Management Accounting: Types, Tools, and Techniques

This report provides an overview of management accounting system types and tools, management accounting reports, marginal and absorption costing techniques, and planning tools and budgetary control systems. It also discusses the advantages and disadvantages of these planning tools and budgetary control systems.

MANAGEMANT ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION.......................................................................................................................................3
P1 Management accounting system types and tools................................................................................3
P2 Management accounting reports.........................................................................................................6
P3 Marginal and absorption costing........................................................................................................8
P4 planning tools and budgetary control systems advantages and disadvantages..................................11
P5 performance appraisals to overcome financial problems..................................................................15
CONCLUSION.........................................................................................................................................16
REFERENCES..........................................................................................................................................17

INTRODUCTION
To have the favorable decision relevant with operational objectives of a business where,
management accounting plays the most efficient role. It enables the professionals in terms of
decision making as well as planning to enhance the efficiency of firm. The present report there will be
determination of various planning tools and budgetary control systems as well as the several reports
which in turn helpful for a business to make the most effective planning. There will be measurements of
revenue and expenditure of organization which will be on the basis of marginal and absorption costing
techniques. There will be analysis of various performance appraisals that will improve the operational
activities in an entity. Therefore, all the various necessary factors, types and parts of management
accounting will help the business in having the financial stability.
P1 Management accounting system types and tools
To have the most innovative ideas and new methods to resolve the financial or
operational obstacles in the firm there are several tools and techniques that will help the firm.
Therefore, while analyzing such features the professionals at organization will become able to
have the strong decision making. It will be very effective in terms of lowering down the costs of
operating activities (Garcia and et.al., 2016). There will be adequate operational activities which
will help the business to make the favorable growth as well as increment in the profitability.
These tools will help the organization in terms with acquiring the fruitful solutions as well as
ability to enhance the business performance.

Figure 1 management accounting techniques
(Source: Dragomir, Avram and Domnişoru, 2016)
In accordance with the above chart which has evaluated management accounting
techniques that will help the organization in making the fruitful improvement in the operational
activities, profitability as well as ability to meet the debts of firm. Therefore, it can be beneficial
in terms of presenting the accurate results of outcomes that will help the professionals in terms of
making innovative decisions (Bryer, 2013). Therefore, it can be analyzed as:
Tax Accounting: There is needed to make the adequate analysis of the taxation in trade
practices. However, accounting professionals in the firm will make the adequate analysis
accounts and make the accurate tax payments to the legislative authorities in UK there has been
payments of Corporate taxes and income taxes by the individual which are to be collected by

HMRC and the Central government (Simionescu and Bica, 2016). Thus, with the help of such
decision the business will be beneficial as to have the better growth and operational environment.
Financial accounting: These management accounting techniques helps in making
records of all the transactions, measure them and analyze the profitability of the business during
such period. Thus, with the help of this tool the business will become able to analyze the income
and expenditures while recording in the income statements that will help in analyzing the costs
of goods sold, gross profit, operating income as well as net profit to determine the performance
of organization on the right track. There will be analysis of the balance sheet and change in
equity that will be beneficial in terms of measuring the ability to meet the capital expenditure as
well as it will be informative in terms of acquiring the adequate revenue (Chan, 2015). Thus,
with the help of such tools the business will become able to fetch the information that will help
in making proper business administration as well as execution of industrial operations.
Managerial accounting: This tool will help in analyzing the internal efficiency of a
business in terms of meeting the objectives such as budgeting, costing and reporting etc. These
tools help in making the adequate communication in the premises. It consists of all the records of
every department in the organization which helps the managers in analyzing operational
requirements (Wei and et.al., 2016). Therefore, all the managers in each department present their
reports to the top level management and then the planning and forecasting took place in relation
with allocating costs to each of them. It will be helpful tool in investment decision that, a unit
will have appropriate revenue or budgets for the operations of business.
Cost management: This techniques help in analyzing the actual requirements of funds
and finance in a particular operation. Therefore, the managers and professionals of the
organization make the efficient decision which will be fruitful for them in allocating capital to
such duties and tasks. It helps professionals in analyzing the revenue and return they have form
the duties in against the costs they have invested in the same.
Activity management: With the help of this tool there will be adequate management of
duties performed by organization and by employees. There will be management of material,
men, machineries, equipments as well as remuneration. Each department and each piece of work
will be analyzed over the costs and investments were made on such operations as well as return

the firm has acquired through them (Dragomir, Avram and Domnişoru, 2016). Therefore, the
managers will make strategies or planning to lower down the funds invested in the non profitable
tasks as well as make innovative decision to renovate the operational activities.
Investment management: This technique will be beneficial for the managers to make the
strong analysis over the revenue and reserve firm has acquired. Thus, on which they will make
the adequate decision to resolve the problems as well as facilitate the information for the fruitful
investments in future (Hickman, 2016). Therefore, with the help of these tools the business will
make an adequate increment in the profitability as well as revenue generation.
Internal auditing: The accounting professionals in organization will make regular
auditing of the accounts of all departments (Hopper and Bui, 2016). In these regards the
managers in the firm will analyze the business operations and make adequate decisions which in
turn help in making better decisions for business operations as well as helps in analyzing the
profitability of the firm.
P2 Management accounting reports
These techniques requires records of all the transactions within the organization that there
will be presentation of such reports which in turn helps in making the proper cost allocation.
Therefore, the reports are being prepared on the basis of financial and non- financial activities in
the organization. Thus, that will be beneficial in making the fruitful decisions for business
operations. It also highlights the corporate social responsibilities of an entity that will help firms
in making the sustainable environments (Pemsel and Wiewiora, 2013). The data and information
are used in each data set are belongs to the authenticate sources that will help in presenting
fruitful analysis of business transactions.

Figure 2 management accounting reports
(source: Lock, 2014)
Budget report: this reporting will help making the fruitful decision which in turn
determines the costs and expenses to be incurred in the operational tasks of business. Thus, it can
be said that with the help of these techniques the managers in analyzing the various sources to
retain profits as well as make a fruitful estimation of costs in each business operations (Bryer,
2013). These will be beneficial for them in terms of allocating costs as well as demonstrating the
required changes in the piece of work.
Job cost report: This report will help in making examination over the costs were utilized
on each operation of business. This technique is helpful in analyzing or measuring the
appropriate costs in each activities of business (Ozdil and Hoque, 2017). These helps in
determining the expenses incurred over men, machineries and material in a job or in a particular
departments. Therefore, it can be said that, it will help the professionals planning the fruitful
innovative idea that will lowers the costs in each function.
Debtors aging report: This reporting technique is helpful in measuring the period of
receiving the money or funds from debtor over sale of goods and services. This estimation will
be beneficial in terms of analyzing the accurate amount of funds from the various individuals or
stakeholders of the firm such as suppliers, consumers, distributors etc. these are the revenue of
gains which are yet to be received by firm over the selling of such produced goods (Chan, 2015).
Therefore, it can be said that it will help in managing the operational activities of the business.
6tthis will be added to the accounts because it is also the income which will be recovered and

will reflect in the income of entity. There will be benefits of making or showing such
transactions in the books of accounts as there will be no tax payments over accounts receivables.
So in these regards the income which is yet to be received will not be liable of taxation.
Inventory and manufacturing report: To analyze the requirement of material while
producing the goods and services in the firm will be known as inventory management reports.
Therefore, in this reporting technique the professionals seek availability of goods and services in
the premises as well as the demands in market. It estimates the current demand and plan for the
increase or decrease of such demands and requirements in the upcoming time (Simionescu and
Bica, 2016). Thus, it will be fruitful for the managers in terms of making the proper estimation
of consumers needs so on that they will plan costs of production as well as prices of such goods
in terms of making profitable gains.
P3 Marginal and absorption costing
The motive behind presenting a disclosure of the books of accounts or the financial of a
business is to gain the profitable outcomes as well as used in decision making. Therefore, with
the help of such tools the business will be beneficial in terms of making the adequate increment
of business operations which will be useful in the daily tasks. There will be analysis of the given
data set which indicates purchase and sales made during a year. Therefore, there will be
calculations of such financial on the basis of marginal and absorption costing method such as:
Marginal costing: This method helps in analyzing the deficit and surplus in the volume
and costs of production as the increment in the one unit of output. Therefore, it is based on the
concept that if the price of such goods or units is more than its production costs then the
professionals may carry forward such operations (Wei and et.al., 2016). Thus, with the help of
this technique the contribution made by consumers will be analyzed as well as have the adequate
revenue gathering.
Income statement for organization on the basis of marginal costing techniques such as:

Interpretation: in accordance with the income statements of organization on the basis of
marginal costing technique where all the revenue generated through selling the 600 units over
selling costs of 35per unit which is amounted to 2100. The costs of producing such units will be
over all the producing units such as 700 over costs of prices of direct material labor etc. are the
rate of 13 per units which is amounted to 9100. The remaining inventory is of 100 at the price of
13 per units which is 1300. There will be reduction of variable costs for 7800 and thus it presents
contribution as 13200. There will be deduction of variable overheads on the sales at the rate of 1
pound, fixed costs such as production overhead for 2000, fixed selling costs at 600 and fixed
administrative cot as 700. Therefore the net profit will be obtained by firm at the end of the year
is 9300 respectively.
Absorption Costing: this costing technique is based on involving or measuring the direct
or indirect costs into calculations (Dragomir, Avram and Domnişoru, 2016). Therefore, the
concept lies over here that there will be analysis over all the costs and expensive that a firm made
while producing a unit. It helps in analyzing the actual gains from such operations.
Income statement of organization on the basis of absorption costing method:

Interpretation: this income statement represents the measurement on the basis of
absorption costing techniques that have measure all the expenses or costs incurred while
producing the units for business. Thus, the revenue obtained by organization on the 600 units of
sales for the costs of 35 which is amounted to 2100. The costs of production will be over all the
units produces at the costs of all expenses incurred amounted to 16 per units as 11200. The
closing inventory will be analyzed as 100 units at 16 such as 1600 and there will be measurement
of production overheads for 100 deductible from the revenue earned. Therefore, the costs of
production will be measured at 9500 which represents the gross profit for 11500. There will be
deduction of variable and fixed costs as amounted to 1900 and thus 9600 will be analyzed as the
net profit for the year.
However, after measuring the financials on the income and expenses of organization.
There has been use of two costing techniques such as marginal and absorption. Therefore it
indicates variation in the net profit. The marginal costing facilitated net profit of 9300 while
absorption costing facilitates the net profit of 9600. Thus, it can be said that, absorption costing
technique will be beneficial for the organization in terms of having the most favorable outcomes
and the great net profit for the year.

P4 planning tools and budgetary control systems advantages and disadvantages
To make the appropriate increment in the production and profitability of the firm there is
need to have proper business administration. Therefore, in terms of analyzing the past
performance of business the professionals will become able to make proper decisions and
planning for the further operational activities. There has been various planning and budgeting
tools and have their own pros and cons which will help the professionals at organization to make
accurate decisions.
Net present value: This is the planning tools which help in estimating the present value
of the invested money in the coming years. Thus, it will help the managers that how much costs
they will have in each year for the money they have invested on the basis of cash flows for each
period (Hickman, 2016). It will be beneficial for the firm in making adequate decisions as well as
analyzing the needs of such projects or operations of organization. However there will be some
advantages and disadvantages of this planning tool such as:
Advantages:
 The main advantage of this planning tool is that there will be deduction in each year’s
cash flow than the invested cash flow because of use of discounting factors. Therefore, it
helps in discounting the cash flows each year and presents the present value.
 It is very easy and helpful tool in terms of analyzing the present value over the future
cash flows of the business.
 It is beneficial for the professionals in terms of efficient and accurate decision making as
well as planning for the reduction in costs.
Disadvantages:
 This concept and the measurement are based on the lots of guesswork and estimation
which will result in suboptimal investment decision making.
 These s not a fruitful two while comparing the two projects whit different sizes because
the amount of output is will be denoted as per the size of input made in such operations.
Average rate of return: It is a proportionate return over the capital invested in the project
which is without considering the time value of money. This is based on analyzing the average or

accounting return over the capital or cash inflows made during the period (Garcia and et.al.,
2016). Therefore, there have been several advantages or disadvantages such as:
Advantages:
 It is to most simplest and easiest way of measuring the profitability over the total revenue
or profit gathered by firm in such year as well as it is same as payback period in terms of
considering the profits or cash inflows of the period.
 The net earnings of the year will be considered by this concept which as vital or
important factor in investment appraisal proposals.
 This is the most help tool in terms of comparing the two or more projects and analyzing
the fruitful returns from them.
 With the help of this technique the accounting return will be measured as per the
accounting records and the transactions made during the years.
 Professionals will be beneficial in terms of analyzing the returns over their investment as
well as it are very useful method which helps in measuring the current performance and
state of entity.
Disadvantages:
 It will be difficult for the managerial professionals in the firm while analyzing the
profitability and returns over the invested capital amount as per the two concepts such as
ROI and ARR. Therefore, the results in both the concept have the huge variation so it
become quite complex for them to analyze which project will be beneficial.
 This concept only considers the funds inflows but totally ignore the time factor so it
cannot be said that when the firm will have such return over invested projects.
 The outcomes are not appropriate or adequate so the one could not easily analyze the fair
rate of returns.
 This concept does not involve and external factors such as expenses of losses which are
also affecting the profitability as well as revenue of the business. Therefore the estimation
will not be correct and adequate.

Internal rate of return: This rate of investment or inflows made during the year over the
initial investment. This measurement helps the professionals in knowing about the increment in
the total cash inflows during the period.
Advantages:
 It is the most preferable term will analyzing the rate as it considers the time value of
money which is totally ignored by ARR.
 This method is simplest method as well as easily measurable on which they will make the
adequate increment in the performance and operations of the business.
 It ignores the hurdle rate as well as invite the rough estimation over any investment in
any projects.
Disadvantages:
 It ignores the economic scale of value while analyzing the rate over the invested capital
in any projects.
 There will be not a proper assumption were made over the invested projects because of
implicated impractical reinvestments rates.
 It considers the two different terms of project which are having the differences in the
completion of the projects e.g. Project A is for 4 years while Project B is of 10 years.
 It mix all the positive and negative cash flows of the years which will be not and
adequate measurement for the rate of changes between them.
Zero base budgeting: this concept is lies over the method that all the budgets and costs of
any projects or investments are starts from the zero bases. Therefore, it can be said that it does
not consider the past value of income and gains (Lock, 2014). It begins the project with zero
value as the new beginning for each project in each year. Thus, the funds will be made as per the
requirements incurred in such projects in any time. It is the most flexible budgeting technique
which helps in making the costs on projected products as per the increase and decrease in
demands or supplies.
Advantages:

 In consideration with the other budgets they usually has and arbitrator balance of the
previous period and then consider the new budgets over it. Thus, this concept dose not
use that method and the budgets were made as the requirement of the funds in a particular
time so it the most accurate costing technique.
 It helps in utmost and efficient utilization of all the resources as well as reduce the
amount of wastages over any business operation. The capital invested in the projects was
fully utilized by them.
 It helps the managers in making the adequate planning and decision making as well as
searching for the new opportunities for the business operations.
 It is the most helpful tool in terms of building the favorable relationship in the
organization as well as creates a bridge of communication between various departments.
Disadvantages:
 It is the time consuming process as the managers of professionals in organization has the
spent much time in analyzing the requirements of funds for the tasks or operations.
 There will be requirements of high manpower like involvement of large numbers of
employees or accounting professionals to prepare such budgets while in these regards
many units do not have that much human resource as well as the time consumption will
affect operations of business.
 There will be lack of expertise in terms of preparing such budget because there will be
need of qualified and skilled full worker to prepare such budget and that requires proper
training and execution.
Activity based budgeting: these budgets are based on each activity in organization. There
will be allocation of costs over the requirements in units or piece of work. Therefore, it is based
on the activity framework as well as utilizing the cost driver data while planning the budgets.
However, there will be various benefits and loopholes to such budgeting process.
Advantages:
 It is the most perfect and accurate budgeting or costing techniques which presents the
favorable data and answers to each business operations.
 It is the easiest way of understanding every one as well as considering the overheads.

 It supports, benchmarking, balance scorecard and other performance appraisal techniques
which in turn helps in improving the efficiency of entity.
Disadvantages:
 It is the most complex technique in terms of determining the adequate costs to each
business operation and thus it requires the substantial resources for measuring costs of
projects.
 These may be a modern technique in terms of analyzing the costs but the managers in the
firm considers the traditional costing over each project which is not accurate and
adequate while presenting the outcomes.
P5 performance appraisals to overcome financial problems
In order to improve the operational efficiency of a business there is need to have the
performance appraisal tools and techniques which help in resolving the financial obstacles.
Therefore, organization must use such techniques in terms of enhancing the operational
performance in the firm. Therefore, these tools and techniques are as follows:
Key performance indicators: these are the methods on which the firm will become able
to determine the adequate increment in the performance. These helps in recording and measuring
the performances made by managers, employees and firm. This is the most helpful tool in
analyzing the loopholes in the performance of the organization as well as helps the managers in
making adequate decision to resolve such problems (Hickman, 2016). Therefore, in
consideration with the financial problem in entity it helps in analyzing the costs and the planning
were made to reduce such costs.
Variance analysis: these is the quantitative investigation of the all the variations in actual
outcomes of the planned budgets for the operations of organization. Therefore it can be said that
it is the most fruitful ways of determining the adequate increment and analysis of the business
operations (Pemsel and Wiewiora, 2013). Therefore, with the help these tools the managers in
the firm will become able to analyses the adequate increment in the growth and performance of
business operations and analyze the utilization of funds in each piece of work.

Benchmarking: It is the most helpful tool in terms of marking the records of all the
activities held in premises on the basis of its fruitfulness and the operational requirement of
organization. Therefore with help of this technique the stakeholders in the fir will be beneficial in
analyzing the loopholes and weaknesses in the operations of business as well as make the
adequate increment in the firm’s efficiency and level of production.
Balance scorecard: These techniques will help in making the adequate increment in the
performance of the business as well as helps in determining the proper activity performed by
business. There will be adequate judgements which are made by managers or professionals as to
enhance profitability and lowering the costs as well as innovative ideas to improve brand image.
CONCLUSION
Hereby on the basis of above report it will be concluded that the management accounting
is the most essential part of the industrial operations. The presents of various budgets and
planning tools will help in making the adequate decisions as well as forecasting of the costs.
Further, it can be said that with the help of this tools the managers in the form will be beneficial
in analyzing the performance as well as efficiency of the organization. The costing techniques
such as marginal absorption costing techniques which indicate the profitability of the sales made
during the period on which absorption costing the most appropriate and fruitful measurement.
There has been influence of various performance appraisals that helps in determine the
efficiency, productivity and performance of firm.

REFERENCES
Books and journals