Management Accounting and Its Importance

The provided report emphasizes the significance of management accounting for managers to achieve better results for their companies. It discusses different options like accounting and reporting systems, and how costing methods can help analyze net profit. The report also touches upon the merit and demerit of various types of budgets, which can provide a better chance to make outcomes in the coming period.

Management Accounting

TABLE OF CONTENTS
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Concept of management accounting and its essential requirements................................1
M1: Advantage of using management accounting.................................................................3
P2: Management accounting reporting method and its types.................................................3
D1: Critical evaluation of reporting method..........................................................................4
TASK 2............................................................................................................................................5
P3: Different types of costing methods used to calculate net income....................................5
M2: Evaluation of various accounting tools and techniques..................................................8
D2: Critical evaluation of data collected from the income statements...................................8
TASK 3............................................................................................................................................8
P4: Advantages and disadvantage of using different types of budget....................................8
M3: Evaluation of various planning tools............................................................................10
D3: Critical analysis of financial issues...............................................................................10
TASK 4..........................................................................................................................................10
P5: Comparison of various ways to use management accounting to overcome financial issues
..............................................................................................................................................10
M4: Analysis of financial issues...........................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Accounting is one of the crucial aspects for an organisation like Tech UK which is
operating in order to produce appropriate products and services during the period of time. The
main aim of this module is to introduce all fundamental matters of management accounting
which is applies to large parts of business environment as well as organisation. The primary
responsibility of accountant is to explore different ways one can uses financial data to aid
planning decisions and regulate follow of finance within internal as well as external department
of an organisation at the same period of time. This project is all about discussing various types of
accounting system and reporting methods uses in an organisation. Apart from this, use of various
is costing methods to calculate net profit for the company. Merits and demerits of using several
types of budgets are also discussed under this report. Comparison of management accounting can
use to resolve financial issues are mentioned under this report (Amoako, 2013).
TASK 1
P1: Concept of management accounting and its essential requirements
Nowadays, it has been seen that administration of various company is to record all
essential financial transaction that are occur during the period of time. Management all looking
to have an appropriate accounting system will be useful to attain overall aims and objectives of
an organisation in regular course of action. Every decision that are made by the company in
respect to use of accounting system can assist them to make future business planning in more
reliable manner. By the help of this, individual or manager would be having basic information
about progress of company growth and coming sustainability that are assist them to reach at set
destination in quicker period.
Management accounting is known as one of the effective planning, organisation and
evaluating all financial transactions that are done during the production process. As accounting is
systematic process of recording, summarising, communicating and controlling all implication
and dependencies that are helpful to attain future aims.
Importance of using management accounting system:
There is various crucial significance of using management accounting. It will help Tech
UK limited to record their capital flows in right direction at the correct place. Some of them are:
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Effective decision making: One of the main motives of this accounting system is to collect all
necessary information from every department and make appropriate decision that would be
beneficial for longer period of time.
Increase efficiency and productivity: This is another important aspect for management to
enhance their overall growth and profitability by increasing their productivity by selling
maximum products during one accounting period (Klemstine and Maher, 2014).
Comparison:
Management accounting Financial accounting
It is the management who is entirely
responsible for making various sorts of rules
and regulations associated with financial
reporting.
All the accounts related policies and laws that
are made by companies are implemented in
respect to prepare financial statements for the
company.
It is almost always reports at a primary
detailed level. Like profit generated by
product, customers and geographic region.
These are accounting reports on entire
outcomes of an entire business.
Types of accounting system:
Cost accounting system: It is one of the important accounting system which is help responsible
for determining total cost company is incurring during the production of product and services.
This is a design which is used by Tech UK company to estimate the costs of their products in
respect for profitability analysis and cost control. In case of profitable operations, it is very hard
to make prediction of accurate cost of products. It consists of various costs such as normal, actual
and standard cost during the production process (Lim, 2011).
Inventory management system: It is one of the vital accounting systems that assist
manager to monitors and regulate things of value to every business entity or combination of firm.
It can apply to either tangible assets and to intangible assets within an organisation at the same
period of time. It is seen that various companies used to provide various investors with more
specific or diversify multiple option than they will be kept with themselves. There are various
techniques which are use by management in respects to control their stock. Such as FIFO, LIFO
and AVCO.
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Job costing system: This happens to be one of the accounting processes of assigning the
cost to a company overall costs that are incur to a particular job an individual or business is
associated with. It is globally used in areas where construction process is going on. There are
various types of ways by which job costing systems can be analysed such as, batch, process, and
contract costing.
Price optimisation system: It is one of the crucial accounting system which is uses as
mathematical tool that assist a company to analyse how customers would react to various prices
for their products and services by using plenty of channels. It is also used to analyse the prices
that Tech UK should determine superior that would meet their aims and objectives like as
increasing operating gains for the company.
M1: Advantage of using management accounting
In every business the main aim is to attain as much profit as they can. This can only be
done in case company would be able to use various accounting system in right direction at the
correct period of time. It has been examine that all those above discussed accounting systems are
having their own benefits. Cost accounting will be responsible to control cost that is incurred by
the company in their production process. Whereas inventory management can leads to maintain
their stock those are being kept by the company with them. Likewise, some other system is
equally effective to increase overall profitability for the company (Van der Stede, 2015).
P2: Management accounting reporting method and its types
In the present era, organisations are looking to adopt more reliable accounting systems
those are much effective for the company in analysing their business operations in reliable
manner. The primary aim of Managers is to collect all necessary data that are occurred within an
organisation from the production of product and services. Reporting is said to be a detail
document which is prepared by an organisation on the basis of all the information that are
collected from every department about their financial performances. There are various sources
from which data can be collected for the purpose of making a well organise report that highlight
current position of the company. Every information is vital for making future decision making so
that maximum opportunities can be created. All the report are submitted to the companies
external parties as well as investors to make certain investment decisions in accordance with
their coming projects. In the process some accounting systems are helpful for the company.
Some of them are discussed underneath:
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Performance report: It is known as one of the crucial report which is prepared for the analysing
overall performance of Tech UK to collect some vital information about the company. The
motive of using the reports is that manager’s uses this as routinely those are produce by
government bodies and those are financed by public income. It is needed to determine that total
money was spent can have efficiently profitable for the company. A yearly performance report
can assist to an organisation to be produced for every employees of a business.
Account receivable report: As per this accounting reports, company would be easily determine
the total list of unpaid customers invoices and credit memos according to the date ranges. The
report is considered as primary tools which are used for the collection all invoices those are
overdue for the payment from debtors. It is categories as present assets that are assumed that they
are remaining overdue within one accounting period of time (Lavia López and Hiebl, 2014).
Inventory management report: It is known as one of the effective report which is consider as
appropriate supervision of all inventory items that are stored by the company with their
warehouses. It seems to be effective element of supply chain management that determine flow of
products from producer to warehouses and from there to point of sale (POS). It is used to record
all opening and closing stocks of the company.
Job cost report: It is identify as appropriate method of recording all costs of producing job,
instead of process. By the help of this, manager or accountant can easily be able to keep track of
total cost taken by each job through maintain relevant cost to the operation of businesses. This
report data of each job a company are working on and lists of total cost which are incurred on the
last year job.
D1: Critical evaluation of reporting method
According to the above mentioned reporting methods, it has been determine that company
would be easily be responsible for increase the productivity in more faster rate. The performance
report is used to analyse actual position of the company to that with the past one. While account
receivable report provide information about total list of remaining payment which are require to
be collected from debtors of the company. Likewise, inventory management report is used to
analyse detail information about overall stock position of the company.
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TASK 2
P3: Different types of costing methods used to calculate net income
In any production process, company need to analyse their cost of manufacturing through
using various types of cost. These are directly related with the each unit produced by the
company. It consists of various aspects such as:
Cost volume profit: It is one of the appropriate analyses which is used to examine how any
modification in costs and volume can affect a company’s overall operating income and revenues.
In performing this particular evaluation, there are various assumptions are needed to be made
such as sales prices used remain constant (Hansen, 2011).
Fixed cost: It is one of the effective costing which remain constant with the changes in any
production unit during the production of products and services.
Absorption costing: It is known as one of the crucial methods which is directly related with the
production process. It consists of both variable and fixed costs at the same period of time.
According to this particular nature, it is known as full costing method. The company cannot uses
this costing as more reliable for making future decision making in coming period.
Marginal costing: It is said to be one of the primary costing method which is used in case any
additional products can be produced by the company with the same resources. It included one
variable costs and fixed cost are remain absorb in case of calculating contribution per units. This
has been analyse that company used to consider this costing more reliable and accurate for
making future decision making.
Income statement as on September by using Marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production O/h 2
Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
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Nil 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing ￡Amount £ Amount
Sales value
Less: Variable costs
Stock at the begining
Cost of production
Stock at the closing
Variable sales overheads
Contribution
Less: Fixed costs:
Fixed Production overheads
Fixed Selling overheads
NIL
30000
(7500)
15000
10000
52500
(22500)
(7875)
22125
(25000)
Net loss -2875
Income statement on the basis of Absorption costing method
Selling Price per unit ￡35
Unit costs
Direct materials cost ￡8
Direct Labour cost ￡5
Variable Production overhead ￡2
Variable sales overhead ￡5.25
Budgeted production during the year is 3000
units
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: In this budgeted cost is £10,000and Actual cost is £7875
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Absorption costing working notes
Working Note 1: Calculate full production cost
Direct material ￡8
Direct labour ￡5
Variable cost ￡2
Fixed cost ￡5
Total ￡20
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40,000 500*20 = £10,000
Working Note 3: under/ over absorbed fixed production overhead
Actual fixed production: ￡15000
Fixed overhead: ￡10000
Total £5000 (under absorbed)
Net profit using absorption costings ￡Amount £Amount
Sales value
Less: Cost of Sales:
Opening stock
Cost of production
Closing stock
(Under)/Over absorbed fixed prod. O/h
Gross Profit
Less: Selling Expenses
Variable sales expenditure
Fixed selling expenditure
NIL
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
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Net loss -375
M2: Evaluation of various accounting tools and techniques
In every department there is always be the search that which information would be more
beneficial for the company. It can only be determine by using appropriate accounting techniques
which will be reliable sources of the company. The entire growth and dependencies can enhance
their profitability in coming period of time. There are various methods such as marginal costing
which is analyse additional cost of the company. While standard cost are more reliable for
making comparison of actual sales.
D2: Critical evaluation of data collected from the income statements
Reconciliation statements Amount
Profit under absorption -375
Closing stock 500*5 2500
Profit under marginal 2125
As per the above reconciliation statements, it has been seen that Tech UK can have uses
two effective methods such as absorption as well as marginal to calculate their net income. The
outcomes are showing total net income of 2125. The only differences are arises because of
treatment of fixed costs.
TASK 3
P4: Advantages and disadvantage of using different types of budget
Budget is said to be an estimation of future cost and expenses that a company is going to
invest for the purpose of producing valuable product and services. It is frame a reliable strategy
for controlling various implications that are arises during an accounting period of time. It
consists of all components that are associated with Tech UK as capital are seems to be vital
aspects for the company. Although, every business concern assists in designing effective budget
in order to control and maintain their expenses in more reliable manner (Fourie, Scott and
Kumar, 2011). There are various types of budgets. Some of them are discussed underneath:
Master budget: It is known as combination of all budgets that are prepared by the company
during an accounting period. All the information related with various departments are taken into
account for the preparation of financial statements.
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 Advantage: Managers can collect all tiny information within an organisation to get an
overview of business capital.
 Disadvantage: It is harder to prepare as it requires more capital or time to do so.
Operation budget: It is said to be annual budget which is prepared of an activity stated in
respects of budget that are classified in various parts such as cost account and other crucial
factors.
 Advantage: In included estimate total value of resources that are required for evaluating
performance of operations.
 Disadvantage: Sometimes, company would not be able to record all information as
maximum production can be done in a single day time.
Capital budget: It consists of effective process that determines and analyse potential
expenditure or capital investments that are made by the large companies (Chan, Wang and
Raffoni, 2014).
 Advantage: It is more effective budget which consists of building a new plant or making
investment for more than one year.
 Disadvantage: It considers only cash detail which is made by the company within an
organisation.
Process of budget:
 The financial department uses to prepared a worksheets to aid the department in charge in
formulation of overall estimation.
 The administrator used to call group meeting of managers and make discussion about the
projections.
 The appointed managers used to work with financial services to prepare an estimate for
coming departments.
 The entire budget is transfer to executive officers for approval.
 Making reviews or justification of budget that can be necessary in writing.
Pricing method:
 Cost based pricing: It is said to be appropriate pricing method in which some part of
desire capital is included to the cost of a product in respect to attain final cost (Bennett,
Schaltegger and Zvezdov, 2013).
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 Demand based pricing: Under this pricing method, a product is selected as per the
demand of customers. In case the demand is high the organisation used to set high prices
(Demand-based Pricing. 2018).
Benefits of using planning tools:
There are various types of planning tools which are used by the company in order to control the
impacts of budgets. Some of them are:
 Forecasting tools: It is said to be utmost important tool which is used to estimate total
costs and expenses which are mentioned in the budgets that are prepared within an
organisation.
 Contingency tools: It is known as one of the crucial tools which help company to deal
with any kind of business risks that are arises without any alarm in an organisation
(Schäffer, 2013).
M3: Evaluation of various planning tools
All the above discussed tools are more reliable for the company to control every impact
that are affecting the overall growth and profitability. Forecasting tools are more accurately
essential to control future losses that are happen in an organisation. While contingency tools are
used to control and deal with financial risks that are arises in the department.
D3: Critical analysis of financial issues
It has been determine that there are various types of financial tools which are responsible
for overcoming financial issues that are affecting internal department of the company. key
performance indicator and benchmarking are consider more reliable techniques which can
control all impact that are occurs in an organisation.
TASK 4
P5: Comparison of various ways to use management accounting to overcome financial issues
In every business organisation that are operating at large level are needed to make analyse
of financial issues that are affecting the efficiency of the company. There are various financial
issues those are arising in the department (Wickramasinghe and Alawattage, 2012). Some of
them are directly associated with the productivity and financial sustainability of the company.
Under mentioned various financial issues those are present in Tech UK:
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Key performance indicators: It has been determined that there are crucial financial and non-
financial problems that are related with the company. This can only be overcome by using these
particular tools.
Benchmarking: It has been observed that different kind of financial problems that are present
without any set standard. These particular tools provide reliable benchmark for the company to
deal with other competitors.
Financial governance: It is known as one of effective tool which used to provide right direction
to operate their business by following certain rules and regulations in effective manner.
Important characteristics of Accountant:
 Reliable is making appropriate decision in respect to control performance and other
financial information of the company (Hilton and Platt, 2013).
 Effective communication is considering another important feature of accountant to
determine valuable results in coming period of time.
M4: Analysis of financial issues
From the above mentioned financial tools which are responsible for overcome issues like
product and services quality and productivity of an organisation. Some of them are resolve by
using appropriate rule and regulations that are made by the government.
CONCLUSION
From this particular report, it has been concluded that management accounting is one of the
crucial aspect for the managers to determine better results for the company. In this manner,
managers can have various options like accounting and reporting systems that are discussed in
the above. While with the use of costing method company easily be able to analyse net profit for
the company. By the help of merit and demerit of various types of budget can provide better
chance to make better outcomes in coming period of time.
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REFERENCES
Books and Journals:
Wickramasinghe, D. and Alawattage, C., 2012. Management accounting change: approaches
and perspectives. Routledge.
Van der Stede, W. A., 2015. Management accounting: Where from, where now, where to?.
Journal of Management Accounting Research. 27(1). pp.171-176.
Schäffer, U., 2013. Management accounting research in Germany: From splendid isolation to
being part of the international community. Journal of Management Control. 23(4).
pp.291-309.
Lim, M., 2011. Full cost accounting in solid waste management: the gap in the literature on
newly industrialised countries. Journal of Applied Management Accounting Research.
9(1). p.21.
Lavia López, O. and Hiebl, M.R., 2014. Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of Management
Accounting Research, 27(1), pp.81-119.
Klemstine, C. F. and Maher, M., 2014. Management Accounting Research (RLE Accounting): A
Review and Annotated Bibliography. Routledge.
Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Hansen, A., 2011. Relating performative and ostensive management accounting research:
reflections on case study methodology. Qualitative Research in Accounting &
Management. 8(2). pp.108-138.
Fourie, M.L., Opperman, L., Scott, D. and Kumar, K., 2011. Municipal finance and accounting.
Pretoria, South Africa: Van Schaik.
Chan, H.K., Wang, X. and Raffoni, A., 2014. An integrated approach for green design: Life-
cycle, fuzzy AHP and environmental management accounting. The British Accounting
Review. 46(4). pp.344-360.
Bennett, M.D., Schaltegger, S. and Zvezdov, D., 2013. Exploring corporate practices in
management accounting for sustainability (pp. 1-56). London: ICAEW.
Amoako, G.K., 2013. Accounting practices of SMEs: A case study of Kumasi Metropolis in
Ghana. International Journal of Business and Management. 8(24). p.73.
Online
Demand-based Pricing. 2018.[Online] Avaliable through: <
http://www.economicsdiscussion.net/price/4-types-of-pricing-methods-explained/
3841>.
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