Management Accounting and its Functions

This article provides an overview of management accounting, including its definition and functions. It also explores the difference between financial and management accounting, and discusses various types of management accounting reports and budgeting tools. The article concludes with an examination of the integration of different management accounting systems and the different types of budgeting techniques.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
MA Definition........................................................................................................................1
Function of MA......................................................................................................................1
Difference between Financial and MA...................................................................................2
Requirement of MA................................................................................................................2
MA System, application and benefits.....................................................................................3
Financial Data of Company....................................................................................................5
Different type of MA report...................................................................................................8
Different type of Budgeting..................................................................................................10
Different type of measuring tool..........................................................................................12
Characteristic of effective management Accountant............................................................13
Difference between adoption of MA system in organization...............................................13
Ikea inventory management system.....................................................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is the process in which organization uses different report in the
organization to improve the performance of the business. Katie walker Furniture, is the
organization who has to consider dealt in the retail sector of the nation. This report explain the
critical evaluation of MA and system in the firm. After that the report explain the various type of
Management accounting report and budgetary tool. In the end the report explain the different
measuring tool in real and how different organization has to consider adopt MA system in an
organization. Report also explain the calculation of different financial data.
MAIN BODY
MA Definition
As per Institute of MA (IMA), MA is define as a profession which has to consider provide their
support in management decision making of an organization. This eventually prove crucial for
organization in planning different operation in an organization and provides a good hand of
support to financial reporting and implementing various policy in an organization (Otley, 2016).
Institute of cost and management accounting, defines management accounting as application of
different professional skill in the preparation of report in the various which provides good
support in formulation policy and considering different alternative.
Function of MA
Function of MA are as follows:
Planing: MA has to consider provide the contrastive information about the situation of
the business and on the consideration of same different policy and strategy are being planned in
an organization (Cooper, Ezzamel and Qu, 2017).
Organising: MA help manager in organizing different activity, as this helps Management
accounting manager is able to regulate, adjust and coordinate various activity at workplace.
Controlling: MA provides the organization in controlling various activity in the
organization. As MA help organization in understanding variance between actual and expected
performance.
Margin Analysis: management accounting is has to consider determine the different
amount of profit or flow of cash which is generated in the firm, due to product, customer and
region.
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Cost setting: MA also provide very crucial support the company in ascertaining different
cost which will be require by a company in manufacturing process.
Inventory valuation: MA provides good hand of support to company in determining
variety of different direct and indirect cost and inventory item in an organization (Maas,
Schaltegger and Crutzen, 2016).
Difference between Financial and MA
Basis MA Financial Accounting
Aggregation MA in the firm looks at
detailed level to enhance the
performance. Such as profit by
product, product line, customer
and geographic region
Financial Accounting at the
same time has to consider look
at enhancing the result of
entire business.
Standard Management accounting did
not need to compile with any
of the standard to present the
result (Hopper and Bui, 2016).
Financial accounting has to
compile the out come of the
report with variety of different
standard.
Time Period This is generally prepare on
the frequent basis in the
organization.
Financial accounting is
generally drawn once or twice
the year only.
Requirement of MA
Forecasting cash flow: MA is require in the firm to forecast different cash flow of the
organization. As MA has to consider make various forecasting decision on the basis of budget
and different financial report.
Analyzing ROI: management accounting is require in the organization to analyze ROI of
the business. As with MA is required in the firm to select the best opportunity available at market
place (Bromwich and Scapens, 2016).
Strategic management: MA is also required at the workplace for the purpose of
Strategic management. As MA help organization in forming different strategy.
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Decision making: MA is also required in the firm to make or take various type of
decision in the firm. As this framework provide a good basis of information to make different
decision in an organization.
MA System, application and benefits
Cost Accounting System: Cost accounting system is the system which is used in the MA
to estimate different sort of cost of the product to determine cost of the product, inventory
valuation and control.
Requirement and Benefit
 Cost Accounting system is required in the organization to determine the variety of fixed
and variable cost incurred in the company. This help the firm in optimizing the budget
and resource allocation in the organization.
 It provides company in offering product at reasonable price, as it eliminates unnecessary
item in production (Quattrone, 2016).
Inventory management system: It is the accounting system in the firm which prove
crucial for organization in tracking the different level of inventory in the firm.
Requirement and Benefit
 Inventory management system is required to forecasting the different need of company
product at market place. This help in planning the different manufacturing activity in a
way that it help company in achieving the goal efficiently.
 provides organization in keeping the warehouse of the company well organized.
Job costing System: This is the system which looks at determining the contrastive cost
which has been incurred for a specific production or service in an organization.
Requirement and Benefit
 Job costing system is generally required to estimate similar or different type of job which
can be undertaken.
 provides organization in understanding the variety of pros and cons of job in an
organization (Ax and Greve, 2017).
Price-optimizing System: This is the system which has to consider consider the change
in demand due to change in the pricing structure in an organization.
Requirement and Benefit
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 This is required in the business to drive the focus of organization toward different value
added activities in an organization.
 Also it helps the organization in promoting automation of task in the company and helped
in making quick decision in an organization.
Information should be relevant, accurate and reliable
There is very much need of providing the contrastive information in a relevant and
accurate way to contrastive interested party. Reason behind the same is identified that it will help
the manager in making more relevant decision as manager will be having accurate data . It is also
very crucial for the organization to have reliable information, otherwise it may impact the
efficiency of the business in long run.
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Financial Data of Company
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Financial data of the company it has been find out that absorption costing system will be
great choice for the organization as profit derive from this costing is higher as equivalence to that
of a marginal costing. Profit from absorption costing system is 82335, 71500 and 87695 and
marginal costing as 60200, 85150 and 85300 respectively three year
 Marginal costing is a costing technique which has to consider charge the variable cost of
the company and has to consider write off fixed cost of company. Where as absorption
cost has to consider consider both direct and indirect cost of production.
 Marginal costing provide very crucial support organization in fixing the selling price of
the company, provides the organization in understanding the impact of the variable cost
which has to consider has on the operation of the business.
 difference in profit from both the costing is that absorption cost is that marginal cost has
to consider overwrite fixed cost but absorption cost has to consider not do it.
 This financial statement prove crucial for company in forecasting future of the
organization, this help company in making decision in the firm very efficiently.
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Different type of MA report
Inventory Report: Inventory report is the report which has to consider show the
summarized version of the various type of the inventory present in firm and the stage at through
which that inventory is going on (Granlund and Lukka, 2017). This shows the comprehensive
accounts related to the stock and supply of different item in an organization.
Benefit of inventory report
Inventory report help organization in making different management strategy in the
organization. As at the time of making contrastive strategy related to production of inventory,
inventory report provide the basis of current situation of inventory in the company. This helps
the organization in overcoming the issue of duplicate of work at the workplace. Also, saving the
cost of the production in an organization. Also inventory report help organization in preventing
the situation of product shortage and allowing you to keep good amount of product in the
organization.
Account Receivable aging report: Account Receivable aging report which has to
consider shows the list of the various sort of debtor of firm with the date on which they are liable
to pay debt. This report has to consider record the date of the occurrence of the debt as well.
Benefit of Account receivable aging report
This eventually prove crucial for company in managing the debt of the company in more
efficient way in the organization. As with the help of Accounts receivable aging report
organization is able to identify the customer which has to consider fall behind on their payment
and can memorized them on time to pay contrastive debt in an organization. This prove crucial
for organization in seeing the greater amount of financial availability in the company
(Soderstrom, Soderstrom and Stewart, 2017). This eventually prove crucial for company in
planning different activity very efficiently.
Budget Report: Budget Report has to consider show the actual result of the outcome of
the budget with the per-established budget of an organization. They generally has to consider
show the variance in the budget formation.
Benefit of Budget Report
Budget report generally help the management of the organization in knowing the
contrastive expenditure level in the organization is too high for the organization. Organization
can take different action to lower down the same in the organization. This report also has to
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consider show the different revenue option available in front of the organization. This help the
management of the organization in overcoming the issue related to the profit margin in the
organization.
Integration of Different MA system
MA system in the organization is linked with the variety of the various reports in the
firm. As it has seen that MA system in the firm shows the result qualitative form. Whereas MA
report in the firm has to consider show the different result in quantitative form. So manager in
the organization has to consider check out the result of both reporting as well as system and has
to consider make different managerial decision in the firm.
For Example: Inventory management system or job costing system has to consider
create the environment in company which prove crucial for company in analysis how
organization can manage the inventory in the firm or maintain good cost structure in an
organization (Dekker, 2016). At the same time MA report in the firm has to consider provide the
current situation of the cost in the organization or inventory in the company. On the basis of the
integrating the strategy to maintain the inventory or cost and actual position, manager in the firm
has to consider take various type of management action in an organization.
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Different type of Budgeting
Zero Based Budgeting: Zero Based Budgeting is budgeting which looks at justifying all
the different expenses for new period. This process of budgeting has to consider starts from the
scrap and has to consider take every budget as a zero and all the function in the organization are
also analyzed for the purpose of needs and cost (Nitzl, 2016).
Advantage of Zero based budgeting
 Zero based budgeting in the organization help the manager in justifying all type of the
expenses in cited firm. Not only that it provide the help to the organization in justifying
the various operating expenses in the organization as well.
 Zero based budgeting is also recognized as the efficient budgeting tool as this tool has to
consider focus on the current situation of the business as compare to the previous or past
budget of an organization.
 It provides the organization in removing the redundant spending of the company as it has
to consider re-assist unnecessary expenditure in cited firm.
Disadvantage
Zero based budgeting consume good amount of time and efforts in company, this
eventually has to consider impact efficiency of the business. As they have to start from scrap
from starting.
Also it has been Analyzed that ZBB is the technique which increases the chances of the
corruption in the organization as compare to the other budgeting tool.
Purchasing Budget: It is the type of the budget which has to consider determine the
amount of the resources or the inventory which will be require by the organization in coming
period to carry out the various operation. Also this budgetary tool has to consider define the
amount of the money which will be require to procure the same in the organization (Budgeting
Tool, 2016).
Advantage
 This budgetary tool in the organization provide very crucial support the organization in
optimum utilization of the resources. As there is good amount of the clarity, which
reduces the amount of wastage.
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 Purchase budget provides the management of the organization in forecasting the future
need in cited firm, as organization haves the idea about the amount of the product they
have to produce.
 Purchase budget provides the organization in having greater control over the level and
amount of the inventory present in the organization.
Disadvantages
 Biggest disadvantage of purchase budget is that it is being made on the basis of various
assumption. As this budget generally has to consider forecast the future happening or
expectation.
 Purchase budget impacts the efficiency, as it consumer good amount of the time of the
organization to make various budget in the organization.
Incremental Budget: Incremental Budget in the organization which is prepared on the basis of
the previous year budget of the firm (Tucker and Schaltegger, 2016). This budget is based on the
assumption made on the previous year budget of the organization.
Advantage
 Biggest advantage of incremental budget is that it is one of the simplest budgeting way to
form the budget. As manager in cited firm is already having the basis to form the same.
 Incremental Budget is the helps the organization in bringing the good amount of stability
over the time in the organization. As this budget has to consider show the expenses very
easily in an organization.
 Increment budget provides the organization in staying with the same policy in the
organization for longer period of time, as there is no much change in the budget of an
organization.
Disadvantage
 This sort of budgeting in cited firm has to consider discourages the amount of innovation
in the firm. As same level of figures and data are being continue in the organization for
longer period of time.
 Also there is lack of incentive in the organization for the comprehensive review in the
organization.
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Different type of measuring tool
Bench marking:
Bench marking is the technique to set the different target which has to be achieved by the
organization before hand itself. After that organization has to consider analyze the actualized
result of the institution with the already made benchmark in cited firm. This prove crucial for
company in finding out the variance between the actual performance of the business with the
already made target in the organization. After finding out the variance that can be financial
problem of the business, organisation has to consider take the decision in the organization to
overcome the same variance.
KPI:
KPI at the same time has to consider measure how effectively organization is able to
achieve the key objective of the business. For finding out the solution of the financial problem
organization has to consider take the five step action. In the Step 1, organization has to consider
set up the different goal and performer indicator (Malmi, 2016). In step 2 organization has to
consider set the different critical success factor in cited firm on the basis of the goal setup in first
step. In the step 3 organization has to consider set varient KPI in firm. After they has to consider
collect the different measure in the cited firm in the step 4 and in the end calculate the metric of
measure to find out the solution of financial problem. For example: organization as set the goal
of increasing the revenue of company by 20 percent, but metric has shown that organization is
only enhance the revenue by 15 percent. So organization will try to take the the step to bring it to
20% in coming future.
Budgetary Target
Budgetary target is an estimated money which will be required by the organization to
cover the operation of the organization. This is just like Benchmark only, only difference is in
benchmark organization has to consider set target and in this organization has to consider
assume. Just like bench-marking, organization in this has to consider analyze the actualized
performance with the estimation amount and try to find out the variance. After that organization
has to consider take make decision to overcome the contrary variance in an organization.
Financial Governance is generally defines as the different ways through which organization in
real has to consider collects, manages and monitor varient sort of financial information. This
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eventually prove crucial for organization in tracking the different financial transaction and help
organization in managing the different compliance, operation and disclosure (Collis and Hussey,
2017).
This eventually prove crucial for organization in tracking the financial problem more
effectively in the organization. This eventually prove crucial for organization in finding out the
different financial problem in the organization. This help organization in making different
decision in the organization to overcome the different financial problem which is faced by the
organization in long run of the business.
Characteristic of effective management Accountant
Decision making: All the manager has to have a good decision making characteristic, to
perform antithetical activity. As they have to go through variety of different information and
makes the best decision out of the same.
Leadership: All the management accountant are require to have leadership characteristic
in themselves as they have to lead the variety of the department to gather different information in
the organization.
Communication: All the management accountant in cited firm need to have a
communication skill in the organization. As they have to pass on the different decision in the
organization in a way that it has to consider have good impact on the performance of the
organization in long run.
Honesty: All the management accountant also has to show a good amount of honesty at
the time of making varient decision in the cited firm. As they can influence the result, on the
basis of their interest. This will impact their reputation as well as organizational reputation at
market place (Chiwamit, Modell and Scapens, 2017).
Difference between adoption of MA system in organization
Starbucks IKEA
Starbucks adopts the cost accounting system in
the organization to cut down the cost of many
different product of the company. In this they
generally has to consider note down the cost
incurred for two different period and has to
IKEA at the same time generally has to
consider adopt the inventory management
system in the organization by the help of
recording the inventory present in cited firm on
the frequent basis, after that organization has to
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consider compare the cost of the company and
on the basis of that result, Starbucks has to
consider plan the different action in the
organization, to reduce cost of the company.
consider look at the report and on the basis of
seeing trend. Organization has to consider plan
the varient forecasting of the inventory in the
cited firm and has to consider perform different
activity accordingly.
Ikea inventory management system
Ikea has very clear vision to carry out their different operation vision of IKea is to provide the
well designed furniture at very low cost in the market so that all the people can afford the same
in the market. To achieve and full fill same in the organization supply chain management of the
organization used to play very crucial role as it make sure that there is good supply of all the
product in the organization and also on continues basis.Cost saving is one of the main reason
through which organization used to offer the product of the company at that low rate in the
organization. This eventually used to help the company in getting cost benefit in the
organization. Reason behind the same is identified that most of the product of company are
produced with the help of recycle raw material. Also they never used to compromise on the basis
of quality of product in the organization.
Ikea generally used to buy the product from 1800 supplier in more than 50 countries and
used to trade in 42 countries. This eventually used to means that Ikea used to delt at higher
volume in the market. There is good amount of competitor in the supplier of raw material in the
organization. This eventually used to impact the performance of the business in the organization
but with the help of large quantity product together in the organization. This eventually used to
help the company in fostering competition in market.
Ikea also in the organization used to allow different customer to touch the product of the
company and on the basis of the same they used to strive the different inventory of an
organization. This is called the ikea way of purchasing home.
CONCLUSION
Report summarized that their are many type of MA system which is used by organization
to improve the quality of performance in the cited firm. After that report conclude that financial
accounting and MA are two different concept. After that report conclude that Financial
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accounting budgetary tool help organization in overcoming contrastive financial problem in the
cited firm. In the end the report concluded that there are many various type of measuring tool
which is used by company to measure the performance of the business.
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ONLINE
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budgeting/using-your-budget-to-measure-performance/>.
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