Management Accounting Tools and Techniques

This assignment delves into the world of management accounting, focusing on the tools and techniques utilized by Zylla to sustain a competitive edge. It discusses the adoption of management accounting innovations, regulation, and adaptation of economic value added in Thai state-owned enterprises. The balanced scorecard is also explored as a popularized management accounting idea. Additionally, lean manufacturing and its impact on firm performance are examined, along with the development of management accounting practices in Indonesia. The assignment concludes by highlighting the importance of modern budgeting and budgetary control tools in ensuring optimal financial resource utilization.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
P1 Explaining management accounting along with the essential requirements of different
types of system.......................................................................................................................3
P2 Presenting different methods that can be used for management accounting reporting....6
P3 Calculating cost using marginal and absorption costing technique..................................7
P4 Explaining benefits and drawbacks of different types of planning tools that can be used
for budgetary control purpose................................................................................................9
P5 Comparing how organization adapt management accounting system for responding
monetary issues....................................................................................................................12
CONCLUSION........................................................................................................................13
REFERENCES.........................................................................................................................15

INTRODUCTION
Management accounting field of finance is highly concerned with the preparation of
reports regarding internal operations. Now, with the motive to track performance and taking
appropriate decisions business units lay high level of emphasis on using management
accounting tools. Hence, MA is the process of recording, analyzing and evaluating
performance which in turn helps in devising suitable plan for the organizational growth as
well as development. This report is based on Zylla, a manufacturing company, which is
planning to introduce some changes in the operations with the motive to attain success.
Hence, for managing changes in the best possible way Zylla wants to undertake managerial
accounting techniques. In this, report will provide deeper insight about the managerial
accounting systems and reporting aspects that can be undertaken by Zylla. Further, report wil
also shed light on the MA tools that can be used for planning purpose. Report also reflects the
manner in which marginal and absorption costing system helps in making assessment of cost
and profit margin. Besides this, report also entails how financial issues can be addressed
using MA techniques.
P1 Explaining management accounting along with the essential requirements of different
types of system
Management accounting is the process which lays emphasis on analyzing business
costs and operations. Such system is used by the manager for preparing financial report and
records which in turn aid in business decision making. The main motive of manager behind
undertaking management accounting tool is to develop competent strategic and policy
framework that pursuit organizational goals (Soltani, Nayebzadeh and Moeinaddin, 2014).
Zylla’s manager can make appropriate day to day and short term decisions by using
management accounting. Moreover, it assists in tracking performance, forecasting and
planning pertaining to the business operations.
Zylla need to make focus on undertaking below mentioned management accounting
systems such as:
Job costing: By using job costing method, manager of the firm can assess cost and
thereby becomes able to set suitable price of products and services. Under job costing
method, emphasis is placed on summing up of cost pertaining to material, labour and
overhead (Job costing, 2018). By using such tool, manager of Zylla can trace specific cost to

individual projects. Hence, job costing method helps company in assessing whether cost can
be reduced in later jobs or not. Hence, using job costing method Zylla can set suitable price
and become able to get appropriate profit margin.
Advantages
 Helps in determining the profitability of job
 Prevents duplication of work and helps in making estimation about similar job
 Assists in evaluating quality of work
 Facilitates cost control and profit maximization
Disadvantages
 Expensive and time consuming in nature
 In this, there is the absence of specific methods in relation to differentiating direct and
indirect cost occurring in the process
 Job costing method requires close supervision
 During inflation, comparison of job cost becomes meaningless
Cost accounting: Aim of such method is to capture company’s cost of production by
assessing input cost undertaken at each step. Along with this, cost accounting system also
lays emphasis on recording information about fixed expenses such as depreciation, rent etc
(Cost costing, 2018). Hence, such MA system provides detailed cost information which
management requires for controlling current operation and making plan about the near future.
Cost accounting system of MA offers following benefits and drawbacks to the business unit:
Advantages
 Helps in reducing cost and identifying reasons pertaining to profit or loss
 Cost accounting system provides high level of assistance in make or buy decisions
 Price fixation and cost control
Disadvantages
 It furnishes past information, whereas management is concerning in relation to taking
decision about the future
 Cost accounting system does not provide suitable solution when capacity in partially
utilized.

 In cost accounting, costs are absorbed on the basis of pre-determined rate which in
turn leads under or over absorption of overhead.
Inventory management: Zylla can manage stock and price more effectually by taking
into account MA system. Inventory management system helps in evaluating whether stock is
efficiently used or not. Ordering and holding are the main costs which in turn highly
associated with the stock management. Hence, Zylla should focus on undertaking economic
order quantity method which in turn helps in determining number of units need to be ordered.
Hence, this in turn helps in reducing cost and avoiding issue pertaining to stock deficiency
within the unit.
Advantages
 Reduction in cost in terms of holding and ordering
 Ensures smooth functioning of operations by avoiding problems in relation to stock
deficiency. Hence, effectual inventory management helps in making optimal use of
resources such as labour, money etc.
 Better planning
Disadvantages
 Time-intensive activity
 Installation of inventory management software imposes high cost in front of business
unit.
Price optimization: This management accounting software is usually used by the
companies for price determination. In other words, such software gives indication to the
company about prices which best meets its objectives in relation to profit maximization
(Fullerton, Kennedy and Widener, 2014). Further, using such system manager of Zylla can
assess the manner in which customer will respond to different prices for the products or
services. Hence, price optimization system helps company in making appropriate decisions
that makes contribution in the attainment of organizational goals and objectives.
Advantages
 Aid in competent and quick decision
 Helps in taking suitable pricing decisions
 Assists in generating suitable profit margin

Disadvantages
 Installation of price-optimization software is expensive in nature
 Demands for manager’s training which in turn imposes cost in front of the company
Hence, it can be depicted that in the context of organizational growth and success all the
above depicted management accounting systems are highly required. Using job, inventory,
cost and price optimization system manager of Zylla can make effective and profitable
decisions.
P2 Presenting different methods that can be used for management accounting reporting
Managerial accounting reports are prepared by the managers for meeting the needs or
requirements of internal stakeholders. Unlike financial accounting, managerial reports can be
prepared by the firm as per requirements such as weekly, monthly, quarterly etc. Hence,
preparing and using managerial accounting reports manager of Zylla can take decision
whether they need to make some modifications in the existing strategic and policy
framework. In the context of business unit, managerial accounting report are highly important
for the purpose of decision making. Thus, managerial reports must have characteristics
pertaining to reliability, comparability, clarity, timeliness etc. Hence, there are several types
of managerial accounting reports that can be prepared by Zylla’s manager are:
Budget report: It is also termed as performance report which contains information
about departmental performance. Hence, budget report presents the extent to which revenue
and expenses incurred by each department are in line with the budgeted figures. Along with
this, such report also exhibits causes due to which department fail to meet budgeted financial
figures. Thus, considering such report manager of Zylla can monitor the performance of each
department. Budget report gives indication to the manager about the actions that need to be
undertaken for cost control and profit maximization. Further, input given by budget report
will also provide assistance to the manager in developing competent financial plan or
framework for the upcoming period (Chenhall and Moers, 2015). In addition to this, by
keeping in mind budge report Zylla’s manager can provide personnel with suitable incentive
and thereby would become able to motivate them for performing better.
Receivable report: Accounts receivable ageing report provides information about the
time period which debtors are making payment which owe to them. Credit period which is
given to debtors has high level of impact on working capital management and thereby overall

operations. Moreover, company requires enough funds for meeting day to day monetary
requirements. Hence, by evaluating account receivable report Zylla’s manager can take
suitable decision for effective cash flow management. As such report furnishes information
about the issues associated with the collection process. Thus, by finding debtors who are
unable to pay their balance company can strict credit policies. This in turn helps in getting
funds within the suitable time frame and thereby ensures effectual cash management.
Job cost reports: Zylla’ s manager can assess expenses associated with the specific
project. This report presents job profitability by matching or making evaluation of estimated
revenue. Considering this report, manager of the concerned manufacturing unit can assess
high-earning areas of business (Eldenburg and et.al., 2016). This aspect shows that budget
report assists manager in making efforts in the suitable direction.
P3 Calculating cost using marginal and absorption costing technique
Specifically, there are mainly two types of techniques which can be used by Zylla
such as:
Marginal costing: It highlights increase or decrease takes place in the production cost
when one additional input is manufactured. Marginal costing technique is used under
management accounting in which variable cost is charged on the basis of unit produced or
manufactured (Chiwamit, Modell and Scapens, 2017). On the other side, in marginal costing
technique, fixed cost of the period are written off in against to the aggregate contribution
level.
Absorption costing: This is also known as full costing method under which both fixed
and variable costs are apportioned on the basis of cost centre as well as absorption rates.
Absorption costing method believes that all the costs incurred can be recovered through the
selling price of a product or service. In other words, absorption costing method lays emphasis
on accumulating cost associated with the production process (Marginal and absorption
costing, 2018). Thereafter, with the motive to present suitable view of cost and profit,
production cost is apportioned into individual products.
For instance: In the context of Zylla, financial information pertaining to revenue and
expenses is as follows:
Sales revenue 120000

Raw material cost 25000
Direct labour expenses 15000
Manufacturing overheads
Fixed 8000
Variable 12000
Distribution & administration
expenses
Fixed 5000
Variable 7000
Income statement as per marginal or variable costing method
Particulars Figures (in £) Figures (in £)
Sales revenue 120000
Cost of goods sold
Material 25000
Labour 15000
Variable production overhead 12000
Variable administration and distribution
expenses
7000 59000
Contribution (Sales – variable cost) 61000
Fixed expenses
Manufacturing overhead expenses 8000
Distribution & administration expenses 5000 13000
Net profit (Contribution – fixed
expenses)
48000
Profitability statement according to absorption costing method
Particulars Figures (in £) Figures (in £)
Sales revenue 120000
Cost of goods sold

Material 25000
Labour 15000
fixed production overhead 8000
Variable manufacturing expenses 12000 60000
Gross profit 60000
Administration and selling expenses
fixed 5000
Variable expenses 7000 12000
Net profit (GP – indirect expenses) 48000
The above depicted table shows that net margin as per both marginal and absorption
costing method accounts for £48000 respectively. The main difference between marginal and
absorption costing is the consideration of fixed cost. In other words, under marginal costing
method all the fixed costs whether related to production or selling and administration are
deducted from contribution margin. In contrast to this, as per full costing method both fixed
and variable manufacturing expenses such as £20000 are subtracted from revenue. Moreover,
absorption costing method believes that fixed cost can easily be recovered through selling
prices. Further, under absorption costing method variances take place in the opening and
closing stock has significant impact on cost per unit. On the other hand, in marginal costing
method, variances exist in the opening and ending stock does not have influence on cost per
unit of output.
P4 Explaining benefits and drawbacks of different types of planning tools that can be used for
budgetary control purpose
Budget is the main part of business unit that manager prepares with the motive to
spend money in an appropriate manner. There are several modern and traditional tools are
available that can be employed by Zylla’s manager for preparing financial plan or
framework. Currently, Zylla is preparing budget using incremental technique which comes
under the category of traditional tools. On the basis of such technique, firm makes some
additions in the past framework for arriving at new budget. Howeveincremental budgeting
technique is less important in the today’s dynamic environment. Hence, several tools are
available that business entity of Zylla can use for planning and budgetary control purpose.
Activity based budgeting: This modern budgeting technique emphasizes on assessing
and evaluating cost associated with very activity. ABB completely avoid traditional aspects

pertaining to making some changes in the past budget as per inflationary trends. In this, focus
is placed on analyzing relationship between each cost and business activity (Schaltegger and
Burritt, 2017). Under ABB, activities which incur cost are recorded, analyzed and researched.
Hence, in this budgeting technique by taking into account cost drivers funds are allocated to
each activity.
Advantages:
 ABB technique facilitates selling price fixation pertaining to multi-products because
in this overheads are allocated on the basis of related suitable cost drivers.
 Assists is presenting suitable and reliable view of cost by developing link between
cost and activities.
 Gives clear indication regarding the control of overhead cost by highlight redundant
and unproductive activities.
Disadvantages:
 Demands for managerial training because without having ability to recognize cost
driver manager would not become able to develop suitable budget.
 Highly time consuming activity
 It is not suitable where companies require monthly profitability statements
Zero based budgeting: ABB may be served as a reform over traditional tool such as
incremental technique. In the case of zero base budgeting technique, manager starts from
scratch with zero base. Further, as per ZBB, every function of an organization is analyzed for
its need ad cost. In other words, ZBB method entails that company should make focus on
assessing alternative and cost effective ways of performing activities. Hence, in this prior
emphasis is placed on analyzing activities that need to be performed within the period for
getting the desired level of outcome or success (Cooper, Ezzamel and Qu, 2017). Thereafter,
manager focuses on finding optimal ways to perform the same. Hence, in this, every line of
item is clearly justified by the manager which in turn considered as highly prominent.
Advantages:
 Efficient: ZBB ensures effective and efficient allocation of financial resources among
departments by avoiding historical numbers.

 Accurate: It focuses on relooking every item of cash flow which in turn helps in
presenting accurate view of monetary aspects.
 Decline in redundant activities: ZBB leads reduction in unproductive activities
because it focuses on finding cost-effective ways of doing activities. Effective co-ordination and communication: In ZBB, employees are involved in the
decision making process which in turn places positive impact on their motivational
aspects. Thus, effective co-ordination and communication can be built by Zylla using
ZBB.
Disadvantages:
 Time consuming: Preparation of budgeting according to ZBB is highly time
consuming because in this no prior aspects are considered by the manager.
 High manpower requirement: In this, entire budget is start from scratch which in turn
may require involvement of large number of personnel. Hence, most of the
departments have to spend adequate time and resources for the same.
 Lack of expertise: Zylla also need to conduct training sessions for the managers in
relation to developing their ability regarding the explanation of every cost of item.
This in turn also imposes cost in front of Zylla and impacts profit margin.
Variance analysis: For the purpose of budgetary control, variance analysis tool is
recognized as highly effectual. It may be presented as a quantitative investigation tool which
helps in ascertaining differences that take place between actual and planned behaviour.
Hence, it helps in identifying deviations which take place between actual and budgeted
income or expenses (Jermias, 2017). Variance analysis tool helps in identifying reasons take
place behind the occurrence of deviations and indicate requirement in relation to taking
appropriate measure for improvement.
Advantages:
 It helps in taking remedial measure or action on time and thereby improves overall
performance level.
 Assists in developing realistic and achievable plan for the upcoming time period.
 Helps in fixing the accountability of individual or department
 Such quantitative tool clearly highlights inefficient performances and the level of
same.

 Highly suitable for cost control and profit maximization
Disadvantages:
 If budgeted plan is not suitable or realistic in nature then it leads more unfavourable
variances. This in turn leads further inappropriate decision making.
 Time consuming exercise
Responsibility centres: In regard to planning and budgetary control, responsibility centres
can be created by Zylla. Hence, by taking inputs from the manager of each responsibility
centre such as sales, expenses etc Zylla can set suitable financial framework for upcoming
time period.
Variance analysis: This managerial accounting tool also assists in doing planning for the
near future prominently. Variance analysis tool helps in identifying reasons due to which
deviations are occurred in the different areas. Hence, referring the outcome of variance
analysis and causes behind the same manager of Zylla can do proper financial forecast and
thereby become able to develop competent budgeting framework.
Capital budgeting: By taking into account capital budgeting tools and techniques
Zylla can do better planning. There are several tools such as payback method, net present
value, average and internal rate of return which helps in assessing the viability of capital
investment project more effectually. Payback method presents the time frame within which
company will recover amount initially invested by it. Further, NPV and IRR method presents
return associated with the investment proposals by considering time value of money concept.
Thus, using investment appraisal tools business unit can select suitable proposal and thereby
would become able to generate high profit.
P5 Comparing how organization adapt management accounting system for responding
monetary issues
In the context of business unit, issues are usually occur pertaining to the monetary
aspects and thereby closely influences overall functioning. Hence, company can attain
success in the strategic business arena only when it responds monetary issues within the
suitable time frame. Thus, there are several MA tools which Zylla can employ for dealing
with the monetary issues such as benchmarking, key performance indicators, financial
governance, balance scorecard etc.

For instance: In order to deal with and avoid monetary issues Tech Ltd undertakes
financial governance technique. On the basis of this, company evaluates its performance in
against to the predetermined rules and guidelines. However, on the critical note, it can be
stated that now fluctuations take place in the internal and external environment rapidly.
Hence, in the context of dynamic environment such technique is less effectual (Nitzl, 2018).
Hence, Zylla is advised to undertake following techniques which in turn helps it mitigating
monetary issues such as:
 Benchmarking: This is the most common and most effectual MA technique which
assists in monitoring business performance. For gaining competitive edge over the
rival firms Zylla sets benchmark in relation to income and expense level. Thus, by
doing comparison of actual performance in against to the set benchmarks manager can
easily assess deficiencies. Hence, considering the causes of deviations firm can take
suitable remedial measure for improvement. However, such tool is critically evaluated
on the basis of aspect that if firm failed to set appropriate benchmarks then it leads
ineffective decision. Thus, Zylla’s manager should make focus on setting benchmark
by evaluating each and every aspect in-depth.
 Key performance indicators: For getting the desired level of outcome or success
business unit sets some key indicators in relation to sales, profit margin, customer
base, market share etc. Hence, by evaluating actual performance in against to the set
key indicators company can assess the extent to which goals are met (Ax and Greve,
2017). Referring this, it can be depicted that KPI assessment gives idea to the business
entity about the action that needs to be undertaken for improving performance.
 Balance scorecard: This strategic management tool is highly prominent which helps
in evaluating performance from four perspectives. Such four perspectives mainly
include financial, customer/ stakeholder, internal process and organizational capacity.
It enables manager to evaluate whether financial performance is in line with the
strategic objectives or not. Further, balance scorecard technique also helps in
evaluating that effectual use of resources have been made or not while performing
activities (Balanced Scorecard, 2018). In the context of stakeholder’s perspective,
customer value, satisfaction and retention level is evaluated. On the other side, under
internal process aspects efficiency and quality is assessed. Hence, referring both
financial and non-financial aspects suitable strategies can be developed which in turn
lead sustainable success.

 Capital budgeting: Investment appraisal tools and techniques are highly significant
which in turn helps in making selection of best option out of several alternatives
available. Usually, firm faces difficulty in identifying investment option which proves
to be more suitable. Hence, by using tools like payback period, average and internal
rate of return technique Zylla’s manager can assess the viability of alternatives in
financial terms. On the basis of capital budgeting tools, project with high NPV, IRR
& ARR and less payback period is highly preferred (Nuhu, Baird and Bala
Appuhamilage, 2017). Thus, using such techniques Zylla can employ money in the
suitable or profitable projects and thereby would become able to attain success.
Along with this, financial problems can be resolved by the manager of Zylla more
effectually through undertaking the tool of financial governance. On the basis of such aspect
by establishing audit committee and including the system of internal check firm would
become able to exert control on undesirable activities. In other words, with the help of
financial governance manager of Zylla can easily detect or assess fraudulent activities and
take corrective measure for improvement within the suitable time frame. Hence, with the help
of financial governance tool firm can resolve monetary issues timely and assists in avoiding
the situation of loss.
CONCLUSION
From the above report, it can be concluded that management accounting is highly
significant which in turn provides manager with valuable input for decision making. It can be
seen in the report that by using cost, inventory, price optimization etc systems Zylla can do
better planning pertaining to the operations. Further, it has been articulated that managerial
accounting reports furnish timely information and enables manager to evaluate overall
performance. It can be summarized from the report that absorption costing system is highly
suitable over marginal. Moreover, while calculating production cost absorption costing
method emphasizes on considering both fixed and variable expenses. Along with this, it can
be depicted that using modern budgeting and budgetary control tools manager of Zylla can
ensure optimum use of financial resources. Further, balance scorecard, KPI’s, benchmarking
etc assists manager in responding monetary issues prominently. Thus, referring overall
assessment it can be entailed that using MA tools Zylla can build and sustain competitive
position over others.

REFERENCES
Books and References
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Chiwamit, P., Modell, S. and Scapens, R. W., 2017. Regulation and adaptation of
management accounting innovations: The case of economic value added in Thai state-
owned enterprises. Management Accounting Research. 37. pp.30-48.
Cooper, D. J., Ezzamel, M. and Qu, S. Q., 2017. Popularizing a management accounting idea:
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Eldenburg, L. G. and et.al., 2016. Cost management: Measuring, monitoring, and motivating
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