Management Accounting and Essential Requirements of Different Types of Management Accounting Systems

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
LO1..................................................................................................................................................3
P1 Management accounting and essential requirements of different types of management
accounting systems.................................................................................................................3
P2 Different methods used for management accounting reporting........................................8
LO2................................................................................................................................................10
P3 Calculating cost using marginal and absorption costing system.....................................10
LO3................................................................................................................................................13
P4 Advantages and disadvantages of different types of planning tools used in budgetary
control...................................................................................................................................13
LO4................................................................................................................................................16
P5 Adapting management accounting systems responding to financial problems...............16
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Management accounting is the process of analyzing various business activities that
provide information related to stakeholders and regulators that are working in the organization.
Accounting plays an important role for the success in business for gaining more opportunity as
well as profitability (Maas, Schaltegger and Crutzen, 2016). It help in providing various benefits
such as planning, taking decision, managing business in strategic form and identifying problems
that influence company’s operation. Present study based on Advanced Engine Research Ltd. that
is providing an auto racing engine manufactured in Basildon, Essex, England. It was established
in 1997.
Report emphasized on meaning of management accounting and its essential requirement
that help in fulfilling business objectives. It also includes different types of management
accounting systems. It also includes different methods used for management accounting
reporting. It includes analysis of different cost that help in preparing income statement by using
marginal and absorption cost. Furthermore, it includes advantages and disadvantages of different
types of planning tools used in budgetary control. It also emphasize on adapting management
accounting system that help in responding to financial problems.
LO1
P1 Management accounting and essential requirements of different types of management
accounting systems
Management accounting is also known as managerial accounting that will be used for
analyzing cost of business and operations that help in preparing financial report, records and that
aid in taking decision for the company. It also helps in preparing internal financial report and
records and enhancing in achieving goals of the company. On the other hand, management
accounting include doing interpretation, identification, analysis of accounting information that
has been obtained with the help of financial accounting (Chenhall and Moers, 2015). It helps

business managers in the formation of policies, in daily operations of the firms and making
decision by classifying important factors affecting the business. Effective managers are required
for effective management accounts so the effective utilization of the resources could be done
along with minimization of risk. In effective management all the resources should be allocated
well so that nothing goes on vain and all deviations and errors could be well defined and could
be controlled effectively. There are different benefits of managerial accounting such as planning,
decision making, identifying early signs of problems and strategic management. Profitability is
another concept that evaluates different aspects for gaining financial gains in the future. Break
even analysis is another segment that provide effective use of resources.
Management accounting also helps management in conducting planning for whole
business by offering different types of reports that helps to estimate the impact of alternative
actions on the ability of firm to attain its objectives.
The purpose of management accounting is that it helps companies to improve their ability
to control the level of expenses and also helps to conduct planning for the future with the help of
financial forecasts. It also focuses on analysis to evaluate where the firm is having gaps etc.
Management accounting is essential for business because:
 Measurement of performance: - It helps in measuring performance of employees and
efficiency in the organization. This process include comparison between actual
performance with the standardized performance that help in setting deviations that is
necessary steps can be taken and implemented.
 Assessment of risk:- Another essential requirement of accounting management is that it
help in identifying risk factors that is in enterprise can be minimized through effective
management strategy that will be followed by advanced engine research limited company
for manufacturing engines.
 Allocation of resources: - Organizations becomes able to achieve efficient and effective
utilization of resources that help in allocation of resources to the various aspects that will
be enhancing changes in creating enterprise that is helpful for collecting information and