Management Accounting Concepts and Practices

This assignment delves into the core principles of management accounting, encompassing various methods like variance analysis, activity-based budgeting, and standard costing. It examines how these tools aid in performance evaluation, cost control, and informed decision-making within organizations. Students are expected to demonstrate their understanding by analyzing case studies, applying concepts to real-world scenarios, and evaluating the significance of management accounting in contemporary business environments.

Management
Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Task 1...............................................................................................................................................1
P1 Explaining the management accounting and the important requirements.............................1
P2 Framing the Financial information........................................................................................3
Task 2...............................................................................................................................................5
P3 Determining the September month's financial information with respect to disclosure of
income statement.........................................................................................................................5
Task 3...............................................................................................................................................6
P4 Explaining the use of budgets for planning and purpose of control......................................6
Task 4...............................................................................................................................................9
P5 Interpreting the approaches of management accounting with respect to financial problems
in the organization.......................................................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accounting is very beneficial tool with respect to internal environment of
the organization. There is brief discussion about management accounting tools and techniques
with there significance for enhancing the operation of tech (UK) limited retail stores. There is
presence of different approaches of accounting which will be helpful to overcome all the
financial problems in Tech UK Limited. Further the income statement of Tech (UK) limited is
drawn on the basis of two costing techniques.
Task 1
P1 Explaining the management accounting and the important requirements
i. Difference between management accounting and financial accounting
Management accounting helps in making the decisions very effective related to business
and financial accounting helps in classifying, recording, summarising and analysing all the
organisation's financial affairs (Narasimhan, 2017). On the basis of application of management
accounting, it takes steps and strategies which are very meaningful to the organisation and on
contrary side, financial accounting is prepared for framing very accurate picture of financial
affairs. Scope of financial management is pervasive but in management accounting, the scope is
much broader. The measuring grid of management accounting is qualitative and quantitative but
financial accounting is only measured as quantitative. Management accounting is dependent on
financial accounting for taking right decisions but financial accounting is not dependent on
management accounting. No rule is followed in management accounting but financial accounting
has to be prepared on the basis of GAAP or IFRS.
ii. Management accounting information as a decision making tool for department
managers.
Small or large business owners or managers have to face many decisions on every
business days. The information of management accounting has been used for the operations
which are used to prepare report and ongoing insights have been given into the performance of
business like labour utilisation and profit margin. Managerial accounting gives the description of
business activities by collecting, reporting and analysing the activities which are related to
business and there main target is towards the internal mangers instead of external client of
business such as shareholders or lenders and banks. Internal managers use specific management
accounting tools for decision making of business. The specific management accounting tools are:
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Trend analysis: It is helpful for forecasting future as it is a tool which tracks the changes to data
from the time when business conditions are changing.
Break even analysis: The calculation where is combination of unit volume and sales and it will
generate neutral revenue not even profit and not loss (Leotta, Rizza and Ruggeri, 2017).
Margin analysis: It can be referred as profit analysis which has been built around revenue which
is generated by some particular subset like region, product, business branch or customer.
Capital budgeting analysis: All the investment proposals are examined for allocating the
finance and to acquire the fixed asset.
Transaction analysis: Specific transactions are tracked like sales related to particular customer
or purchase of some certain goods.
Inventory analysis: This tool is very useful for determining cost of goods sold and even
allocating value on raw materials and even unsold products.
Constraint analysis: The primary bottlenecks of the business is examined and its effects on
profit and revenues.
iii. Cost accounting systems
Actual costing: It refers to an accounting system which exercises the rates of direct cost,
actual cost and all the actual qualities which are used in the production of identifying the specific
product's cost. Generally, actual costing tracks the direct cost which is related to cost object or
which helps in measuring cost. For example: For a plant of manufacturing plastic items such as
bottle, box etc. the actual material which is required for production of plastic, actual man hours
which are consumed are taken in account of actual cost.
Normal costing: It refers to the cost allocation method which helps in assigning the cost
on the basis of labour, material and overhead which is used for producing them. It is a process of
finding the price of product that is used. In other words, the costs of products which prepare
normal costing are manufacturing overhead, actual direct costs and actual material. The direct
cost and material are actual costs which are directly linked while producing labour and raw
material. Manufacturing overhead is an appropriate rate which can be example of normal
costing. In short, it is the way to identify the cost of item which is manufactured for applying the
cost of product.
Standard costing: It refers to costing which substitutes the cost which is expected from
the actual cost in the records of accounting and then by tracking the variance of actual costs and
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expected costs. This gives the representation to simplified alternative to layering system of cost
like LIFO and FIFO methods where huge amount of historical cost information has been
maintained. There is involvement of various estimation cost for the activities of the company.
iv. Inventory management systems
It is one of the most beneficial system which will be helping in tracing each transactions
related to inventory outflow and inflow. These records help the manager of the organisation for
analysing the adequate numbers of inventories which are requirement of the premises. All the
relevant operations like purchase, deliveries and sale of goods are recorded in the form of
transactions. It will create advantage to Tech (UK) limited as there managers will be able to
perform the deep analysis of inventory required for the coming period as it will be creating
ability to deliver such services and products to the customers.
v. Job costing system
This technique is very much beneficial to the business with the perspective of performing
adequate analysis of the batch, unit and job which has been produced by the company. It
generally refers to each product which is variable and has many differences in cost and style of
manufacturing. This cost will be incurred in the account of organisation. While undertaking the
operations of Tech (UK) limited, the cost which is relevant for the manufacturing of carry on
gadgets and mobile charger have various other manufacturing techniques and even the level of
finance which has been required for operations (Wachira, M., 2017.).
P2 Framing the Financial information
With the context of framing the financial information, it is compilation of many financial
transactions in a company. These informations are used by various owners and managers for
analyzing the financial performance and stability of the organisation and even the operation of
the company or to measure the performance of individuals such as managers and employees. It is
very important to present the financial information because of presence of national accounting
standards with respect to public disclosure of these financial documents.
i. Types of managerial accounting reports
There are four types of managerial accounting report which Tech (UK) limited will be using for
measuring there operations and in turn it will be implicating the measure to improve their level
of performance:
 Budget report
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 Account receivable report
 Cost managerial accounting report
 Performance report
Budget report: It is very captious for measuring the performance of the organisation and
it will be giving ability to generate a small business and in large business it will be created in
department wise. As every company forms the budget report for understanding the grand scheme
of their own business. It helps each stakeholders for controlling and understanding the operation
cost of the business. So with this perspective Tech (UK) limited will use this report for creating
accurate decisions for predicting the activity's cost which are going to be held in the future.
Account receivable report: This report is fully on the basis of credit, if any business has
too much credit and it is extending from day to day then the most accurate report is account
receivable aging report. The remaining balance of the clients has been break down for specific
period so this activity allows manager to determine the issues and defaulters related to company
collection process. To determine the capability of debtor is mentioned as 30, 60 and 90 days for
making payment.
Cost managerial accounting: This report gives the brief summary of every information
of the business. The cost of items which are manufactured is computed in this report. The cost
which are undertaken in this report are raw material cost, labour, overhead and any additional
cost. Managers are offered by this report, the capacity to realise the cost price of item as
compared to selling price. Along with this profit margins are also determined and observed with
these reports and even the clear picture is drawn of cost that is used in production and
procurement of the items (Chiwamit, Modell and Scapens, 2017).
Performance report: These report helps in reviewing the performance of the
organisation. Many organisations prepare it quarterly, half yearly and yearly. These reports are
used by the mangers to develop the strategic decisions for the future of the company. In big
organisations these reports are formed on the basis of department as well. On the basis of
performance there are many lays off and promotion if it is required. It is important for every
organisation to track the perfect measure of the strategy along with the mission.
ii. Financial information should be presentable
For the clear understanding of the information which is presented by internal stakeholders
in the form of financial subset which should be according to the international accounting
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standards. Along with this, board will present the financial statements with the influence of these
standards and they will be guiding the professionals for facilitating the framework which is
authenticated. The IFRS, IASB and GAAP are main international institutions which will be
giving adequate support for presenting the financial information. All the stakeholders and
investors will be influenced by these standards and board for having a clear picture of
profitability, liquidity and efficiency of the organization. So Tech (UK) limited has to perform
the accurate disclosure on the basis of accounting standards (Chenhall and Moers, 2015).
Task 2
P3 Determining the September month's financial information with respect to disclosure of
income statement
The below income statement are on the perspective of absorption and marginal costing
technique which will be creating ability to identify the profits which are created by Tech (UK)
limited in the month of September.
Absorption costing technique
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Marginal Costing technique
Interpretation: The above statement is drawn on the basis of marginal and absorption
techniques. From the above picture it can be viewed that absorption technique is giving more
advantage to Tech (UK) limited as it is measuring each variable costs before the gross profit. As
absorption techniques is giving profit of 15625 and on contrary side marginal costing is giving
13625 with variable and fixed cost of analysing such operations. In terms of generating adequate
revenue absorption technique is beneficial (Hopper and Bui, 2016).
Task 3
P4 Explaining the use of budgets for planning and purpose of control
i. Types of budget with their merits and demerits
 Master budget: There is combination of all small budget of the company for getting an
overall review of the finance of organization. It consists of marketing, customer service
of all the departments. The individual budget of every department creates an overall
single budget. The merits and demerits are as follows:
Merits
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It provides an overview of the company's budget to the business owner and the company
executives in one budget. It gives the justification that where the organization is earning and
where it is spending. It also gives the interpretation that where the business is in good condition
and where it is becoming worse. It will be very beneficial for Tech (UK) for planning it very
effectively (Nielsen, Mitchell and Nørreklit , 2015).
Demerits
The main disadvantage of master budget is that there is lack of specificity as it does not
fulfil the particular requirement of the organisation and due to specificity it is very difficult to
understand, update and even read.
 Zero based budget: It is a method in which all the expenses are determined with the
perspective of actual expenses which are to be incurred but not on incremental basis.
Every activity is been justified and zero is taken as base.
Merits
This method provides accuracy as it involves various arbitrary changes according to the
previous year budget. The main merit is that there is presence of efficient allocation of fund to
each and every department and even there is absence of budget inflation.
Demerits
This type of budgeting is very time consuming as there is requirement of huge manpower
and there is absence of expertise because each and every task need to be justified and for this
justification there is need of proper training to the managers which is very expensive.
 Activity based budget : This method signifies every budget in the consideration of the
cost of overhead. For arriving at current year budget, past year budget is ignored in this
process. After the justification of cost driver, budgets are prepared.
Merits
In this method, all the cost drivers are evaluated which are involved in activity. It draws
competitive edge to the company by eliminating or substituting the activities which are not
required. It helps in improving the relation ship between customer and the company by providing
the best quality to the customers.
Demerits
There is huge requirement of deep understanding of different functional areas and for this
every manager should have ability to understand but it is not there. The nature of this method is
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very complex and various factors should be properly researched and analysed. It consumes too
many resources of the organization as it is very time consuming. It only focuses on short term
goals, long term perspective is totally avoided in this budget.
ii. Determining the price while budget preparation
For planning the steps of budget preparation Tech (UK) limited should take certain steps
so that every requirement of all departments should be fulfilled very efficiently.
 Obtaining the Estimates
 Coordinating
 Communicating
 Budget plan should be implemented
 Interim progress should be reported towards objectives of budget
The first step gives the justification that each and every estimate of level of production,
sales, expected costs and resource availability from every department should be obtained by each
departmental heads or the mangers. After obtaining they should be properly coordinated with
every department and various units of the organisation and potential should be planned. The
budget should be properly communicated to all responsible managers and departments who are
concerned, they should give proper highlight to attain the goals and objectives of the
organisation. There is requirement of very effective communication in the process of budget. The
most important step is to implement budge plan in the coming period with various business units.
In last step interim should be properly observed if any feedback is there then it should be applied
as soon as possible, as it will be giving directly reflecting in the annual results of Tech (UK)
limited (Podgórski, 2015).
iii. Significance of budget as a tool for planning and control purpose
There are various tools for planning budget and for the purpose of controlling:
 Net present value
 Internal rate of return
Net present value: It is one of the best capital budgeting method which is used to
evaluate the investment project of physical assets in business might wants to invest. It is
calculated from the difference of present value of cash inflow and present value of cash outflow
over the period. Time factor is been considered in this method and risk and profitability is given
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prior importance. NPV is very typical and difficult to use and it does not provide accurate
decision if there is presence of mutually exclusive investment project.
Internal rate of return: It is method to determining the rate of return as it does not
involve the factors which are external. It considers the time value of money and the most
attractive factor that it is very simple to calculate and interpret. But there is ignorance of
economies of scale and it highly dependent or it has contingent projects.
Task 4
P5 Interpreting the approaches of management accounting with respect to financial problems in
the organization
Balanced Score card: It is one of the most important strategic tool for planning and utilising
resources of the company. It creates the priority for employees to perform well and what task
they have to do perform. It allocates and observe the strategic targets with ease. With the help of
BSC Tech (UK) limited can measure the financial resources which helps in attaining the
customer satisfaction and even product innovation (Zhang and et.al, 2015).
KPI (Key Performance Indicator): This metric is used to determine the organization's success
and the goals which have to be met by employees. Employees must be able to perform the task
with respect to goals. It is very effective tool for measuring the performance of employees within
specific time period. It can locate very effective and efficient employees with too much ease.
Financial governance: For performing better in the industry with better operational
performance so there is need to allocate the duties and responsibilities to the one who are capable
to make plans and motivate the staff with adequate resources. Tech (UK) limited will be
benefited in this tool as all the duties will be assigned according to the skills so it will be
generating more profit to the company.
CONCLUSION
From the above discussion it can be concluded that management accounting is very
essential for every organisation and in Tech (UK) limited it is playing very essential role. As
financial accounting and management accounting both are important for measuring the
performance whether qualitative or quantitative. The present report states that financial
information should be presented in very presentable and efficient manner. Budget preparation
process should not skip any of the step then it will lead to delay and mismatch in the balance
sheet.
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REFERENCES
Books and Journals
Chenhall, R. H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, Organizations and
Society .47. pp.1-13.
Chiwamit, P., Modell, S. and Scapens, R. W., 2017. Regulation and adaptation of management
accounting innovations: The case of economic value added in Thai state-owned
enterprises. Management Accounting Research. 37. pp.30-48.
Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management
Accounting Research. 31. pp.10-30.
Leotta, A., Rizza, C. and Ruggeri, D., 2017. Management accounting and leadership
construction in family firms. Qualitative Research in Accounting & Management. 14(2).
pp.189-207.
Narasimhan, M. S., 2017. Variance Analysis: General Framework.
Nielsen, L. B., Mitchell, F. and Nørreklit, H., 2015, March. Management accounting and
decision making: Two case studies of outsourcing. In Accounting Forum (Vol. 39, No. 1,
pp. 64-82). Elsevier.
Podgórski, D., 2015. Measuring operational performance of OSH management system–A
demonstration of AHP-based selection of leading key performance indicators. Safety
science. 73. pp.146-166.
Wachira, M., 2017. Determinants of corporate social disclosures in Kenya: A longitudinal study
of firms listed on the Nairobi securities exchange. European Scientific Journal,
ESJ. 13(11).
Zhang, K. and et.al, 2015. A comparison and evaluation of key performance indicator-based
multivariate statistics process monitoring approaches. Journal of Process Control. 33.
pp.112-126.
ONLINE
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Accounting Information, 2018. [Online]. Available through :<https://bizfluent.com/how-
6860885-present-accounting-information.html>.
Accounting reports, 2017. [Online]. Available through
:<https://www.completecontroller.com/types-of-managerial-accounting-reports/>.
Activity Based Budgeting, 2018. [Online]. Available through
:<https://efinancemanagement.com/budgeting/activity-based-budgeting>.
Financial Accounting vs Management Accounting, 2018. [Online]. Available through
:<https://www.wallstreetmojo.com/financial-accounting-vs-management-accounting/>.
Standard Costing, 2018. [Online]. Available through
:<https://www.accountingtools.com/articles/2017/5/14/standard-costing>.
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