Lean Management Accounting Practices Impact

This assignment, based on the article 'The incremental contribution of lean management accounting practices' from Journal of Operations Management, requires a critical review and analysis of the topic. It involves understanding the concepts and techniques discussed in Kaplan's Advanced Management Accounting, Kotas' Management Accounting for Hotels and Restaurants, and other related works by Malmi, Mangan, McCabe, Mohanty, Mungal, Pike, Simons, and Zimmerman. The assignment should also consider online resources discussing Activity Based Budgeting, Advantages of Inventory Control, Types of Managerial Accounting Reports, Zero-Based Budgeting, and the Differences between Marginal Costing and Absorption Costing.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1 and 2..................................................................................................................................1
P1 Explaining management accounting and its different types...................................................1
P2 Assessing different methods which are used for management accounting reporting............3
M1 Evaluating the benefits of management accounting system.................................................4
D1 Explaining Accounting systems and management accounting reporting can be integrated..5
P3 Preparation of income statement by using both absorption and marginal costing system.....6
M2 Producing financial reporting documents by using the system of MA.................................9
D2 Producing financial report by interpreting data set................................................................9
TASK 3..........................................................................................................................................10
P4 Assessing benefits and drawbacks of different types of planning tools that are used for
budgetary control.......................................................................................................................10
P5 Identifying the manner in which management accounting system helps in responding
financial problems.....................................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
In the recent times, management accounting system has gained high level of importance
which in turn helps in making optimum use of financial resources. Moreover, system of
management accounting is highly associated with cost control and gives input for decision
making. Reports of management accounting provide manager with suitable information for
decision making by placing emphasis on each and every aspect such as stock etc. The present
repot is based on Unicorn which is small-sized retail store of UK. It offers grocery products or
services to the customers at affordable prices. In this, report will shed light on the manner
through which Unicorn can undertake management accounting techniques for getting the desired
level of outcome or success. Besides this, report will also provide deeper insight about the
reports that manager prepares with the motive to give information to the team of higher
management. Further, it depicts the tools and techniques that business unit can employ for the
development of competent plan.
TASK 1 and 2
P1 Explaining management accounting and its different types
To
Management team, Unicorn
Date: 1st November 2017
Subject: Management accounting (MA) system
Introduction: The concerned report will describe management accounting and state its different types. In
this, the concerned report will furnish information about the manner in which business unit can undertake
different types of MA system.
Main body
Management accounting involves decision making, devising appropriate plan and thereby helps in
managing performance more effectually. MA tools and techniques are highly significant which in turn
provides assistance manager in getting timely information and thereby aid in short-term decision making.
Types of management accounting: Tools that can be undertaken by Unicorn for effectual management
are as follows:
 Cost accounting: This technique of MA assists company in determining the cost of

products or services offers by it. Moreover, such technique of MA focuses on recording,
classifying, analyzing, summarizing, allocating as well as evaluation of alternative course
of action. Hence, by undertaking such system business unit can control cost and would
become able to enhance efficiency and capability.
 Inventory management: It includes EOQ, just in time etc techniques which can be used
for managing stock more effectually. Moreover, storage and ordering cost imposes high
level of burden in front of firm in financial terms. Thus, by using suitable tools as well as
techniques company can manage optimal inventory level and would become able to
ensure smooth functioning of activities.
 Price optimization: This system of MA helps company in understanding the manner in
which customers will respond if fluctuations will take place in pricing aspect. Thus, by
using such tool manager of Unicorn can determine suitable prices and would become able
to attract large number of customers. In this way, by using such tool firm can attain its
aims and objectives to a great extent.
Application of MA within the business unit
 In the context of Unicorn, by undertaking EOQ system manager can determine the level
of stock needs to be maintained within the firm for ensuring better services to the

customers. This in turn helps company in saving cost and attaining higher margin by
enhancing the level of customer satisfaction.
 Along with this, by using the cost accounting system manager can determine CPU by
dividing total expenditure with number of offerings. Hence, by considering such cost firm
would become able to ascertain profit margin.
Conclusion: By summing up this report, it can be presented that all the above mentioned MA tools are
highly effectual. Hence, by undertaking all the above depicted systems Unicorn can develop appropriate
framework and get competitive edge over others.
Sincerely
Management accountant
P2 Assessing different methods which are used for management accounting reporting
To
Management team, Unicorn
Date: 1st November 2017
Subject: Management accounting system
Introduction: This report will provide information regarding the various types of managerial reports and
its significance. It clearly presents the extent to which managerial reports give input to the managers for
decision making.
Main body
Meaning and importance of managerial reports
Managerial reports are highly significant which in turn provides assistance owner or manager of
business unit in making evaluation of business performance. Thus, by making focus on the aspects of
managerial reports manager of Unicorn can monitor performance and thereby would become able to take
action for improvement.
Types of managerial reports: There are several reports that Unicorn can prepares for getting quick
indication about the company’s performance are as follows:
 Operating budget report: By preparing such report management team can assess business
performance and would become able to undertake control measures. This report exhibits
information about the extent to which financial outcomes are favorable or not. In other

words, it can be said that such report contains detail about the deviations occurred in
revenue and expenses with causes (Types of Managerial Accounting Reports, 2017). In
this way, budget report gives input to the managers and assists in developing strategic
policy as well as financial framework.
 Inventory and manufacturing report: By undertaking such report, business unit can
make the business or manufacturing process more efficient. It renders information about
inventory wastage and per unit overhead cost. Hence, with the help of such report
manager can make comparison of different assembly line for assessing the need for
improvement. Along with this, by using such report manager can decide which
departments are performing well and become able to take decision in relation to offering
bonus to the personnel.
 Accounts receivable aging: Business unit can manage its cash flow more efficiently by
undertaking and preparing accounts receivable aging report. This report assists company
in identifying the issues that are associated with the collection process followed by it.
Thus, with the help of such report management team of Unicorn can decide whether there
is a requirement to tighten the credit policies or not. In this way, by taking suitable
decision firm can improve its working capital to the significant level.
 Profitability report: Manager of the business unit can evaluate profitability aspect
pertaining to specific time period by using such report. Moreover, profitability report
furnishes information about actual margin generated by the firm during specified time
frame as compared to the standard one. Hence, by using such report manager can assess
loopholes and thereby would become able to determine the need of cost control,
promotional aspects etc.
Conclusion: It can be concluded from the overall evaluation that Unicorn can develop appropriate
framework by using managerial reports. This in turn helps company in getting the desired level of
outcome or success in the competitive environment.
Sincerely
Management accountant

M1 Evaluating the benefits of management accounting system
Management accounting system has several benefits and drawbacks which Unicorn need
to keep in mind while making selection of tools are:
Cost accounting
Advantages
 This system of MA will help Unicorn
in eliminating waste, losses and
redundancies.
 It facilitates cost reduction and
enhances profit margin of firm.
 Helps in identifying the reasons behind
the occurrence of profit or loss
(Fullerton, Kennedy and Widener,
2014).
 Enables firm to take suitable decision
in relation to make or buy and helps in
setting suitable price that positively
contributes in the profit margin.
Disadvantages
 Requires highly skilled accountant
 Rigidity and complexity
Inventory management
Advantages
 This system helps in improving the
liquidity position of company
 Ensures smooth functioning of the
business operations and functions
 Inventory management system
facilitates project scheduling, avoid
material shortage and duplication (The
Advantages of Inventory Control,
Disadvantages
 Unicorn can reduce business risk but
cannot eliminate through the means of
efficient inventory control.
 It is a complex process which in turn
places direct impact on business
performance in monetary terms.

2017)
D1 Explaining Accounting systems and management accounting reporting can be integrated
From assessment, it has been identified that accounting system and reporting are highly
integrated with each other. For instance: Inventory management includes several techniques
which in turn provides help to the firm in managing stock in the best possible way. Further,
inventory report gives information about the wastage and thereby helps in identifying the level of
waste. This aspect shows that inventory management system and concerned report is highly
associated with each other. In addition to this, cost accounting system provides assistance to the
manager in determining cost and enables for the preparation of suitable budget (Simons, 2013).
Hence, by undertaking the input of such MA system manager of Unicorn can compare actual
performance with the budgeted aspects and become able to prepare budget report. Thus, by
taking into account all the above mentioned aspects, it can be said that significant association
takes place between MA system and reporting.
P3 Preparation of income statement by using both absorption and marginal costing system
Net profit assessment by using absorption costing (Actual)
Particulars Amoun
t (in £)
Amount (in £)
Sales revenue (35 * 600) 21000
Less: Cost of goods sold 9480
production (700 * 15.8) 11060
Closing stock (100 * 15.8) 1580
Gross profit 11520
Less: indirect expenses 1900
Variable sales overhead 600
Administration cost 700
Selling cost 600
Net profit 9620

Budgeted
Particulars Amoun
t (in £)
Amount (in £)
Sales revenue (35 * 450) 15750
Less: Cost of goods sold 8800
production (600 * 16) 11200
Closing stock (150 * 16) 2400
Gross profit 6950
Less: indirect expenses 1650
Variable sales overhead 450
Administration cost 800
Selling cost 400
Net profit 5300
Income statement on the basis of marginal costing (Actual)
Particulars Amoun
t (in £)
Amount (in £)
Sales revenue (35 * 600) 21000
Less: COGS 6500
production (700 * 13) 7800
Closing stock (100 * 13) 1300
Less: Variable sales
overhead
600
Contribution 13900
Less: fixed expenses 3300
Production overhead 2000
Administration cost 700
Selling cost 600
Net profit 10600
Budgeted

Particulars Amoun
t (in £)
Amount (in £)
Sales revenue (35 * 450) 15750
Less: COGS 5850
production (600 * 13) 7800
Closing stock (150 * 13) 1950
Less: Variable sales
overhead
450
Contribution 9450
Less: fixed expenses 3000
Production overhead 1800
Administration cost 800
Selling cost 400
Net profit 6450
Difference between absorption and marginal costing system
Basis of difference Marginal costing Absorption costing
Meaning
Overhead classification MA classifies cost on the basis
of two aspects such as fixed
and variable.
This costing system presents
cost in the form of production,
administration as well as
selling & distribution.
Profitability In this, by computing PV ratio
profitability can be measured.
In AC, profitability is highly
influences due to the inclusion
of fixed cost.
Highlights This costing system highlights
contribution per unit.
It helps in assessing net profit
per unit.
Cost per unit (CPU) In this, variances which take
place in the opening and
closing stock do not have high
level of influence on CPU of
Under absorption costing
system, CPU is highly
influences from deviations
take place in opening and

output. closing inventory.
Cost recognition Under MA, variable costs are
considered as product cost. On
the other side, in this, fixed
cost is recognized as period
cost.
It assumes and considers fixed
and variable expenses as
product cost (Difference
Between Marginal Costing and
Absorption Costing, 2017).
M2 Producing financial reporting documents by using the system of MA
On the basis of given case scenario, financial reporting documents that can be prepared
by Unicorn are as follows:
 Cost and profit report: By preparing such report, financial analyst can provide
information to the manager about the cost and profit figure determined on the basis of
different techniques. Such report offers valuable input to the manager and thereby helps
in making effectual decisions.
 Budget report: In accordance with the cited case situation, by preparing budget reports
Unicorn can assess the deviations which take place in different elements such as sales,
production etc (Zimmerman and Yahya-Zadeh, 2011). Hence, by undertaking such
document Unicorn would become able to assess deviations and thereby would become
able to take corrective action within the suitable time frame.
D2 Producing financial report by interpreting data set
To
Management team, Unicorn
Date: 1st November 2017
Subject: Profit analysis using absorption and marginal costing
On the basis of assessment, it is reported that business unit should use absorption costing technique.
Moreover, it presents suitable view of cost as well as profit and thereby helps company in doing effectual
planning. Outcome of absorption analysis shows that net profit accounts for £9620 respectively when 600
units are sold and 700 are produced by the firm. On the other side, in the case of marginal analysis, actual
net profit accounted for £10600 respectively. By considering all such aspects, it can be presented that net
profit is lower in the case of absorption costing because it considers both fixed and variable cost. In

addition to this, management needs to make focus on producing units in line with the budgeted aspects.
Hence, unfavorable variance of 100 has been assessed in production. Besides this, it has been assessed
that actual sales of the firm accounts for 600 units which is greater than budgeted figures. On the basis of
all such aspects, it can be said that company is performing well and able to sell higher units. Thus, it is
recommended to the business unit to lay high level of emphasis on making appropriate estimation
regarding sales and production. Hence, by developing appropriate financial plan firm would become able
to get the desired level of outcome or success.
Sincerely
Analyst
TASK 3
P4 Assessing benefits and drawbacks of different types of planning tools that are used for
budgetary control
In the recent times, there are several factors which have high level of influence on
customer decision making regarding purchase includes quality, price and innovation or
uniqueness. Thus, for meeting all such customer requirements and attaining competitive edge
business unit needs to make focus on the development of financial plan. Hence, Unicorn can
develop prominent and competent financial plan by undertaking following tools and techniques
such as:
Modern budgeting techniques
Zero base budgeting: In this, manager prepares financial framework by assessing the
expenses which needs to be incurred for upcoming time period. It completely ignores
incremental budget and start with zero bases for the preparation of new framework. Hence, under
zero base budgeting manager primarily assesses activities and thereafter make evaluation of
alternative pertaining to funding sources. Thus, after making in-depth assessment of activities
and relative cost manager prepares final budget. There are several benefits and drawbacks which
are associated with such technique are as follows:
Advantages

 High level of accuracy: Under ZBB technique, manager lays high level of emphasis on
relooking cash flows of each department and thereby assesses operational cost. Thus, by
presenting the clear picture of firm manager provides every department with appropriate
financial framework.
 Reduction in redundant activities: ZBB may result in result into declination in the
unproductive activities (Understanding Zero based budgeting, 2017). Moreover, in this,
manager makes effort to identify the cost effective ways for performing activities.
 Effective co-ordination and communication: In this, financial authority involves the
personnel of each department and takes input for the development of financial plan. Thus,
such technique enhances employee motivation to a great extent and facilitates effectual
co-ordination as well as communication within the firm.
 Prominent allocation of resources: ABB technique assists firm in making optimal
allocation of financial resources on the business activities and its significance.
Drawbacks
 Time consuming: ZBB is time intensive process as compared to other techniques such as
incremental budgeting. It demands for in-depth assessment pertaining to business
activities, ways to perform and cost aspect. Due to this, manager has to devote their more
time in the preparation of financial framework.
 Need of skilled manpower: In ZBB, personnel face issue in relation to explaining every
line of item (Kotas, 2014). Thus, for enhancing the capabilities of personnel regarding
such aspect business requires to conduct training session which in turn imposes further
cost.
Activity based budgeting: It may be served as a MA tool which does not make focus on
undertaking past year’s budget. Hence, under ABB, all the activities that impose cost in front of
the firm are deeply analyzed and evaluated by financial authority. In ABB, manager allocates
cost to each activity on the basis of their respective driver. In the modern era, such budgeting
technique is frequently used by the not only large but also small companies with the motive to
ensure efficient allocation of financial resources.
Advantages

 Facilitates evaluation: In ABB, finance manager makes assessment of each cost driver
associated with business activities (Activity Based Budgeting, 2017). Hence, it helps in
making appropriate evaluation of financial aspects and assists in eliminating irrelevant
activities.
 Assists in getting competitive edge: By using such technique manager can identify as
well as remove unproductive activities and thereby would become able to save cost (Pike
and Neale, 2006). In this way, by exerting control on cost level Unicorn can generate
high margin and build competition position.
 Improves relation and avoid bottlenecks: ABB helps company in removing undesirable
activities as well as bottlenecks. By this, company becomes able to control cost and offer
products or services to the customers at affordable prices. This aspect clearly shows that
ABB technique is highly effectual which in turn improves relationship of organization
and customers to a great extent.
Drawbacks
 Highly complex: ABB is highly complex in nature because it includes assessment or
evaluation of various factors.
 High cost: For preparing budget in accordance with ABB technique Unicorn requires
highly skilled and talented workforce. Thus, training session or activity also imposes high
cost in front of firm.
 Short term: By doing investigation, it has been assessed that ABB makes more focus on
short-term goals of business rather than long term (Advantages, Disadvantages and
Limitations of Activity Based Costing (ABC) System, 2017). Hence, avoidance of long-
term scenario places negative impact on the growth and success of firm.
Traditional budgeting technique
Incremental budgeting: It comes under the category of traditional tools which makes
focus on doing small changes in the existing financial framework or budget for the development
of new one. In this, by taking budget of the previous year as base business unit develops
financial framework for the current year (Kaplan and Atkinson, 2015). Incremental budget is
based on the assumption that all the departments will perform their activities with their current

expenditure. Hence, on the basis of requirement and estimation manager adds some amount in
the previous year’s framework.
Advantages
 Simplicity: It is one of the main strengths of such budgeting technique because in this
manager is not required to devote more time. By making some additions in the previous
year’s plan management can develop the new one.
 Flexibility: Incremental budgets are highly flexible in nature and it allows manager to
make modifications easily on the introduction of new policy.
 Helps in avoiding conflicts: Concerned budgeting technique provides high level of
assistance to the company in avoiding conflicts which take place between the
departments (Mangan, Hughes and Slack, 2010). Moreover, by employing such technique
firm keeps everyone on the same level.
Drawbacks
 Incremental budgets lead unnecessary spending and thereby affect company’s policy in
relation to making use of funds.
 In the business organization, where incremental budgeting technique is followed, usually
issue of budgetary slack occurs. Moreover, in such budgeting, manager sets low growth
in revenue and high in expenditure which may result into favorable variances.
All the above depicted tools and techniques are highly significant which in turn provides
assistance to the company in practicing budgetary control. Moreover, by using competent
budget, manager of Unicorn would become able to compare actual performance with the
standards. By doing this, manager can find out the deviations as well as related causes and
thereby would become able to take corrective measure for improvement.
P5 Identifying the manner in which management accounting system helps in responding
financial problems
There are several management accounting systems that manager of Unicorn can
undertake to cope up with the monetary problems. In the business organization, problems or
issues are the main aspects that occur frequently and encourages business unit to come up with

the effectual solution that aid in the productivity as well as profitability of firm (Malmi and
Granlund, 2009). Main systems or tools that can be undertaken by Unicorn are enumerated
below:
 Financial governance: Unicorn can deal with the financial aspects more effectively and
efficiently by adopting this technique. Aspects of financial governance make focus on
evaluating the extent to which all the monetary rules and regulations are followed by the
business unit. In this way, financial governance tool helps in assessing deficiencies and
encourages for taking strategic move. For example: Business entity of Unicorn is facing
issue in exerting control on cost level (McCabe, 2014). In this situation, by undertaking
risk management policies as well as other process and comparing the same with current
process manager can easily assess loopholes. Thus, by taking into account all the above
mentioned aspects it can be depicted that financial issues can be managed by Unicorn
through indulging appropriate governance process.
 Key performance indicators (KPI’s): Sales, profit, expenditure etc. are the main key
indicators which in turn provide helps in solving monetary issues in the best possible
way. Hence, by making continuous evaluation of such KPI’s business entity of Unicorn
can assess the level to which performance is improved over the time frame (Mohanty,
2014). For instance: By making comparison of sales revenue with the target and previous
year’s figure owner of the retail store can identify the extent to which growth has taken
place. In this way, by measuring and comparing KPI’s Unicorn can develop suitable
financial strategies for the upcoming time period. As compared to benchmarking KPI’s
are the most effectual measures which in turn clearly reflect the extent to which
objectives have met.
 Benchmarking and budgetary control: In accordance with such system, by setting
benchmarks for each department Unicorn would become able to restrict over spending.
Moreover, benchmarks encourage personnel to perform their activities in line with the set
standard. In addition to this, benchmarks or performance standards also give input for
further evaluation (Mungal and Garbharran, 2014). For instance: Unicorn has assessed
that due to high expenses business unit failed to generate enough profit. In this regard, by
making comparison of actual expenditure with the benchmarks or predetermined
standards firm can easily assess deviations. In this, by doing investigation of the causes of

deviations Unicorn would become able to take strategic action for improvement.
However, in comparison to financial governance, benchmarking technique is less
effective. Moreover, if business unit fails to set suitable standards then it may result into
unfavorable results and adverse influence on employee’s motivation. Thus, it can be said
that if benchmark is not appropriate then firm would not become able to take prominent
financial decisions.
CONCLUSION
From the above report, it has been concluded that Unicorn can reduce cost and attain high
margin by undertaking the tools & techniques of MA. Besides this, it can be inferred that by
preparing as well as undertaking managerial reports owner of Unicorn can assess the areas of
operations which require more improvements. Further, it has been articulated that company tends
to focus on using the system of absorption costing which in turn provides appropriate view of
both sales and profit. It can be seen in the report, unlike marginal costing, absorption technique
considers both fixed and variable cost while making evaluation. Along with this, it can be stated
that Unicorn should lay emphasis on undertaking zero base technique which in turn helps
company in developing competent plan. It also has been presented from the evaluation that
benchmarking, KPI’s and financial governance technique is highly effectual which in turn helps
in resolving issues prominently.

REFERENCES
Books and Journals
Fullerton, R. R., Kennedy, F. A. and Widener, S. K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting practices. Journal
of Operations Management. 32(7). pp.414-428.
Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Malmi, T. and Granlund, M., 2009. In search of management accounting theory. European
Accounting Review. 18(3). pp. 597-620.
Mangan, J., Hughes, A. and Slack, K., 2010. Student finance, information and decision making.
Higher Education. 60(5). pp. 459-472.
McCabe, S., 2014. Quality Improvement Techniques in Construction: Principles and Methods.
Routledge.
Mohanty, S. C., 2014. Relevance and Utility of Cost and Management Accounting in the Present
Socio-Economic Scenario. The MA Journal. 49(1). pp. 12-17.
Mungal, A. and Garbharran, H. L., 2014. The perceptions of small businesses in the
implementation of cash management techniques. Journal of Economics and Behavioral
Studies. 6(1). pp. 75-83.
Pike, R. and Neale, B. 2006. Corporate finance and investment: decisions & strategies. Pearson
Education.
Simons, R., 2013. Performance Measurement and Control Systems for Implementing Strategy
Text and Cases: Pearson New International Edition. Pearson Higher Ed.
Zimmerman, J. L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control.
Issues in Accounting Education. 26(1). pp. 258-259.