Management Accounting: Types, Methods, and Budgetary Control

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
P1 Explaining management accounting and essential requirements pertaining to different types
of systems....................................................................................................................................3
P2 Explaining different methods that can be used for managerial accounting reports...............5
P3 Assessing cost using absorption and marginal costing systems.............................................6
P4 Explaining advantages and disadvantages of different planning tools used for budgetary
control..........................................................................................................................................9
P5 comparing how different types of management accounting systems can be used for
responding monetary problems..................................................................................................11
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting refers to the process of assessing, evaluating, interpreting and
communicating monetary information to the managers for ensuring effectual decision making. In
the context of business organization, management accounting is highly significant which helps
management team in getting deeper insight about business operations. By taking into account
managerial report firm can develop competent framework and thereby facilitates achievement of
goals. The present report is based on the case scenario of Ikea which provides customers with
unique furniture at suitable prices. This report will develop understanding about the concepts of
managerial accounting and reports used for decision making purpose. Further, report will shed
light on how absorption and marginal costing method helps in identifying cost and profitability
associated with particular operations. In addition to this, it highlights several tools which can be
used by Ikea for planning and resolving financial problem that occurs within business.
P1 Explaining management accounting and essential requirements pertaining to different types
of systems
Cost accounting
This system implies for the framework which is undertaken by the company for
analyzing cost and profit margin of per unit (What is a Cost Accounting System?, 2020). Hence,
by recording and summing up all the cost of production total expenditure can be find out. Thus,
referring below mentioned formulas Ikea can set prices for its offerings.
Cost per unit (CPU) = Total cost / number of units produced
Profit = CPU + (CPU * profit%)
Ikea can use results derived through cost accounting as a benchmark for comparing
current performance. This in turn enables firm to take corrective measures on time as per the
deviations assessed.
Advantages Disadvantages
 Helps in reducing cost and enhances
profitability
 This system is more complex as it’s
based on estimation level.

 Helps manager in ascertaining reasons
behind profit or loss
 Assists in setting appropriate price by
exerting control on cost
 Usually cost is absorbed on pre-decided
rate which in turn leads problem of
under or over absorption.
 Expensive in nature as it requires high
maintenance of cost accounting
records.
Job costing system: It provides information about the cost related to specific job either
production or service. Ikea can use job accounting system when there is a need in relation to
submitting cost information to the customer for cost reimbursement (Job costing, 2021).
Advantages Disadvantages
 It facilitates comparison of cost and
profit pertaining to specific job.
 Referring job costing framework
manager can draft suitable budget for
the upcoming time period.
 Due to the inclusion of more clerical
work it is considered as time intensive
exercise.
 Avoids cost control as in this after
manufacturing cost is recorded.
Inventory management system: It may be served as an approach to source, store and
sell both raw material and finished stock. By using FIFO, LIFO and WACM firm can do
better valuation of inventory takes place within an organization. In addition to this, EOQ, JIT
etc are the most effectual methods which help company in identifying the level of stock that
need to maintained for ensuring smooth functioning of business activities (Fleischman and
McLean, 2020).
Advantages Disadvantages
 Increases operational efficiency by
saving both cost and time.
 Ensures uninterrupted production by
 It eliminates business risk to the limited
extent.