Management Accounting: Data for Decision Making, Cost Methods, and Budgets

This report discusses the assessment of data required for management decision making, selection and application of appropriate management accounting and cost methods, and the use of functional and master budgets in various organizational scenarios. It also explores modern budgeting techniques like the Balance Scorecard and Activity Based Budgeting.

MANAGEMENT ACCOUNTING

Contents
INTRODUCTION...........................................................................................................................1
1. Assessment of type of data required for management in relation to decision making.......1
2. Selection and application of appropriate management accounting and cost method.........3
3. Functional and master budgets for a variety of organisational scenarios...........................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Concept of management accounting is quite primordial as it is being used in organisational
context in order to meet several organisational objectives. This study extracts the criticism from
different authors subject to use of these budgets by organisations (Boyns and Edwards, 2013).
The report presents the critical analysis of the need and process of making budgets and the
discuss the evaluation of modern budgeting terminology like Balance Scorecard and Activity
based budgeting.
1. Assessment of type of data required for management in relation to decision making
Managerial decision mainly based upon future feasibility of business and effectivity.
Enhancing of profitability and profitability of business is the last objective of managers and
organisers. Management accounting relates to accounting reporting. It helps administration to
accurately perform all its tasks, including scheduling, arranging, hiring, directing and controlling
with both the aid of accounting data. It offers the essential information required to support
leadership in policy-making between day and-to-day activities. Management accounting
responsibilities contains all related activities to the manager's collection, storage, analysis and
presentation of data. In accounting it includes setting up expense centres, planning schedules,
preparing reports for controlling costs and establishing accountability for functions. In J's
opinion. Batty, ' management accounting ' is the term that describes the methodologies of
accounting, frameworks and strategies that, combined to specific skills and knowledge, support
administrators in profit maximization or reducing loss (Siyanbola, 2013).
Effectiveness of decisions and strategies are mainly recognised effective if the taken
decisions have been increased the revenues or decreased the cost of operations for business. So,
in both the direct and indirect point of view management decisions remain related to revenue and
cost of entity. In financial terms the cost and benefit analysis mainly carried out by the managers
to resolve the financial consequences and increasing the profitability of business. A combined
formation of financial information and accounting decisions are practically utilised in real
business environment. the outcomes at the end of the accounting period justifies the effectivity of
decisions. The results are compared with the revenues and cost of previous years. If the cost of
remain lesser and revenue graph reflects increasing trends than it is clearly justified that the
management decision is worthy.
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The roles include decision-making in fields like: deciding what expenditure to conduct and
following the funding system. For example, managers to elect between capital investment
initiatives (which can be in a form of actual finical resources) to be financed as well as handle
other ongoing business investment to accomplish the necessary objectives. It is a feature which
gives priority to the company's spending requires. Decisions are made in view of the priority
programs' projected danger-return-payoff. The expenditure report is designed considering the
risks and duration of the projected retained earnings, the impact on existing financial income, the
internal rate of profits and the related capital costs. In the expenditure report, specifics of the
priority programs and cash flow forecasts are typically bundled. Within this structure for both the
decision, management must also agree on the amount of funds to be connected to tangible assets
to encourage stability, and also to establish an acceptable trade-off between short-term survival
flexibility and productivity as a requirement for lengthy-term growth. There are few financial
areas in which the management information regarding growth and development also remain
essential as profit and loss, sales revenues, market share employment and output subject to
stakeholder’s analysis and market value proposition (Willems, Overkleeft and van Kasteren,
2014).
Activity Based Costing (ABC) is a reporting approach that allows companies to collect
data on their costs. The ABC approach thus helps a company to determine which goods,
facilities, and assets improve their productivity and lead to loses. Costs are allocated to activities
such as planning, construction or production, and afterwards the activities are connected to
different products or services. Executives can then produce data in order a higher budget and
gain a greater overall view of the costs needed to keep the business going smoothly. it provides a
framework for data to regulate one of two potential sources of competitive edge, low-cost
manufacturing and significantly higher-cost production. This is a labelled deviation from the
exercise of similarly sharing overheads or overheads being part of the general profit-loss
calculation rather than element pricing. Appropriate operation centres (a group of tasks with the
same cost riders) are allocated costs during the first phase of the ABC method (operations absorb
assets or cost aspects) in order to determine the cost of operation. Generally, activity based
costing is most effective when used over a long period of time, as opposed to shorter-term
solutions such as the theory of constraints (TOC). In the next step product costs, service costs, or
costs of some other cost object are determined on the basis of relevant cost drivers. This costing
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method assigns the cost of each activity in an organization to all products and services according
to the actual consumption of the activity resource by the product or service. In particular, cost
dependent on operation is efficient when only over a long period of time, as compared to brief-
term solutions like restriction principle (TOC). On the grounds of applicable cost factors, car
costs, costs, or charges of some other cost item are calculated in the next phase. This form of cost
assigns the value for each operation in a company for all products and services as per the item or
agency's actual use of the event asset (Ganai, Sengupta and Menon, 2014).
2. Selection and application of appropriate management accounting and cost method
Cost Management can be described as' Bookkeeping for cost identification and expense
evaluation as it will allow the total cost of any specific unit to be calculated with a fair degree of
accuracy while at the same moment to reveal precisely how that cost is defined.' Thus,
Managerial accounting classifies, records a suitable distribution of spending to determine the
costs of products or services and to present adequately arranged information for power and staff
instruction purposes for managing the staff members.
Cost Accounting can be explained as follows: Cost Accounting is the financial accounting
system that starts with earnings and spending audio and ends to scientific data preparing. It is the
structured process for determining and controlling the costs of products or services. Cost
Accounting offers examination and identification of spending because it will allow a fair degree
of precision to calculate the cost of any specific company / service system while at the same time
to report precisely how that cost is represented (Tibesku and et. al., 2013). For instance,
understanding that perhaps the price of a pen is' 25/-is not enough, however the administration is
also interested in knowing the price of the product used, the sum of labor and other costs
incurred in order to manage and that its value. This sets estimates and regular costs and total
costs of activities, procedures, services or goods as well as evaluation of fluctuations,
productivity and public use of resources. Therefore, Cost Accounting is a qualitative approach
that gathers, classifies, summarizes and interprets consumer pricing, process scheduling, or
command as well as decisions data.
The cost methodology comprises of the set of values and guidelines to calculate the cost of
products and services. With both the passage in time, the methodology becomes flexible and
varies. The method of costing is the last day to day practice of determining costs. It is commonly
referred to as an arithmetic operation. For example, Unless the cost of producing a product say`
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200/-, then we need to refer inventory, labour and expenditures reporting and arrival the latter
cost as follows: Content' 100 Labor' 40 Living costs ' 60 Total' 200 It is a routine task to figure
out the breakdown of the cost from data collected. That's why it's called the regular routine of the
arithmetic method. In this method, the reported costs are categorized then summarized at each
component, and total methodology is named (Naguib and et. al., 2013).
3. Functional and master budgets for a variety of organisational scenarios
Master budget
Q1
Budget
Q1
Actual Variance
%
Variance
Manufacturing costs:
Direct materials
£
22,000
£
21,000
£
(1,000) -4.55%
Direct labor 15,000 16,250
£
1,250 8.33%
Variable mfg OH 25,000 21,000
£
(4,000) -16.00%
Fixed mfg OH 5,000 3,200
£
(1,800) -36.00%
Total manufacturing
costs
£
67,000
£
61,450
£
(5,550) -8.28%
Units 5,500 7,250
£
1,750 31.82%
Q1
Budget
Volume
Variance
%
Variance
Q1
Flexible
Budget
Flexible
Budget
Variance
%
Variance
Q1
Actual
Manufacturing costs:
Direct materials
£
22,000
£
(1,000) -4.55%
£
21,750
£
(250) -1%
£
1,100
Direct labor 15,000 (3,000) -20.00% 12,000
£
(3,000) -25% 1,200
Variable mfg OH 25,000 (2,500) -10.00% 22,500
£
(2,500) -11% 3,000
Fixed mfg OH 5,000 2,500 50.00% 7,500
£
2,500 33% 500
Total manufacturing
costs
£
67,000
£
(4,000)
£
63,750
£
5,800
Units 2,000 3,000 4,000
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CONCLUSION
The above report concise the concept of management accounting and argued the process of
making the budgets and improve the evaluation under modern budgeting technique. The process
of balance scorecard and the activity based costing is critically argued with practical evaluation
and control with the evaluated formation of business.
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REFERENCES
Books and Journals:
Boyns, T. and Edwards, J.R., 2013. A history of management Accounting. The British
Experience.
Siyanbola, T.T., 2013. The impact of budgeting and budgetary control on the performance of
manufacturing company in Nigeria. Journal of Business Management & Social Sciences
Research. 2(12). pp.8-16.
Willems, L. I., Overkleeft, H. S. and van Kasteren, S. I., 2014. Current developments in activity-
based protein profiling. Bioconjugate chemistry. 25(7). pp.1181-1191.
Ganai, N., Sengupta, S. and Menon, G.I., 2014. Chromosome positioning from activity-based
segregation. Nucleic acids research. 42(7). pp.4145-4159.
Tibesku, C. O. and et. al., 2013. Benefits of using customized instrumentation in total knee
arthroplasty: results from an activity-based costing model. Archives of orthopaedic and
trauma surgery. 133(3). pp.405-411.
Naguib, H. and et. al., 2013, May. Bug report assignee recommendation using activity profiles.
In Proceedings of the 10th Working Conference on Mining Software Repositories (pp.
22-30). IEEE Press.
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