Management Accounting: Essential Requirements and Methods

Management Accounting

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems.................................................................................................3
P2 Explain different methods used for management accounting reporting.................................8
LO2: Apply a range of management accounting techniques:........................................................11
Income statements using both absorption and marginal costing:..............................................11
LO3: Explain the use of planning tools used in management accounting:....................................12
P4. Advantages and disadvantages of different types of planning tools used in budgetary
control:.......................................................................................................................................12
M3. Analyse usage of planning tools and applications for preparing and forecasting budgets:
...................................................................................................................................................13
LO4 Compare ways in which organisations could use management accounting to respond to
financial problems:........................................................................................................................14
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems:....................................................................................................................14
M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success:.........................................................................................16
D3 Evaluating manner in planning tools for accounting respond to solve financial
problems/issues to lead entity to sustainable successes:............................................................17
CONCLUSION..............................................................................................................................17
REFERENCES................................................................................................................................1
APPENDIX......................................................................................................................................3

INTRODUCTION
Management accounting can be defined as the use of information prepared by the financial
department by the managers of an organisation to take a better and informed decision for the
company (Ward, 2012). Apple is an American multinational company which deals with
manufacturing of technology such as computers, mobiles, music devices etcetera. It was founded
in the year 1976 and is headquartered in California, United States. It can be argued that this
decade has witnessed one of the biggest waves of technological changes and Apple is certainly
one of the big five technology company in the world. In the following project report, an attempt
has been made to identify and evaluate the role and essential requirements of different types of
management accounting systems and also determine the various methods used for management
accounting reporting. The report also aims to identify the methods of costing such as marginal
and absorption costing. In the report, various types of planning tools which are being used for
budgetary control and being analysed for their advantages and disadvantages. At last, the report
aims to compare how different organisations are using management accounting systems for
responding to various financial problems as well.
TASK 1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems.
Management accounting can be defined as the process of measuring, identification,
determination, communication and analysis of financial statements and financial information by
the managers of an organisation to take better decisions related to day-to-day business activities
and operations (Otley, 2016). In the context of Apple Inc., management accounting can be
defined as the managerial process of interpreting the financial information related to the
company’s operations which assists in taking better decisions and improving the productivity and
profitability of the company as a whole. One of the major point of practical difference between
the principles of management accounting and traditional accounting is that the statement
prepared with the help of traditional accounting are used by the multiple stakeholders of the
company such as customers, shareholders or suppliers to form judgment about the profitability
and financial position of the company whereas management accounting reports are used
internally by the managers to take better decisions. Financial accounting is done at a particular

period of time whereas management accounting can be applied at any point of time as per the
discretion of the managers. With respect to the changing dynamics of the business environment
and technological innovations and developments disrupting the industries, the extent and level of
competition has increased substantially which has forced the managers to take better operational
decisions. Role of management accounting in assisting the managers to take better decisions
related to the operations of the company is remarkable and can’t be overlooked. Role of
management accounting can be better comprehended with the help of considering the following
points with its application for Apple Inc.
Role of Management Accounting:
Planning: Management accounting tools and techniques are of vital importance in
planning the key activities and operations of the company. The management of Apple Inc. can
apply the management accounting tools to plan sales targets, production targets etcetera and
improve the accuracy of the forecasts which are being made with the help of better analysis of
the past reports.
Control: Role of management accounting with respect to controlling the business
operations is very significant. Management accounting involves determination of various targets
and periodic evaluation of the actual results which helps in establishing better control on the
organisational activities and this can be effectively applied by the management of Apple Inc. to
improve organisational control.
Decision-making: One of the most important role and objective of management
accounting tools and techniques is to provide assistance to the managers and improve the
efficiency of managerial decision-making (Juras, 2014). In the context of Apple Inc.,
management accounting helps in furnishing various type of information related to the
performance of the company which is very essential for the managers to take an informed and
improved decision in the larger interest of the organisation.
Organising: Management accounting tools helps in organising the various activities and
resources in an organisation which can facilitate a better operational and financial performance.
For example, with the help of inventory management, the management of Apple Inc. can ensure
that inventory reaches the production department at the right time and the company is organised
in a better and optimum manner.

Directing: Tools of management accounting can be used to provide direction to the
employees and the workforce of an organisation which is a very important role. For example,
cost accounting helps the manager to identify areas of production where an improvement is
necessary and essential guidelines and directions are provided which can help the employees to
reduce the production costs and act in a desirable manner.
Performance Evaluation: Performance evaluation refers to the comparison of actual
performance of the employees and various organisational departments with the standard or
budgeted performance levels (Ter Bogt and Van Helden, 2012). Role of management accounting
in performance evaluation is essential as it provides various reports which forms the basis of
comparison. In the context of Apple Inc., management accounting reports such as performance
reports and cost sheets helps in evaluation of the efficiency of various operational performance
dimensions of the company.
Types of Management Accounting Systems:
Cost-accounting systems:
Cost-accounting systems is a managerial approach of determination and estimation of the
total cost incurred in the various stages of production and manufacturing of products and services
and is vital for many other concepts such as valuation of the inventory, determining the
profitability etcetera (Drury, 2013). Under cost accounting, managers of an organisation try to
determine the areas of cost where there exists a scope of improvement and any unusual change
can be easily identified with the help of costing systems. Costing systems can be done by using
either the marginal cost approach or the absorption cost approach and profit under both the
methods can be calculated. In the context of Apple Inc., cost accounting as a tool of management
accounting is of vital importance in helping the company to control the various costs and
expenses involves in the production and monitor effectively to improve the profitability of the
operations.
Inventory management systems:
Inventory management systems as a tool of management accounting involves
determination of an economic order quantity at which the cost of inventory such as storage costs,
carrying costs, ordering costs etcetera is minimum for the company (Muller, 2019). It helps the
company to enhance the smooth production process and determine the point at which inventory
should arrive so that the cost related to inventory is minimum and situations of understock and

overstock are also avoided. The management of Apple Inc. can improve the bottom-line of the
company and achieve optimum utilisation of resources with the help of effective inventory
management systems in the company.
Price-optimisation systems:
Price optimisation system is one of the most important and vital tool of management
accounting which is primarily based on the application of statistical and mathematical models to
analyse and determine the behaviour of consumer with respect to different prices of a product
and subsequently helps in determination of a price level which is best suited for the company to
accomplish its long-term goals and targets (Ito and Fujimaki, 2017). Price optimisation models is
of vital importance for the management of Apple Inc. because of the high extent of competition
and making accurate forecasts for demand which forms the basis of production and sales targets.
Job-costing systems:
Job costing system as a tool of Management accounting is vital importance for
organisations where products are manufactured in batches and are of different types and nature.
Contract costing is a best example of implementation of job costing methods. It helps in
determination of profitability of various contracts and also provides essential information to fill
tenders. Job costing data can be used in contracts where some part of the cost is to be refunded.
Management Information Systems:
Management Information Systems refer to a network of shared computer systems and
software’s which is implemented and installed in an organisation and has great importance for
any company (Laudon and Laudon, 2015). MIS systems have the primary objective of obtaining
data from various departments of the company are provide this data to the managers which can
help in taking better operational decisions. In the context of Apple Inc., MIS system can help the
managers in maintaining a central system where information as per the wish of managers can be
easily obtained and utilised.
Essential Requirements of Different Types of Management Accounting Systems:
Accuracy: Information which is necessary for the management accounting system should
be accurate and complete. Any element of ambiguity or uncertainty in the management
accounting information leads to an ineffective implementation of the whole process which is not
desirable by the management of Apple Inc.