Management Accounting and Types of Management Accounting

This document provides a brief description of management accounting and the requirement of different types of management accounting. It discusses the methods of management account reporting and explains the statement of income through marginal costing. It also explores the advantages and disadvantages of planning tools in business. The subject is Management Accounting and the course code is 1.

MANAGEMENT ACCOUNTING
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Contents
Contents...........................................................................................................................................2
PART 1............................................................................................................................................4
P1 Brief description of management accounting and requirement of different types of
management accounting..............................................................................................................4
P2 Methods of management account reporting...........................................................................4
PART 2............................................................................................................................................4
P3 Statement of income through marginal costing......................................................................4
PART 3............................................................................................................................................4
P4 Explanation of advantage and disadvantage of planning tools..............................................4
PART 4............................................................................................................................................4
Uses of management accounting technique in order to resolve financial problems....................4
CONCLUSION................................................................................................................................4
REFRENCES...................................................................................................................................4
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INTRODUCTON
Business organization used to build sustainability in the market applies management
accounting strategy. Management accounting is procedure of recording, analysis, collecting and
Interpreting business records in effective way through which mangers take decision regarding
best alternative for business. TO understand the concept of management accounting Western
Foods Limited has seen taken which is middle scale organization and provides food services in
market. Management accounting also knew managing or managerial business accounting. In this
report use of cost, inventory, job cost accounting system has been defined. This report includes
the way manners formulate business report and d calculate cost by using marginal and abortion
costing. It consider the benefits and drawback of planning tools and use of management
accounting tools in order to overcome the financial business problem to achieve goals and run
cash inflow in effect way in order to maintain sustainability for long term time period within the
economy.
PART 1
P1 Brief description of management accounting and requirement of different types of
management accounting
Management Accounting: It is part of accounting which utilized by mangers to record and
manages business transactions in a way through which organizations can easily able to take
decision. Management accounting is a procedure in which manages use different elements of
accounting to recognized the cost record system and present them in a way which help in taking
best decision for the business corporation. Management accounting principles are proved
guideline and give direction, theses are describe below
Influence: Principles are part of every aspect, management accounting principles based on the
fact that all the work done and activities operate with the use of management accounting
technique must be influent human resource of the organization (Zuhroh, 2019).
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Relevance: These principles based on the assumption that every detail should be relevant and
related with the transactions.
Value: According to this principle business organizing should not operate any irrelevant
activities only those business operation which help in achieving of the goals of business
organization.
Trust: An organization apply their principle when the bond of every department is strong
connection. The information is relevant and trustworthy and all the documents and proof are also
show trustworthy data to run business activities.
Role of managing accounting: This branch of accounting plays major role for business entities,
which describe below
Budgeting: With the s of management accounting budget are prepared by applying various types
of budgeting technique.
Handling taxes: This will help in controlling cost and show profit in a way through which
organization enjoy tax benefits an ethically ay liability of tax.
Decision making: The main purpose of using this branch in management is to take effective
decision. It will help in taking relevant business decision.
Control cost: Management accounting tool use to cutting cost of wastage business activities and
save monetary resource which use for future time period (Anghelache,Căpușneanu, Topor, and
Marin-Pantelescu, 2019).
Manager use different kinds of management accounting system. Following are the system used
by Western Foods Limited.
Inventory management system: Every business specially manufacturing business organizations
need to storage their stock and maintain them for the time period until they are not delivering.
For managing inventory, stock management system implemented by organizations. In this
manger apply EOQ, LIFO, FIFO, method to identify the level of stock required and JIT
technique to manage the entire inventory in effective way. Which reduce the cost of stock
management.
Price optimization system: Success of the firm depends on the profitability ratio. Organization
increase their profitably rate when their sales rate is increase , goes this they take decision
regarding pricing of product. With the use of price optimization system manger decide pricing
strategy of product through which they generate profit. There are many types of pricing policies
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available. Skimming, discount pricing on premium. Every entity take decision which suitable for
their organization and stage of product life cycle.
Cost accounting system: This system is developed in order to identify the amount of cost
incurred during the time of running business activities. Job costing, standard costing and
marginal , standard costing are part of the cost system , al the methods of cost calculation is used
to determine the cost of each activities and amount of profit earn by the company.
Job order system: This system is used for taking information regarding every job and the cost
incurred during the processing and completion of the job activity. With the use of job costing
large manufacturing organization able to allocate resource according to their job order and also
satisfy their customers by fulfilling the demand of the job (Sainaghi, Phillips, Baggio and Mauri,
A., 2019).
Benefits of management accounting system:
Inventory management system It is valuable for Western Foods Limited for
given that information concerning correct data
of store level. And get better data of visibility ,
use technique on record of stop issues related
with stocks.
Job order system It is valuable for track cost of business order.
Western Foods Limited information of each
one record in complete way and get rid of the
risk .
Price optimization system With the exploit of price optimization system
manger of the Western Foods Limited resolve
be able to decide the best worth for their
association through which they can produce
profits.
Cost accounting system With the use of dissimilar methods of
assessment manger of Western Foods Limited
able to recognize cost of each result and
business performance and control the risk by
cut gullet extra business actions.
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P2 Methods of management account reporting
Management accounting reports are the documents which show the overall performance and data related
department of the organization. Reports are showing the detail of every small business operation. Following
formulated by Western Foods Limited
Account receivable report: This report is formulated to represent the balance of debtors and define summery o
With the preparation of account receivable report manger of Western Foods Limited easily identifies the
cuomters are not paid their debt to the organization. This report help in formulating policy through which man
recover the amount from debtors within the given time limit and the cash cycle go run in effective manner.
Performance report: This report is a part of management accounting. It is prepared on the basis of data coll
management accounting system Performance report measure the customers of business activities contrib
department and on the basis of the performance report manger of Western Foods Limited formulate policy
incentive and reward by analysis performance of skills employs or those which need to enhancing their skills
their capabilities (Silva, Vale and Branco, 2018).
Cost accounting report: It is important part of the management accounting , this report is summarised detail in
every elemental cost incurred of each business actively. Manger take decision of formulate of strategies of cost
the basis of observing this report. Western Foods Limited use this report to analyasis cost of business operatio
activities which require large amount for operating and incurred high cost.
Budget report: It is essential report of every organization. This report proved basis of formulating real budget.
of budgeting report management take decision regarding future business activities. Budget repost are hoes r
considered every part of future income and expense and relevant profit earn by business organization in order to
business profits. Western Foods Limited apply this report to identify their future profit and formulate business
order to attain the goals.
PART 2
P3 Statement of income through marginal costing
Costing techniques: It includes those method which used by business cooperation’s to
determine cost of every business transactions. Cost is necessary part of business whatever it was
large or small or medium size enterprise , every business entity calculate the cost and on the
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basis of it they identify profit earn by business activities. For this purpose various types of cost
are calculated , standard costing, marginal costing, job costing process costing these methods
reapply according to the type of business organization. With the use of these techniques manger
understand the way their activities effect on earning business profit and recognized important
business elements rewire for manufacturing products.
Marginal costing: It is one of the most useful method of calculating cost with the use of
marginal costing , manger can also find out relation of profits with fixed cost and variable cost
by using profit analysis and break even analysis method. I will help in find out the sale a
organization earn no profit and no loss (Forbes and Hodgkinson, 2015).
Interpretation
If manger applies marginal costing then they earn 4500 profit and their contribution amount is
29500.
Statement of income through absorption costing
Absorption costing: It is essential costing method which is useful for manufacturing business
organizations. In this costing meyhodmnager use every elate of production and selling factor to
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Statement of marginal costing
Particular
Cost per
unit Amount
Sales 35 70000
Variable cost
Direct material 8 16000
Direct labour 5 10000
Variable production overhead 2 4000
Variable selling and distribution
overhead 5.6 10500
Contribution 29500
Fixed cost (15000+10000) 25000
Profit 4500

detent the profit by defeating al the cost. This is useful in providing relevant accounting
information.
Statement of absorption costing
Particular
Cost per
unit Amount
Direct Material 8 16000
Direct labour 5 10000
Direct variable overhead 2 4000
Direct fixed overhead 3 15000
Total cost of production 45000
Selling and distribution overhead
variable 10500
Fixed selling and distribution overhead 10000
Total cost of finished goods 65500
sales 70000
Profit 4500
Interpretation: If manger adopted adsorption costing method they n they profit value 4500 by
deducting all relevant expenses.
Standard costing: It is also modern technique of identify cost which is used in controlling process
also. Standard costing used to calculate original cost and compare it with standard cost an find
deviation value of standard and actually incurring of cost. With the use of standard costing
manger control cost by reducing deviations.
Manager of Western Foods Limited used absorption costing and standard costing method, they
use absorption costing through which they can identify cost of every element and with the use of
calculation of variance they find out the reason of deviations and build polices to reduce
deviation in order to get their goals (Rios, de Mendonça Neto and Spínola, 2018).
PART 3
P4 Explanation of advantage and disadvantage of planning tools
Planning tools: Business cooperation apply some tools for plan strategies to future business
activities these tools are define as planning tools of the organization. Following are the tools of
planning describe below
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Budgeting: It is the process through which mangers formulate budget. By using various types of
methods.
Zero base budgets: In this type of budgeting process mangers of the organization take deep
research and then build budget. in this type of budget mangers does not considered past record
all the information are new.
Advantage
This is helpful in providing accurate information.
It is useful for small business organization.
Disadvantage
It requires high cost to build zero base budget.
It is time consuming process.
Rolling budget: In this type of planning tool budgets are formulated for small time period and
continues basis this it is known as rolling budget.
Advantage
It useful in reducing errors.
With the use of rolling budget organization able to understand those business activities which
helpful in generating profit.
Disadvantage
It requires cost to build in short time period the budget (Escheikh, Tayach and Barkaoui, 2016).
Manager get confused and they are not able to compete work at the time due to lack of
understand and motivation.
Activity based budgeting: It is essential and most useful method of budgeting. In this method
resource are allocated ad on the basis of this budget are prepared.
Advantage
It will useful in providing accurate future result.
This method helps in allocation of resource in effective way.
Disadvantage
It is not useful for service industry.
This type of technique required high cost for formulation of budget
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Cost system: For taking decision manager use cost system. Various types of costing technique
useful in determine the method of cost is beneficial for business organization. With the use of
standard, marginal cost organization able to identify which project is best and take low cost.
Advantage
Useful in decided best alternative.
Help in identifying cot of each method.
Disadvantage
For calculation of cost skilled personal requires.
It is take time
Pricing policies: Various types of pricing policies are used by business organization in order to
determine price. With the use of price policy manger take decision of selling their product and
serves at which rate.
Advantage
It helps in gaining profit by selling product at which rate.
Pricing polices use in taking decision of future price of product.
Disadvantage
It not proved relevant result.
Prices change which changes of economic factors.
Strategic planning tool: Various types of planning tool included strategic tools. It included
those method through which business able to take decision regarding their environment. It
includes Swot pestle balance scorecard. With the use of these techniques the identify market
condition.
Advantage
Strategic marketing tool used in identifying environment factor affect on business organization.
With the use of SWOT and PESTLE manger know strength, weakness, opportunities and threat
of business environment (Kotłowska, 2015).
Disadvantage
It takes time to plan by using strategic planning tools.
It is not essential that the information received from this tool are relevant.
Variances: Theses tools are helping in identify in deviations.
Advantage
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With the use of variance mangers take decision regarding the reason of deviations aeries within
the organization.
It use in deifying relationship between elements.
Disadvantage
For calculation of variance mangers need skills individual who has knowledge of accounting
standard.
It is typical method and compel.
PART 4
Uses of management accounting technique in order to resolve financial problems
Financial problem: Business organizations need resource to run their business cycles.
Financial resource uses as blood for the business. Without these resources organization not able
to stand their position in the market. Problems arises due to lack of Monterey resource in
organization is define as financial problems. At the time of these situation organization not able
to fulfil their liabilities. With the use of managerial accounting told they can overcome this
problem. Western Foods Limited suffers from financial problem these days due to reducing of
selling rate and higher cost incurring in maintain of stock. With the the us for management
accounting told they overcome with these problem
Key performance indicator: This method used to measure performance of the departments of
the business organization. In this method indicator are set and on the basis of these indicators
mangers decide which department get rewards for their performance. Western Foods Limited
suffers from financial problem due to decline rate of selling, if they use key performance
indicators and set target then employs motivated to achieve the target and work in effective way
to get the bonus (Haddara, Su, Alkayid and Ali, 2018).
Benchmarking: It is also similar method just like key indicator , in t benchmarking, benchmark
are select and organization workforce work towards to cross these benchmark. They get rewards
and incentive if department able to achieve the target of benchmark. It motivate workers.
Organization Western Foods Limited, will reduce waste cost and activities if benchmark are set
of cost value then organization work in a way that they achieve the benchmark and reduce cost
and increases cash inflow business activities.
Financials Governance: This is most essential business policy. Financial governance help in
showing right direction . It will help in providing ethics way to the organization. Wit the use of
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finical governances polices manger able to work in ehivsle way and the chance or errors and
deduction is reduces.Fiancial governance tract the way business record all the transactions.
Basis Western Foods Limited Harvey food CAFE
Issue face by
corporation
The organization suffer from
economic difficulty due to need of
managerial policy apply during
compilation of debtors
This organization is face
financial difficulty since the
revenue of the association is
decrease due to refuse rate of
sales.
managing
accounting System
The association use effect secretarial
receivable account and apply cost
association system. from side to side
which they can easily recognize the
debtor which not pay their arrears
liability (Akshay, Kumar, Alagappan
and Gnanavel, 2019).
Harvey food cafe apply price
optimization cost secretarial
scheme with the use of this
scheme they can take decision
concerning pricing plan and able
to earn income by selling
provides and serve up with
acceptable price level.
Technique They use KPI skill in order to make
effective policy from side to side
which they can increase their money
sales and take cash from debtor
within small time period.
Manager of Harvey food cafe use
benchmarking they set aim and
raise sales rate and able to make
cash inflow
CONCLUSION
Management accounting is that part of accounting which considered technique, system and
tools of management on order to systematic run business life cycle. Manger use the cost
accounting an inventory management system to properly utilized their resource and with the use
of system they determine relevant price of product and services it to gain profit. Business
organization formulate accounting report which helping preparation of budget and with the use
of panning tools they can future strategies for their business organization and benchmarking and
key performance indicator tools use in resolving problems arise due to lack of financial resource
and increase cash inflow of the business organization. Management accounting play major role
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in enhancing performance of the organization by utilized business resource in effective and
relevant way.
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