Various Methods Management Accounting

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Management accounting and essentials requirements of various type of management
accounting systems.................................................................................................................3
P2 Various methods used for management accounting reporting..........................................6
TASK 2............................................................................................................................................7
P3 Calculate cost using marginal and absorption costing......................................................7
TASK 3..........................................................................................................................................10
P4 Advantages and disadvantages of different types of planning tools...............................10
TASK 4..........................................................................................................................................13
P5: Comparison with other organization to overcome financial issues...............................13
Conclusion.....................................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is a technique that assist a firm to be efficient to have better
planning and control over a company. It can be defined a a practical science for value creation
and accounting resources within firm to ensure their optimum utilization.It supports top
management to gain insight of their business operations so that it can streamline its activities and
maximum output with minimum waste generation (Bebbington, Unerman and O'Dwyer, 2014) .
Oak cash and carry is a small retail company having total staff of 50 members with its base in
UK. It deals in products like groceries and general merchandise. The report will analysis various
methods of management accounting along with appropriate techniques of cost analysis for
preparing income statement. Further it will explain advantages and disadvantages of various
planning tools and will compare ways in which firms are using management accounting to deal
with its financial problems.
TASK 1
P1 Management accounting and essentials requirements of various type of management
accounting systems
Accounting is one of the most comprehensive and methodological process that throws
light on financial transactions related to a company or business. Management accounting refers
to the procedure of identifying, analysing, interpreting and communicating financial information
in order to assist manger to take various business related decisions (What is management
accounting system, 2018.). It helps management to timely and accurately preparing financial
reports on timely basis making it easy for senior management team to efficiently handle day to
day business operations as per standards that ultimately reflects in company's growth and success
(Bennett and James, 2017). Oak cash and carry make use of both internal and external sources
for data collection and then analyse and communicate it at different levels of company. It mainly
involves collecting information that relates to various financial aspect of Oak cash and carry such
as variations in its stock, raw material, shares and in its financial position. Management
accounting in context to Oak cash and carry helps firm to achieve its objective of attaining
growth and sustainability by minimizing its cost and expenditures on its various business
activities. Also it provides a number of benefits to firm like:

 Management accounting involves preparation of budgets to monitor and control various
business related expenditures that are likeable to be incurred in near future. These
budgets thus helps in reducing over all costs by providing in depth analysis most essential
and other extra or postponable cash expenses.
 One of the important function of management accounting is to be accurate and authentic
in finance forecast related to consumers demand , potential sales volumes, effects of price
modification in economic market etc. Thus, this information assist Oak cash and carry to
manufacture right quantity and quality of products and services that are as per the
requirements and demand of consumers.
 Financial information that is provided by management accounting helps owners and
mangers of Oak cash and carry to review and grab prevailing market opportunities
through qualitative analysis in order to make authentic and relevant business decisions
Thus, management accounting assist Oak cash and carry to avoid and overcome many problems,
to mange and ensure its financial security, determining its status and thus to drive business
overall strategy and management (Bovens, Goodin and Schillemans, 2014). Mentioned below is
the importance of management accounting:
 Qualitative data: For achieving control over business and for effectively execution of
all business operations , it is critical that data that has been collected should be authentic
and relevant. Thus, management accounting assist Oak cash and carry to get most reliable
information by in depth studying all internal and external factors so as to get effective
solutions of all business related issues.
 Analysing rate of return: Oak cash and carry before embarking heavy investment on
any project thoroughly estimates its expected rate of return. Also, in case of choosing
between two or more investment opportunities, for determining company's break even,
cash flows etc. company make use of management accounting.
 Enable to gain understanding of performance variances: Management accounting
make use of various analytical tools and techniques that reveals Oak cash and carry
performance variances. It is measured by comparing expected and actually achieved
targets (Brewer, Sorensen and Stout, 2014).

Type of accounting system Cost accounting system: It is a procedure that measures and determines the total
expenditure that are associated with production, products or projects so that authentic and
correct amounts are recorded and reported in financial statements of a firm. It involves
certain types of costs like direct , indirect, variable, flexible and operating costs.
Estimation and evaluation of all these helps a company like Oak cash and carry in its
finance related decision making process.
 Inventory management system: It is the process/system of monitoring and keeping track
of goods of Oak Cash and Carry company by regularly recording its inventories
amounts, weight, quantity, location and dimensions. Thus, it assists mangers in placing
orders for raw materials, to replenish products etc. This ensures that business is available
with enough stock for manufacturing right quantity and quality of products for meeting
its consumers demands. Oak Cash and Carry make use of following two techniques:
Just in time approach
Economic order quantity
Both these techniques assist Oak Cash and Carry to order right quantity, quality of raw material
at right time, to store and manage it at right place. Thus, inventory management ensure
uninterrupted smooth functionality in production and other business activities which help firm to
achieve its end objectives with minimum wastage, higher returns and productivity(Chiwamit,
Modell and Yang, 2014). Job Costing: Job costing is the process that enables Oak Cash and Carry to mange and
control usage of its raw materials,equipments and labour hours by systematically
segregating expenditure incurred on each customer order separately. It involves dividing
manufacturing costs into overhead, direct labour and direct material costs to estimate
their actual value.
 Price Optimisation system : It is the process of using mathematical analysis to
identifying the probable response of customers of Oak Cash and Carry to its different
prices of its various products and services. It also helps company to determine that price
level that will ensure selling of its products quickly resulting in generation of decent
profits for it.

P2 Various methods used for management accounting reporting
Accounting reports forms crucial part for a company as it reveals the exact performance
of its business and associated operations. For a small business like Oak Cash and Carry firm it is
of high relevance to prepare these documents as it provides important strategic insights from
these reports (EBRAHIMI and MOGHADASPOUR, 2015). Therefore, it is responsibility of
manger to prepare accounting reports every quarter in order to get holistic view of its finances
and performance level so as to efficiently regulate and control them. Thus, these reports helps
firm for undertaking effective and accurate planning and decision making.
Importance of management reporting system :
Beneficial in profitable operations: Management reports aids Oak Cash and Carry by
indicating it the level of its performance on the basis of pre set standards. Thus, it helps mangers
to provide clear and specific instructions to its employees in reference to key areas of their
lacking that are requite to be overcome. Also it determines the ways they can improve and
enhance their productivity and performance so that effective outcomes could be obtained.
Helps in managing Control System: Management accounting is leads to setting up
standards for measuring performance f in advance. Thus, it provides management of Oak Cash
and Carry to compare the actual performance with expected performance given by its employees
against pre determined budgeted targets. This reveals the gap or deviations in their performance
against which corrective actions are planned and designed by mangers so as to overcome them.
Thus, in this context reports are used as a control tool for the company's management.
There are several types of reports that are to be prepared by managers of Oak Cash and
Carry to get a variety of information that is required to reduce its costs, reward its star
performers, cut unprofitable product lines and invest in products that could yield higher returns.
Mentioned below are some prominent types of reports prepared by Oak Cash and Carry:
Budget Report : It is one of the most fundamental report that is been prepared by Oak
Cash and Carry to evaluate and control its expenses across the business along with its overall
performance level. A budget is created to understand grand scheme of firm that lists all probable
sources of finance available and various expected expenditures. The company always tries
accomplish its vision, mission and goals while staying within the budget that is set (Klychova,
Faskhutdinova and Sadrieva, 2014). Thus, by analysing previous years budgeted amount

mangers tries to find out areas of cost cutting in order to save funds that could be utilize to offer
better employee incentives, renegotiate terms and conditions with vendors and suppliers etc.
Job costing reports: In job report report Oak Cash and Carry lists down its each and
every business activities along wit total cost spent on job in the previous financial years. Thus
company emphasis on matching the expenses incurred with the estimated revenue of the firm so
as to maintain its profitability. Also firms tries to reduce its wastage by ensuring optimum
utilization of its resources. It involves various methods such as batch costing, process costing
and contract costing. Thus, this report assist Oak Cash and Carry to track down and monitor the
work down together with performance of its employees in systematic manner. Company can
make use of process costing as it is a retail store (Lavia López and Hiebl, 2014) .
Manufacturing and inventory report: Management accounting is used to develop
production process in an effective way by business having physical stock. This report that is
prepared by the management of Oak Cash and Carry involves labour cost, overhead cost, level
of wastage of inventory and other aspects related to production of goods. It thus, enables firm to
regulate and control its available stock levels efficiently.
Performance reporting approach: This approach includes preparing reports about
performance of employees on the basis of set standards so that proper judgement could be taken
by comparing past and present years information. Oak Cash and Carry apply this tool to identify
its financial statements in order to estimate firm's actual performance in the market in reference
to its competitors (Melnyk and et. al., 2014).Thus, Oak Cash and Carry utilizes various methods
for managing and controlling its accounting standards.
TASK 2
P3 Calculate cost using marginal and absorption costing
Management accounting is generally utilize by company for formulating various reports
and reducing costs and expenditure of its business operations. By adopting appropriate cost
approach company can attain its desired outcomes in most appropriate manner. (Messner, 2016)
Cost : It is the amount that is spent for acquiring or producing an asset. This expense is
incurred to attain profitable result by selling manufactured products and services. Thus in other
words cost can be defined as valuation of resources, time, efforts risks and utilities that are
requisite to be invested in performance of various business operations. It involves cost associated

with labour,overhead, materials etc. that is being utilize during production process. In order to
determine net profitability management can use marginal costing and absorption costing (Mistry,
Sharma and Low, 2014).
Oak Cash and Carry is a retail company and thus it is important for company to identify
costs related to its various activities so as to attain higher profitability and growth. For this,
company make use of below mentioned costing methods:
Marginal Costing: In this costing method only variable cost is considered while
calculating net profit (Difference Between Marginal Costing and Absorption Costing, 2018).
This method used by Oak Cash and Carry proves to be apt when firm produces one extra unit of
output other than main outcome. Thus, it either enhance or decrease total cost of production
process that directly depends upon level of output that is been produced. Marginal cost or
variable cost involves material and labour costs in addition to fixed cost (Nørreklit, 2014)
(Quinn, 2014).
Absorption Costing: Absorption costing involves various costs like fixed and variable
costs that directly affects net profits of Oak Cash and Carry. Absorption costing use generally
accepted Accounting principals for external reporting considering both fixed and variable costs
while calculating net profitability. For instance, direct cost involves cost of overheads, raw
materials, and wage cost. Although as due to including fixed cost net profits of firm get
negatively impacted thus it is a less adopted method by most of firms.
Mentioned below is the difference between marginal and absorption costing methods:
Basis Marginal costing Absorption costing
 Meaning
 Categorisation
of expenses
This method involves deducting fixed
expenses and variable overheads per
unit cost of a product for calculating
net income of firm.
This method segregate cost into fixed
and variable expenses. Thus, it helps
in finding out the net profit and
contribution separately and in easy
manner.
Absorption costing includes
calculating production cost
along with all overheads like
direct expenses.
This system determines cost
through customary manner.

 Cost
identification
In Marginal costing variable and fixed
cost remain unchanged during an
entire production process.
In absorption costing method
both fixed and variable costs
are included for calculating
final production cost .
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Computation of net income by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis: It is said to be one of the crucial point at which every cost and
expenses needed to provide equal outcomes for Sollatek (UK). It is known as effective point in
which company neither get profit or nor goes into any kind of loss.
 Total number of product sold
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500

b. Calculation of break even point in accordance to sales revenue
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
c. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: It is known as one of the reliable aspects that is related with better
management of various intrinsic value of stock at market cost. It is termed as more accurate ways
to provide effective ways as an end sales volume which would be depend as appropriate business
range to overall break even analysis.
d. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
TASK 3
P4 Advantages and disadvantages of different types of planning tools
Budget : Budget is a financial statement that is prepared for determining the total future
revenues and expenditures on the basis of current financial performance of a firm. It also is the
indicator of how various funds are allocated for execution of various business activities. Thus, it
assists manager of Oak Cash and Carry to determine money that is invested by it over its several
operations. Generally they are prepared for a year or more depending upon objectives and
requirements of company (Renz and Herman, 2016) .

Budgetary-control: It is the procedure for identifying and controlling expenses through
preparing budgets, maintaining coordination among various divisions and establishing
responsibilities, comparing actual performance level in reference with the budgeted ones. It also
involves taking remedial measures to remove the deviations so that firm could achieve its
objectives with maximum profitability. Budgetary control includes budget and related reports
throughout the process for evaluating and managing day to day routine activities of a firm.
Therefore it assist mangers of Oak Cash and Carry in optimum utilization of all its resources.
Process of budgetary-control
 Consult with manager: In the absence of proper coordination among various
departmental mangers it becomes quiet tough for a firm to acquire control over its
business activities. Thus, it is of utmost importance for mangers of Oak Cash and Carry
to maintain effective cooperation and coordination among the. For this mangers can
discuss and take suggestions of each others on relevant business related topics and
subject matters related to diversification of business operations (Robalo, 2014). Do assumption: After gathering relevant data and information it is important for mangers
of Oak Cash and Carry to make assumptions in reference of that so that amount of loss
could be reduced. One of most prominent feature of these assumptions is that it assists
mangers in acquiring control over expenditures incurred on business. Fix data for attaining business targets: This involves collecting in depth information
and knowledge related with each and every division of Oak Cash and Carry. This
supports in making an effective plan by taking consideration their various requirements
and needs so as to provide long term benefits of firm. Comparing actual with expected information: This step involves comparing actual
performance with the expected performance of the business in accordance with the per
determined set standards. This reveals the performance gaps or deviations that are
analysed by mangers to find out areas of lacking so that necessary corrective actions
could be taken for reducing and removing them (Schaltegger and Burritt, 2017) .
 Review Analysis: This forms the last stage of budgetary-control in which mangers
examines all the previously conducted steps so as to evaluate the effectiveness and
authenticity of them.

Planning Tools: Planing could be defined as the process of deciding future course of actions to
be taken by Oak Cash and Carry by keeping its aims and objectives at the centre of focus. The
most peculiar feature of planing is gives guidelines and directions for mangers to opt for
undertaking a specific action while ensuring optimum utilization and minimum wastage of all its
limitedly available resources. Out of various available tools that are available for carrying out
planing process used by Oak Cash and Carry most prominent one is Forecasting tool.
Forecasting tool: In this tool manger of Oak Cash and Carry mangers plan out on the
basis of pre determined assumption on the basis of knowledge, skills and judgement of
management. In this aspect manger make use of historical data for forecasting the future course
of action to be taken by firm (Suomala, Lyly-Yrjänäinen and Lukka, 2014).
Advantages Disadvantages
It assist management for gathering appropriate
and authentic information that influences the
taking quality decisions, making appropriate
plans for future business activities and to opt
for most feasible choice. This all contributes in
getting beneficial and profitable returns.
Future being uncertain cannot be predicted
accurately just on the basis of assumptions
taken. Thus, it might reveal negative or
unprofitable outcomes in case there is some
changes in pre determined assumptions .
Scenario Tool: In this method mangers of Oak Cash and Carry make use of several tools
for determining various alternatives that are available for conducting business operations. Also,
its provide directions to management to take effective decisions on matters related to its various
functions thereby aiding to perform to its distinctive capacities.
Advantages Disadvantages
It assist managers in collecting valuable
information and data about the various
alternatives available with the firm and to
carrying out business operations as per desired
manner.
This method take considerable time in
identifying and evaluating different choices
available with the business. Thus it adversely
affects various its operation leading to delay in
decision making process.

Contingency Tool: This technique forms one of the most powerful technique that is
considered by Oak Cash and Carry. It involves a rational decision making to manage possibilities
by taking corrective measures by focusing on the end objectives of the firm. The mangers take
most appropriate actions keeping in mind all the factors and issues that are likeable to influence
and affect organisation and its activities (Van der Stede, 2015).
Advantages Disadvantages
It assists management in reducing business
expenditures and making improvements in
business activities that reap beneficial results
on the profitability of the firm.
The techniques used in this tools are not
appropriate to manage all the crisis in all kind
of situations.
TASK 4
P5: Comparison with other organization to overcome financial issues
In order to maintain its sustainability and attain growth it is of critical importance for
every organisation especially small-sized firms like Oak Cash and Carry to adopt advanced
technologies and latest knowledge in to its business operations. This not only helps company to
enhance its market share but also helps in getting edge over its competitors by being figurehead
thereby attracting large potential target audience. The mangers of Oak Cash and Carry by
regularly scanning firms financial position in reference to changes occurring in its market
dynamics tries to avoid any financial crisis and problems that can affects its profitability
(Williams, 2014).There are various reasons like loss of important report, competitor's effective
strategies, low performance of employees etc. that might give rise to these issues. Thus, to avoid
and minimize the affects of these crisis Oak Cash and Carry make use of a number of financial
tools that assist its management in eliminating and deflecting these problems in most efficient
and effective manner. Mentioned below are certain tools that are utilized by the firm:
Key Performance Indicator ( KPI): It is one of the most effective tool that assist Oak
Cash and Carry to measure the performance level of its staff members by comparing their actual
performance with the desired one. This reveals the low as well as star performers that enables

management to design appropriate training program to induce skills and capabilities and reward
system to recognize high performers.
Financial Governance: It includes the guidelines or directions that are provided to the
employees to make them work autonomously towards attaining maximum positive returns. The
major benefit of following guidelines and rules that are incorporated by organisation reduces the
chances of any conflicts amount its workforce (Zaleha Abdul Rasid and et. al., 2014).
Comparison of Oak Cash and Carry with other companies
Oak Cash and Carry Unicorn Grocery
It is the company that deals in grocery and
other general merchandise.
It deals in fresh, processed and dried food and
drinks .
It operates at small level and therefore it is
required to opt KPI that would assist firm to
encourage its employees for doing hard work
and achieve specific targets within specific
time frame
As company operates in relatively larger scale
it is requisite for firm to adopt corporate
governance tool in order to maintain and
enhance its position in the market.
It has wider scope It has narrow scope.
Conclusion
Management accounting is one of the essential component which is effective for telling
accurate information about business enterprise. There are various approaches which are to be
used under management accounting. There are various types of cost which are incurred to satisfy
demand and needs of customers. Also Oak Cash and Carry make use of various planning tools in
its business activities by examining its disadvantage and benefits before making final decision.
Moreover management accounting assists firm to overcome financial problems and crisis.

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Online
Difference Between Marginal Costing and Absorption Costing. 2018. [Online]. Available
through: <https://keydifferences.com/difference-between-marginal-costing-and-
absorption-costing.html>./
What is management accounting system. 2018. [Online]. Available
through:<http://www.ehow.com/facts_5460765_management-accounting-system.html>.