is another method of cost accounting which focuses on
calculating the net profit earned by the business organisation from the production. In this
process, the valuation of inventory is also considered. Also other than the fixed and variable
cost different other costs are also included in order to increase the efficiency of this process.
As a result, sometimes, the profit calculated under this method, can be found lower in amount
then the profit calculated in marginal costing method (Myers, 2021).
Let us explain the two techniques involved in the cost analysis with the help of an example
Marginal costing technique
Particulars 2020 2021
Per unit Total amount Per unit Total amount
Sales £ 95 £ 95 * 4000 = £
380000
£ 95 £ 95 * 5000 = £
475000
Less: variable cost
Direct material £ 18 £ 18 * 4600 = £ £ 18 £ 18 * 5100 = £
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82800 91800
Direct labour £ 12 £ 12 * 4600 = £
55200
£ 12 £ 12 * 5100 = £
61200
Variable expenses £ 8 £ 8 * 4600 = £
36800
£ 8 £ 8 * 5100 = £
40800
Total variable costs £ 174800 £ 193800
Contribution £ 205200 £ 281200
Less: fixed cost
Fixed overhead cost £ 11500 £ 11500
Net profit £ 193700 £ 269700
Absorption costing technique
Particulars 2020 2021
Per unit Total amount Per unit Total amount
Sales £ 95
£ 95 * 4000 = £
380000 95
£ 95 * 5000 = £
475000
Less: cost of sales
Opening
inventory 500
£ 95 * 500 = £
47500 1100
1100 * £ 95 = £
104500
Less: production
£ 18 + £ 12
+ £ 8 = £ 38
4600 * £ 38 = £
174800
£ 18 + £ 12
+£ 8 = £ 38
5100 * £ 38 = £
193800
Add: closing
inventory
500 + 4600
- 4000 =
1100
1100 * £ 95 = £
104500
1100 + 5100
- 5000 =
1200
1200 * £ 95 = £
114000
Total cost of
sales £ (22800) £ 24700
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Gross profit £ 402800 £ 450300
Less: fixed
overhead cost £ 11500 £ 11500
Less: fixed
indirect
production cost £ 85000 £ 85000
Net profit £ 306300 £ 353800
From the above income statement which has been prepared by using two different methods
named marginal costing method and absorption costing method, the following reconciliation
statement has been drawn.
Reconciliation statement
Particulars 2020 2021
Marginal
costing method
Absorption
costing method
Marginal
costing method
Absorption
costing method
Sales £ 380000 £ 380000 £ 475000 £ 475000
Opening inventory NIL £ 47500 NIL £ 104500
Closing inventory NIL £ 104500 NIL £ 114000
Gross profit NIL £ 402800 NIL £ 450300
Contribution £ 205200 NIL £ 281200 NIL
Cost of sales NIL £ (22800) NIL £ 24700
Net profit £ 193700 £ 306300 £ 269700 £ 353800
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Interpretation of the income statements
From the above reconciliation statement, we can understand that the amount of sales is same
in both the methods. But as per as net profit is concerned, it is evident that because of the
inclusion of different types of fixed cost, as well as the inventory calculation, the amount of
profit in both of techniques are showing different results.
Explain the use of planning tools used in management accounting
Among the different kinds of planning tools used by the business organisation, budgetary
control is one of them. For the preparation of budgetary control different kinds of budget are
used by the business organisation. From the perspective of the method the budgets can be
differentiated in two different categories which are traditional budget and alternative budget.
Under the alternative budgeting method, the activity based budgeting, the zero based
budgeting the rolling budget et cetera are the most popular tools (Gunawan et al., 2020). The
discussion on advantages and disadvantages of these tools for preparing budgetary control
has been conducted below.
Traditional budget
Here, budget of the current year is prepared by taking budget of the previous year as the base
year. The traditional budget can provide a readymade format and framework to the workers
and employees of the business organisation. But on the other hand it is also important
remember that because of the rigid nature of the traditional budget any kinds of innovation
and creativity is not motivated. Here, budget of the current year is prepared by taking budget
of the previous year as the base year (Kholod et al., 2019).
Activity based budget
Here, budget is prepared based on the cost involved in the operation of any business. Activity
based budget can provide significant guidance to the business organisation regarding
eliminating the unnecessary work to reduce the time and cost and increased efficiency. But
for the preparation of this budget, significant amount of cost and time is needed along with
the expert knowledge and skill. Here, budget is prepared based on the cost involved in the
operation of any business (Zheng and Abu, 2019).
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Zero based budget
Under this category, the budget for the next budget cycle for the organisation starts from zero
level instead of increasing the current expenditure. The zero based budget can you help the
business organisation by analysing each and every activity to prioritise the same. But for this
purpose a high amount of labour, time, and cost is needed. (Erasmus, 2020).
Rolling budget
Here, new budgets are updated continuously as soon as the most recent budget period is
completed. The rolling budget can help the business organisation in keep up with the
continuous change in the business environment. But without the continuous updation in the
rolling budget, the efficiency of the same will be lost (Bhimani et al., 2018).
Analyse the use of different planning tools and their application for preparing and
forecasting budgets.
Planning is essential for creating the blueprint of what the organisation expects in the
upcoming years and on which financial direction it is currently heading. Companies generally
prepare their budgets at the beginning of a fiscal year with certain adjustments with the
growth or decline of revenue. Planning varies on a monthly basis in accordance with the
performance in the market as well as other unforeseen circumstances. Estimates of revenue
and expenses along with the inflow and outflow of cash help the management team to plan
their operations. Pricing pattern followed by the organisation is planned as per the cost
expenses as well as the prices followed by its competitors.
Compare how organisations are adapting management accounting systems to respond
to financial problems.
From the above discussion in the report it is clearly understandable that there are various kind
of tools techniques and methods can be available under the field of management accounting.
In order to adopt the management accounting system in the business organisation there are
various kind of tools and techniques which can be used by the business organisation for
different purpose to achieve the objective and success.
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Cost accounting Pricing strategy Budgetary control
 Cost accounting help
the organisation in
solving the issues
related to cost
problems (Hilorme et
al., 2019).
 To help the business
organisation in
increasing the price
margin of the
organisation to
maximize the profit.
 Reduction of the cost
(both operational and
production) (Marota
et al., 2017).
 To help the
organisation in
ensuring the
maximum utilisation
of the resources to
optimise the benefit
from the
same(Marota et al.,
2017).
 In order to maintain
the coordination and
cooperation in the
organisation.
 The pricing strategy
of the organisation
determines the price
of the product and
services (Kung and
Zhong, 2017).
 In order to maximize
the profit of the
organisation.
 To maintain the
customer base while
maximize the price
of the product (Kung
and Zhong, 2017).
 To help the
organisation in
attracting different
customers from
different segments of
the market.
 To help the in
providing the chance
to balance the profit
maximization in the
market without
losing any customer
(Kung and Zhong,
2017).
 Budgetary control is
conducted in order to
predict and forecast
the revenue and
expenditure of the
organisation for the
future period of time.
 To predict and
forecast the revenue
and expenditure of
the organisation for
the future period of
time.
 For the purpose of
allocation of
resources among the
different departments
of the organisation.
(Henttu-Aho, 2018).
 To help the
organisation in
maintaining the
cooperation and
coordination
between different
departments
individuals and
teams.
 In order to reduce the
cost and unnecessary
activities of the
organisation (Henttu-
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Aho, 2018).
From the above discussion in the report it is clearly understandable that there are various kind
of tools techniques and methods can be available under the field of management accounting.
In order to adopt the management accounting system in the business organisation there are
various kind of tools and techniques which can be used by the business organisation for
different purpose to achieve the objective and success.
Cost accounting
Cost accounting can be considered one of the most important part of management accounting
who is used by the business organisation for the purpose of solving the issues regarding the
cost. The management of cost in the business play a significant role in maintaining the profit
margin as well as improving the same(Hilorme et al., 2019). Through the different tools of
cost accounting, the efficiency of managing the cost in the business can be improved.
Pricing strategy
The use of pricing strategy can be conducted by the management of the business organisation
to increase the profit margin in the business. Also it is important to remember that the
appropriate use a pricing strategy can also help the business organisation in attracting more
customer from different segments of the market to increase the customer base as well as the
revenue and profit of the business(Kienzler and Kowalkowski, 2017).
Budgetary control
Budgetary control is another most important and common method of management accounting
which is used by the business organisation to understand and focus the future income and
expenditure of the business organisation. The forecasting regarding the future activities and
transaction of the business organisation will help the business organisation in better allocation
of the capital resources which can provide the competitive edge to the business
organisation(Henttu-Aho, 2018).
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Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success.
In order to respond towards the financial problem of the business organisation the
management of business organisation can use different types of techniques of management
accounting. For example, the use of different methods like financial governance, benchmark
system, key performance indicators, et cetera can be proved as helpful and effective. It is
important to remember that which of these methods can be used by the business organisation
for different purpose and different areas. The discussion on the approach of these methods
towards solving the financial problems, has been discussed below.
Financial governance
Financial governance is the process by which the management of the business organisation
can monitor the different activities and transaction which are conducted under the financial
management of the business organisation. The transparency of each of the activities and
transaction can be ensured by the business organisation by using the method of financial
governance(Seabrooke and Tsingou, 2020).
Key performance indicator
The use of key performance indicator in the responding towards the financial issues will help
the business organisation in actively solving the problems step by step thoroughly. In the
financial aspect of the business several kinds of key performance indicator can be found
which will help in maintaining the appropriate standard for the business organisation in
performance(Rakhshani et al., 2019).
Benchmark system
The term benchmark can be defined as a standard which is needed to be maintained by the
business organisation for the purpose of maintaining the quality and standard. The ideal
position of situation which can help the business organisation in achieving the goals and
objective is known as the benchmark. Comparing the actual performance with the benchmark
can provide the guidance to the business organisation regarding the areas of weaknesses and
how to improve the same(Krishna and Nair, n.d.). In this way the benchmark of the business
organisation can be maintained which will reduce the financial issues of the business.
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Conclusion
In the conclusion, it can be said that management accounting can play a significant role in the
business organization as it can help in improving the decision making ability of the
management of the business organization. Throughout the report, from the discussion it is
clearly understandable that the use of proper techniques of the management accounting in the
business, can improve the quality and standard of the performance. As per the discussion in
the report, it is clearly understandable that different kinds of techniques of the management
accounting can create different types of impact as well as the application of those techniques
are different from each other. Also, it can be said from the income statements which has been
prepared that without proper knowledge and skills regarding the application of these
techniques. The management accounting techniques can help in maintaining the coordination
and cooperation between different individual teams and departments of the business
organisation the efficiency and the productivity level of these functional units can also be
improved. The ability to maintain the confidentiality planning strategies and other data and
information of the business organisation can be helpful for the business organisation to gain
the competitive advantage in the market. In other way it can be said that, use of management
accounting can help the business organisation in increasing the chances of success in the
market.
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Reference
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Beerbaum, D., Piechocki, M. and Puaschunder, J.M., (2019). ACCOUNTING REPORTING
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Management, 14(4).
Bhimani, A., Sivabalan, P. and Soonawalla, K., (2018). A study of the linkages between
rolling budget forms, uncertainty and strategy. The British Accounting Review, 50(3), pp.306-
323.
Erasmus, D., (2020). A zero-based budget for agri department: from the editor. Farmer’s
Weekly, 2020(20020), pp.4-4.
Gunawan, A., Yadiati, W., Suharman, H. and Sofia, K.P., (2020). Linkages to Budgetary
Control and Budgetary Absorption Performance. International Journal of Economics and
Financial Issues, 10(5), p.304.
Henttu-Aho, T., (2018). The role of rolling forecasting in budgetary control systems: reactive
and proactive types of planning. Journal of management control, 29(3), pp.327-360.
Hilorme, T., Perevozova, I., Shpak, L., Mokhnenko, A. and Korovchuk, Y., (2019). Human
capital cost accounting in the company management system. Academy of Accounting and
Financial Studies Journal, 23, pp.1-6.
Kholod, M., Lyandau, Y., Golubtsov, P., Okunkova, E. and Mrochkovskiy, N., (2019).
Traditional Versus Budget Airlines—Comparison of Tickets Costs and Demands on the
European Air Transportation Market. In Smart Transportation Systems 2019 (pp. 215-224).
Springer, Singapore.
Kienzler, M. and Kowalkowski, C., (2017). Pricing strategy: A review of 22 years of
marketing research. Journal of Business Research, 78, pp.101-110.
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