Management Accounting: Types, Methods, and Budgetary Control

Management
accounting

Table of Contents
Introduction......................................................................................................................................3
Main Body.......................................................................................................................................3
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems.................................................................................................3
P2 Explain different methods used for management accounting reporting................................5
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................7
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.........................................................................................................................7
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.......................................................................................................................9
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

Introduction
Management accounting is the process of identifying the problem, analysing, interpret the
situations which is helpful of managers to take any decision related to their business profit. It
helps in providing that useful information to managers which is required by them to take major
decisions for business for the growth (Syarif and Novita, 2019). The following report covers
explanation of management accounting and essential requirements of different types of
management accounting systems, different methods used for management accounting reporting,
techniques of cost analysis, advantages and disadvantages of different types of planning tools
used for budgetary control and how organisations are adapting management accounting systems
to respond to financial problems.
Main Body
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems
Management accounting is the process of collecting, analysing and interpreting data which
is essential for managers to take decisions for company’s benefit. It is a wide concept which
cover forecasting and planning, measuring employee’s performance, monitoring cost control
over business, making budgets for other departments and many others. It consists of taking
decisions related to monetary system as well as non monetary system. For example if company
are spending more money than they earn then management accountant checks the financial
documents and take decision to cut down unwanted expenses of business. On the other hand to
increase the employees performance by providing them training is also the work of management
accountant (Ratnadi, Ariyanto and Putra, 2020).
Different types of management accounting systems are explained below-
Job costing system- It is the process of assigning the cost to a particular job role which is
most important job role of the organisation. This is mostly used in construction companies where
each project is assigned with specific cost under which they have to complete their task. Eastern
Engineering Co. Ltd. is a construction company which uses job costing system to analyse the
cost of each project.

Inventory management system- This is used to manage inventory of a particular business.
In involves the management of manufactured goods, management of warehouses, management
of supply chain and many others. This management system is required for manufacturing
industries that manufacture goods in bulk and store them in warehouses for future use. It
involves that how manufactured products can be arranged in warehouses that which product and
in how much amount will be kept in which section of warehouse. A proper inventory
management system plays an important role in managing supply chain of a company.
Price optimization system- It is the managerial accounting system where company
decrease and increases the prices of their product according to the situation in market (Mariina
and Tjahjadi, 2020). The main aim of this system is to enhance the quick selling of products at
right places which makes profit for the company. Here, companies up and down the supply chain
for business to business and for business to customer settings.
Cost accounting system- This is the managerial accounting system which is mostly used
by manufacturing industry to record the production activities of their company. This system
records all activities of production like purchasing of raw material, converting the raw material
to finished goods and many others. It tracks the flow of inventory through the various stages of
production.
The difference between financial accounting and managerial accounting are explained below-
Basis of Difference Financial Accounting Management Accounting
Main aim The main aim of financial
accounting is to provide
information related to finance
to interested parties like
customers, employers,
stakeholders and many others.
The main aim of management
accounting is to provide useful
decision which is helpful in
taking business decisions for
the benefit of company.
Time period It can be made at the end of
financial year and it involve the
past 1 year of expenses and
revenues. For example 2019
financial statement will be
shown in 2020 and 2020
There is no fix time to use
management accounting. It’s
upon the will of managers that
anytime anywhere they can
prepare reports. It’s basically
focuses on future activities of