management accounting

MANAGEMENT ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
Management accounting principles........................................................................................................3
Role of management accounting and its system.....................................................................................5
Types of management accounting techniques........................................................................................6
Management accounting is integrated with company and benefits of function to business..................9
Conclusion that reflect application of management accounting...........................................................10
Task 2........................................................................................................................................................10
Different types of planning tools with their advantages and disadvantages.........................................10
Compare how organisations are adapting management accounting systems to respond to financial
problems...............................................................................................................................................12
CONCLUSION.............................................................................................................................................13
REFERENCES..............................................................................................................................................14

INTRODUCTION
Management accounting is known as managerial accounting, it defined as procedure of
providing financial info and resources to manager in decision making. It is only utilized by
internal group of company and this is only thing which makes it different from other accounting
such as financial. The current report is based on Napoleon hotel, is established in east London’s
Shoreditch has one suite. This study explains principles of management accounting and its role,
it also justified role of management accounting systems, techniques and methods used within it
by presenting calculations for an income statement.
Furthermore, this assignment will define critical application of management accounting.
Comparison between three planning tools utilize in MA including advantages and
disadvantages.Moreover, this report will compare ways in which concept applied and its
effectiveness in dealing with financial problems. At last conclusion and suggestions will be done
in context of company.
TASK 1
Management accounting principles
Designing & compiling-
Accounting info, reports and other evidence of past, current and the future outcomes can
be complied & created to meet needs of specific business (Burger and Middelberg, 2018).
According to this principle management accounting systems is developed in such as way
presenting relevant data.
Management by exception-
Principle of management by exception is used when presenting info to administration. It
means that standard costing methods and budgetary control programme is follower in MA
system. In that way, performance is compared with pre-identified one for finding deviations.
Control at source accounting-
Costs are controlled at points at which management are incurred control at source
accounting. Performance of workers, usage of service and details of resource problems are

prepared in form of qualitative & quantitative info, in this manner control can be applied over
staff and other things.
Accounting for inflation-
Income cannot be earned unless capital is handled intact in actual terms, which means
that money value is unstable. So it is essential according to this principle to assess value of
capital supported by entrepreneurs concern in term of real value of money via revaluation
accounting.
Use of return on investment-
It is also known as return on capital employed, return rate reflect efficiency of
organization concern.
Utility-
Management accounting programmes and related systems had to use only as longer as
they serve a effective purpose.
Integration-
Accordant to this principle, all needed info of management is connected so that it can be
utilize efficiently at maximum and at same period accounting service is offered at minimum cost.
Absorption of overhead costs-
Over head costs are adopted on anyone of pr-identified basis. They are combination of
indirect material, expenses and labor. Selected methods for absorption of overheads will bring
about desired outcomes in effective manner.
Use of resources-
According to this management accounting principle, people use all accessible resources
in systematic manner, reason is that some assets are available in plenty only in reason and some
other are accessible in scarcity throughout time period.
Controllable and uncontrollable costs-
On basis of controllability of costs, it can be classified into two kinds such as
uncontrollable and controllable. There is no meaning of taking phase to handle uncontrollable
costs. Management accounting systems are caters methods to control controllable costs
(Fengzhou, Shu and You, 2019).
Forward looking approach-

It can guess future issues through standards costing procedures by means of fixing
standard. In this term, further problems may be controlled to occur.
Appropriate means-
Accordant to principle, most suitable means of accounting, presenting and recording
accounting info can be selected, which means that appropriate mechanization of accounts is
utilize in every business companies.
Personal contacts-
This is the last principle of management accounting, according to which personal contact
with foreman, departmental manager and other could be replaced wholly by statements and
reports. It mean that personal interaction avoids miscomprehend between staff and top authority.
Role of management accounting and its system
Management accounting refer to efficient utilize of all those info which is connected to
management and that evolved effective decision making of companies (Mitter and Hiebl,
2017).Role of management accounting include gathering, reporting and recording financial data
from different units of companies, observe and examine their budget & suggest their allocation
and funding.
Budgeting-
It is the main roles of MA, for a small firm’s budget are direct to all expenditures. Small
companies decide a budget every era to fix their expenses on each procedure that is production
and operation cost and then further investment.
Stewardship accounting-
Another role of management accounting is to design frame work of cost as well as
financial accounts and prepares studies for routine operational & financial decision making.
Long and short term planning-
The third role of management accounting is forecasting the further economic and
business events for developing further plan like long term plans, formulating corporate strategy
and strategic MA (Gomez-Conde and Lopez-Valeiras, 2018).
Type of systems and their role-
Price optimizing systems-
This system is use of mathematical analysis by an organization to identify how
consumers will respond to varied prices for their products and services through varied channels.

The role of this programme is to determine prices that firm determine will best meet their set
objectives such as maximizing operating profit.
Cost accounting systems-
It is a framework utilize by companies to estimate cost of their services or items
profitability analysis, cost control and inventory valuation. The role of this system is to keep
production activities on top.
Job costing programmes-
This system it suited for conditions where products are manufactured as per order &
specification given by consumers.It includes the procedure of collecting all essential information
related to cost with a particular manufacture job.It help manager of Hotel to calculate profit
earned on people jobs, supporting them to better ascertain whether particular role are desirable to
purse in the future.
Types of management accounting techniques
The different types of management accounting techniques are stated below.
Marginal costing
In this, variable cost is distributed to the unit cost. It helps in determining and analyzing
the cost information and profitability in accordance with the change in the level of activity
(Collis and Hussey, 2017). The fixed cost for the period is written off against the contribution.
This system helps in determining the break-even point after which company starts earning
profits. It assists in determining the optimum level of production.
Absorption costing
This method considers all the cost and expenses pertaining to the cost of production
irrespective of whether it is fixed or variable cost (Tabitha and Oluyinka, 2016). It is required for
external reporting and follows Generally Accepted Accounting Principles (GAAP) and
International Financial Reporting Standards (IFRS).
Cost profit volume analysis
This technique is used for analyzing how change in the volume and cost can affect the
income of the company (Schmid, 2019). It is based on certain assumptions like sales price and
variable cost per unit remains constant and everything produced is sold. For cost profit volume
analysis, cost related information is required to be bifurcated into fixed and variable cost.

Applying a range of management accounting techniques and produce appropriate financial
reporting documents
The ABC company in UK is producing different types of chargers and gadgets for retail outlets.
The cost related to it is stated below.
Particulars Cost per unit
(£)
Direct material 8
Direct labour 5
Variable production cost 2
Fixed production overhead 5
Fixed production overhead incurred
actually
£15000
Fixed selling & distribution expense £10000 per
month
Variable selling & distribution expense 15% of sales
value
Selling price 35
Sales 1500 units
Income statement as per absorption costing
Particulars Amount in £
Sales (1500*35) 52500
less: Cost of goods sold (1500*20) 30000
Gross margin 22500
less: Variable selling & distribution expense (15% of
52500)
7875
Fixed selling & distribution expense 10000
Net operating income 4625
Working note
Unit product cost

Particulars Amount
in £
Direct material 8
Direct labor 5
Variable production cost 2
Total variable production
cost
15
Fixed production overhead 5
Unit product cost 20
Income statement as per marginal costing
method
Particulars Amount in £
Sales (1500*35) 52500
Less: Variable expenses
Variable production cost (1500*15) 22500
Variable selling and administrative expenses (52500*15%) 7875
Contribution 22125
Less: Fixed expenses
Fixed production overhead 15000
Fixed selling and administrative expenses 10000
Net operating income -2875
Working note
Unit product cost
Particulars Amount
in £
Direct material 8
Direct labour 5
Variable production cost 2
Total variable production 15

cost
Profit reconciliation statement Amount in
£
Profit under absorption costing 4625
Less: Fixed production overhead (5*1500) 7500
Profit under marginal costing -2875
Analysis and interpretation: From the above it can be said that profits under absorption costing
is £4625 which is high in comparison to the loss calculated using marginal costing which is
£2875. Thus, absorption costing is more appropriate method of carrying out cost analysis as
compared to marginal costing.
Management accounting is integrated with company and benefits of function to business
The integration of management accounting can aid in effectively gaining business aims
and set objectives.It is integrated within each and every level of companies as all data which
related to firms whether they are financial or not, they are connected to internal and external
environment of business, whether info are related to cultural and social problems of firm. In
simple term, all data that is connected to organizations and can impact decision making is
included in management accounting.
It is vital and useful for companies as it affects decision taking of business lead to success
so there is a direct connection between management and progress of firms (Zeng, 2018). It is
quite beneficial in term of increasing profit, help in offering techniques and tools that enhance
reliability of functions of business. It aid to establish control and plans in all phase of company,
support in evolving better decision making and establish appropriate communication among all
phases of firms. It maximize operational efficiency of Napoleon hotel, everything is done in this
procedure with a systematic system for examining and comparing performance. With this
management find deviations and can take promotional decision on this basis. Other workers can
also be inspired with this because when their performance can be favorable, they obtain reward
of this. It increases profitability, while using management accounting capital budgeting and

budgetary control tool, firm can effectively success to reduce capital & operational expenditures.
After this, business can reduce their prices and them they will get super profits.
Conclusion that reflect application of management accounting
From above analysis it has been concluded that management accounting is quite
beneficial for Napoleon hotel in term increasing productivity, profit margin and revenue rather
than before. By applying management accounting within company or business practices workers
can examine in detail which items and accounts are earning the most money. Sales figure aid
them to pin down whether organization goods are attracting a specific demographic and whether
it is benefits to market specific items at particular time. This accounting info caters
administration tools they need to target marketing attempts and pinpoint manufacture numbers. It
has been examine that management accounting is used in long and short term decision making or
including financial health of hotel.It aid manager make operational and financial judgments
intended to support increase business operational efficiency while also aids in making long term
decision regarding investment as well. Uses of management accounting include permitting
administration to compare their accounts with real forecasts or budgets. It uses to manage
resources better, determine trends in business and highlight variations in spending or income
which may needed attention.
Task 2
Different types of planning tools with their advantages and disadvantages
Budgeting helps the businesses in planning for the future by allocating funds to various
business activities. It also helps in measuring any deviation of the actual from the budgeted ones.
The different types of planning tools are stated below.
Zero based budgeting
It is the technique which does not take into account the previous year’s data while
preparing the budget (Zemrani, 2019). Under this, proper research is carried out in relation to the
budget. This technique results into less errors and mistakes as it is prepared completely from the
scratch and nothing is taken from the previous year. It results into more accurate budgets with
very least variances.
Advantages

 New research is conducted each time budget is prepared.
 Does not rely on the previous year budget.
 Relevant for the businesses which are prone to frequent changes.
Disadvantages
 It is a time-consuming process and requires lots of efforts.
 It is very costly method to implement in the organization.
Activity Based Budgeting
In this, budget is prepared by taking into consideration the business activities rather than
departments. Budget is prepared in respect to the forecast the resources to be used and
productivity generated under specific activities (Ozyurek and Uluturk, 2016). It does not use the
budgets which are prepared from the previous year data for the current year budget. This
technique helps in identifying the cost and expenses pertaining to each business activity a
product is undertaken. It helps the organization in identifying any loophole in the system so that
effective actions can be taken to order to avoid wastage and reduce cost.
Advantages
 This method is very easy to implement.
 It also helps in identifying any variation in the production process which leads to cost
reduction.
 It prepared without considering the previous year’s budget.
Disadvantages
 It requires highly qualified personnel to undertake activity-based budgeting.
 It is an expensive method.
Operational Budgets
This budget is prepared for with respect to the operating activities of the business (Cokins
and Dybvig, 2018). It includes forecasting the income and expenses of the organization which is
based on past years trends. This provides the company a map about the expenses that it can incur
during the particular time or for specific activity. It assists the organization in effective and
proper allocation of the resources among various departments and various other business
operations. The budgetary control provides deep analysis of the operational income and
expenditures.
Advantages

 These budgets are very easy to prepare and does not require lots of time and efforts.
 It helps in proper allocation of resources.
 This budget helps in exercising control over the various cost by providing a defined
spending plan.
Disadvantages
 It uses past year budget which may lead to inaccurate decisions.
 In this, it is impossible to make accurate forecast about the future.
Compare how organizations are adapting management accounting systems to respond to
financial problems
With the new evolving organizations where data is considered the most significant part
for evaluating the presentation of the business. The budgetary control techniques that can be
utilized for identifying the finance related issues are described below.
Benchmarking
It is the performance measuring tool in which the organization compare its performance
with another organization within the same industry (John and Eeckhout, 2018). It has certain
standards such as working pattern, expense per unit produced etc. the performance is compared
and then the deviation in the result is identified. It helps the organization in identifying the areas
of improvement and what makes the other business more prevalent which may include business
processes as well. The comparison is also includes processes, system, equipment used by the
competitor which helped it in attaining efficiency.
Key performance indicators
Under this method, various targets are set up which helps in recognising the progress of
the organization (Muhammad and et.al, 2018). It helps in checking the performance of the
organization dependent on certain parameters. There are different kinds of KPIs as per the
requirement of the business such as cost per unit, increase in sales etc. It helps in improving the
overall performance of the business.
Budgetary targets
In this method, the budgetary targets are set which helps in measuring and comparing the
actual result from the budgeted ones (Karpenko, Voronzhak and Sapron, 2017). This helps in
identifying the variation in the result and reasons are identified for the same. This method also

helps the business in identifying its weaknesses which has restrain it from achieving the desired
result. This method will assist the organization in making relevant changes in their strategies.
Napoleon hotel Tesco
In Napoleon hotel, benchmarking is used as
a tool for measuring its performance and
comparing it with the company best in
industry (Gillen, D., 2017). This helps it in
knowing and analysing its areas of strength
and weaknesses.
Tesco uses both benchmarking as well as
KPIs for identifying its financial problems.
KPIs helps in evaluating the performance
based on the set parameters (Kerzner, H.,
2017). In case of benchmarking, company
compares its product and process to another
company in the industry in order to identify
its areas of improvement.
Accounting system used by the organization
Napoleon hotel has implemented inventory management system which help it in
effectively managing and utilizing the inventory (May, Atkinson and Ferrer, 2017). It also helps
in placing the orders on time and managing the cost associated with ordering and handling which
results into reduction in inventory management cost.
Tesco, on the other hand, is using price optimization system which helps it in setting the
price of the product by taking into account the willingness of the customers to pay for the
product. It helps in quick decision making (Bondarenko and et.al, 2017). Also, at the time of
crisis, it will help in reducing the price and making the company earn profits on continuous basis.
CONCLUSION
From above analysis it has been summarized that varied type of management accounting
systems are available that can be used by firm in hospitality industry. Job costing, price
optimizing and cost accounting are different kinds of management accounting systems. By using
these systems company can gain many benefits as it gain competitive advantages, increase profit
margin and productivity level rather than before. It has been concluded that by following the
principles of management accounting hotel can manage their accounts and achieve set objectives
and aims in effective manner.

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<https://www.thesun.co.uk/travel/3465134/londons-smallest-hotel-has-opened-in-
shoreditch-with-just-one-room/>
Principles of Management Accounting. 2020. [Online]. Available through:
<https://accountlearning.com/principles-management-accounting/>