Management Accounting: A Comprehensive Guide for Decision Making

This comprehensive guide delves into the fundamentals of management accounting, exploring its role in decision-making, financial planning, and performance evaluation. It covers key concepts such as cost accounting, inventory management, budgeting, and the balanced scorecard approach. Through practical examples and case studies, this resource equips students and professionals with the knowledge and skills to effectively apply management accounting principles in real-world scenarios.

Management Accounting
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Table of Contents
Introduction:.............................................................................................................................................................3
Task 1.......................................................................................................................................................................4
P1.........................................................................................................................................................................4
I: Definition of Management Accounting and to distinguish Management Accounting from Financial
Accounting..........................................................................................................................................................4
II: The importance of management accounting information as a decision making tool for department
managers..............................................................................................................................................................4
P2. Explain the different types of Management Accounting Systems................................................................6
M1. Evaluate the benefits of management accounting systems and their application within the context of
Imda Tech (UK) Limited.....................................................................................................................................7
D1. Critically evaluate how management accounting systems and management accounting reporting is
integrated within organisational processes..........................................................................................................8
Task 2.......................................................................................................................................................................9
P3. Income statements of September using; Absorption costing and Marginal costing.....................................9
M2. Calculate income Reconcile the profits.....................................................................................................11
D2. Accurate apply and interpret the data for the business activities...............................................................12
Task 3.....................................................................................................................................................................13
P4. Provide a written report on planning tools..................................................................................................13
M3 you will need to analyse the use of the different planning and their application for preparing and
forecasting budgets............................................................................................................................................15
Task 4:....................................................................................................................................................................16
Balance scorecard:.............................................................................................................................................16
M4 you will need to analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success..................................................................................................................19
D3: you will need to evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead to sustainable success.`..........................................................................................................20
Conclusion:............................................................................................................................................................21
References:.............................................................................................................................................................22
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Introduction:
Being the trainee management accountant of the Imda Tech Limited, which is the producer of
the mobile telephone charger and the other gadgets for the retail outlets in UK, needs to
improve their financial information for the better decision making. According to the director
of finance, Mr Imda wants a report which should include the meaning of management
accounting and their difference with the financial accounting. The report includes the
different types of management accounting tools such as cost accounting systems, inventory
management systems, job costing systems and price optimising system. The report should
also state the importance of the management accounting system and how it integrates with the
organisational process. In this report, the calculation of marginal and absorption costing is
explained. In this report, it will also explain that departments should take the responsibility to
make budgets. The process of budget and pricing strategies are explained in this report. The
report also explains about the Balance Score Card Approach and how it helps in identifying
the financial problem.
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Task 1
P1.
I: Definition of Management Accounting and to distinguish Management Accounting
from Financial Accounting
Management accounting gives the information, records accounting data and helps in taking
the decisions regarding the financial matters. Management accounting does the proper
planning of the management and helps in improving the performance of the company and
achieving the organization strategy (REZNIQI, et. Al., 2015). It helps in giving the
information of the statistical data and also maintains the internal and external factors.
Management accounting Financial accounting
It gives the information to the people within
an organisation.
It gives the information to people outside
the organisation.
It is concerned with the products and cost
centres of the particular factor.
It is concerned with the entire organisation.
The report emphasis on the problems which
are occurring in the organisation and how to
solve them.
The report's emphasis on the profitability
and increases the efficiency of the business.
It can be measured in both the terms
quantitative and qualitative.
It can be measured in only quantitative
terms.
It doesn’t follow any rule and there is no
statutory requirement for this accounting.
This accounting has been prepared as per
the rules of GAAP or IFRS and it is
mandatory to be prepared by all the
companies.
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II: The importance of management accounting information as a decision-making tool
for department managers.
According to a Peter Drucker, a business can be successful only if the management has taken
the courageous decision.
i. Management accounting helps in taking the internal and external; decisions of the
business. Internal changes such as hierarchical change, changes on a global value,
mergers and acquisition, etc. External changes such as election, new policy and law
are created, etc. management helps in guiding how to take decisions when such
situations are arising.
ii. Management accounting collects the data and compares it with the current
performance so that we can analyse the performance of the company and take
decisions accordingly (Malmi, 2016).
iii. Management accounting uses various tools and techniques which helps in taking the
decisions and reduces the problems such as KPI, MIS, Balanced Scorecard, etc.
iv. Management accounting helps in analysing the expenses and revenues of the
company and also created budgets which help in taking the decisions.

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P2. Explain the different types of Management Accounting Systems
Cost accounting systems: This system helps in determining the cost of the company. It
estimates the profit, inventory valuation and also controls the cost of the company. Actual
cost is based on the product cost of material, labour and overhead (acharya, 2018). Normal
costing is used to derive the cost of the manufactured product. Standard cost is compared
with the actual cost they are the predetermined cost of the goods and services.
Inventory management systems: This cost includes the holding, ordering and managing the
stock of the business. To manage the inventory is very essential for any organisation. This
system controls the overseeing of ordering inventory, manages the storage of inventory and
also controls the price of the product of inventory (Ngubane, et. Al., 2015).
Job costing systems: This system involves a process which determines the cost of the
specific job or production. It tracks the cost of the labour. It assigns the indirect cost such as
depreciation, rent, etc. to more cost pools (Ingram, 2018).
Price optimising systems: It is a process through which it is analysed how the customer's
will response on different prices of goods and services. This system helps in meeting the
objectives of the company of maximising the operating profit. It is used in the company to
analyse the big data.
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M1. Evaluate benefits of management accounting within the context of Imda Tech (UK)
 Management accounting helps in preparing the plan and executing the same plan in
the operations of the business. Budgets are prepared for making a plan for the future
and to forecast the unexpected event.
 Management accounting helps in comparing the actual performance of the company
Imda Tech (UK) Limited with the standard or planned performance. If any deviations
are found then manage and control them with the help of standard costing and
budgetary control (Guinea, 2016).
 Management accounting helps in improving the efficiency of the company by
eliminating the wastage, defectives and reducing the inefficiency and problems of the
company.
 Management accounting helps in formulating the decisions and it also measures the
profit and put a value on inventory (Matambele, 2014).
 Management accounting helps in solving the problem by monitoring the performance
of the company Imda Tech (UK) Limited.
 Management accounting improves the communication between the different
departments and improved the coordination and integration of the activities of the
business.
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D1. Critically evaluate how management accounting systems and management
accounting reporting is integrated within organisational processes.
Management accounting system is integrated with the accounting reports because it deals
with the monetary factors of the company and accounting reports deals with the quantitative
terms. Integrated accounting system records the transaction of the company and gives the
financial information of the company. Management accounting controls the organisation
functions of the company (Matambele, 2014). It helps in reaching the goals of the entity and
serves the strategic objectives of the company. Management accounting helps in preparing
the report such as job cost reports, inventory report, manufacturing and production report, etc.
which helps the organisation to evaluate the cost and perform the functions of the business
accurately. Management accounting records give the mathematical data of the company such
as balance sheet, income statement, cash flows, etc. through which we can find out the
financial position of the organisation.
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Task 2
P3. Income statements of September using; Absorption costing and Marginal costing
Cost: term of cost can be explained as a monetary value which is paid by a person to get
something in ownership. It is a crucial matter for every business and various methods are
applied to measure and manage cost issues. On the basis of nature Different type of costs is as
follows:
 Fixed cost: fixed cost can be defined as a period cost which doesn’t change with
production volume or sales volume. For example, the rent which remains same for a
period.
 Variable costs: variable cost is those expenses which occur according to the volume.
For example, variable production overheads which occur according to the production
units.
Absorption costing: method of absorption costing is that which is applied to ascertain the cost
by including overall cost as product cost. This method comprises all flexible and fixed
charges as product charge if they are related to production (Medeiros, et. Al., 2017).
Absorption method of cost determination is a most useful method and it is also accepted
under accounting principles.
Marginal costing: marginal method of costing is applied to ascertain the cost of a product by
including only variable expenses as a cost which means that all fixed expenses are charged as
a period cost (S, 2018). This method is appropriate for budgeting purpose because it displays
costs in a wider manner.
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(Differences in marginal and absorption costing)
(Source: Slideplayer, 2018)
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M2. Calculate income Reconcile the profits
I: Profit under the method of absorption costing
Statement of Income £Amount
Value of Sales 52500
Less: Cost of Revenue:
Opening Inventory 0
Cost of Manufacturing 40000
Closing stock 10000 30000
(Under)/Over absorbed of fixed O/H -5000
Gross Profit 17500
Less:
Selling Variable Cost 7875
Fixed selling Cost 10000 17875
Net loss -375
II: Profit under the method of marginal costing
Statement of Income £Amount
Sales value 52500
Less: Variable costs
Stock at the opening 0
Cost of production 30000
Stock at the closing 7500 22500
Variable sales overheads 7875
Contribution 22125
Less: Fixed costs:
Fixed Production overheads 15000
Fixed Selling overheads 10000 25000
Net loss -2875
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D2. Accurate apply and interpret the data for the business activities.
Statement For income Reconciliation £Amount
Profit under Absorption costing -375
Less:
Difference due to Closing stock Overhead absorption 2500
Profit under Marginal costing -2875
On the analysis of above statement, it can be said that absorption and marginal, both methods
afford different results for same information. In the case of UK tech Ltd, marginal costing
practice is screening a defeat of (2875) and absorption method of costing is screening a loss
of (375). The difference of 2500 is arising because of closing poise of inventory and if no
closing inventory remains, both methods will report similar income.
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Task 3
P4. Provide a written report on planning tools.
a) Different types of budgets and their advantages and disadvantages:
Budget is the forecast of the future expense and it measures the past performance of the
company and predicts the future. There are different types of the budget which are used in the
company such as master budget, financial budget, operating budget, cash flow budget and
static budget.
Master budget – Master budget is the summary budget of the entity which is the short-term
budget. It finds out the functional budget of the company which includes the production cost,
overhead expense, etc. The benefit of this budget is that it sits overall budget of the company
which shows the income and expenses of the company (Shpak, S., 2018). The drawback is
this budget is it shows the total sum of different departments. It is difficult to maintain and
there is a lack of specificity.
Financial budget –Financial budget is made by every company for long term and short term
because it shows the revenues and expenses of the company. It shows the capital investment
of assets, liabilities and equity. This budget gives the information about the debts, loan, taxes,
and annual report which gives financial reports to the investors and the owners. To prepare a
financial budget is difficult and it also requires a lot of time and cost. It considers only those
transactions which are related to the cash and other important issues are not considered.
Cash flow budget –Cash flow budget includes the transactions which are related to cash and
it is a short-term budget which is used to meet the current needs of the company. It shows the
income and expense of the current year and helps in calculating the working capital of the
company (Jallow and Anastasova, 2015). It analyses whether the appropriate cash is available
by the company or not. There is also a limitation of this budget is that there is a lack of
flexibility and company cat judge the transactions which are not related to cash.
Static budget –Static budget is a fixed budget which does not change as the changes in the
volume of output. It helps in controlling the cost which is unpredictable. The disadvantage of
this budget is that it does not change its value if there is a change in the outcome of the
volume. In the static budget, actual results with the variances are compared.
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b) The process of preparing budgets.
1 Analyse the information: the First process is to find out the information whether the budget
belongs to an individual or as a group. The information should be analysed regarding the
company’s income, expense, profit and loss.
2 Measure and evaluate the information: the next process is to measure the information about
its product, region, nature and function. Measure the information with the previous data to
evaluate the true performance of the company.
3 Collect the past data: Past data should be collected as it gives the information before
making a new budget. Past information’s are collected regarding the sales, revenues,
expenses of the company.
4 Budget projections: To make projections regarding the succeeding year is the next step. It is
simple to evaluate but it is costly. Every company uses a different approach to this.
5Analyse break-even point: To determine the break-even point in the company is essential as
it is useful in studying the relationship between the fixed, variable and revenue. In break-even
point there is no gain or no loss, it tells the company whether they should generate the
investment to get the positive return.
c)
Pricing strategies: The pricing strategies are adopted in the company to increase the sales.
The prices should be reasonable which can be adopted by the customers easily. The main aim
of any organisation is to maximise the profit of the company through the effective setting of
the price of the product. Most companies adopt two approaches of pricing strategy such as
cost pricing and value-based pricing. In cost-plus pricing method, the cost of the product
including variable and fixed cost plus the profit of the company is calculated.
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M3 you will need to analyse the use of the different planning and their application for
preparing and forecasting budgets
Budgets are most important part of management activities and an efficient budget is
necessary to achieve the yearly targets of an organisation. Use of Planning tool and practices
is very supportive in forecasting of budgets in following ways:
Information availability: planning tool provides useful information in useful ways so that
business managers can make sound and competitive strategies which will generate assured
benefits for the organisation.
Processed data: planning techniques and tools are used to process the data to make an
analysis of market trends. As budgets are made on the basis of historical data and best
estimations, planning tool aids the managers to make the best estimation about future events
(Jallow and Anastasova, 2015).
Cash and revenue projections: during the preparation of budgets, estimations are made about
the future sales and cash flows. As both sales and revenue are very important for business,
separate budgets are made for both and planning tool assists the business managers to gather
useful information about future cash and revenue events.
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Task 4:
Balance scorecard:
Balance scorecard is a med-standard report which is utilised in business management to
monitor and measure the performance of employees. This system relates the targets with
activity execution so that business can gain r desired outcomes (Malgwi and Dahiru, 2014). It
is one of the highest use methods which is applied within the organisation to control and
improve the strategy execution as well as operational management.
The process to apply the balanced scorecard in an organisation;
 Prepare a purpose statement which will elucidate that what organisation wants to
achieve by using this system.
 Formulate the complete plan along with responsibilities of associate employees.
 Compare the latest plan with past plans and their outcomes to understand the
soundness of plan (Zizlavsky, 2014).
 Execute the strategy and plan which is made before and ensure a regular monitoring
of execution for timely correction.
Following components are liable for the effective execution of balanced scorecard:
(Legs of Balance scorecard)
(By Author, 2018)
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CustomerSituationofEconomyImprovementininternalprocessLearningfrompastexperienceandimprovement

Balance scorecard sets key performance indicators to measure the performance of an
organisation. It sets monetary indicators for financial matters and non-monetary indicators for
non-financial matters and measures the performance by comparing actual outcomes with pre-
decided Performance Indicators. Some examples of these indicators are as below:
 Financial: Debt to equity balance, the proportion of current assets against current
liabilities etc.
 Non-financial: brand value, social support, unique production process, and satisfied
staff.
Balance scorecard is a systematic approach which is applied within businesses to rectify the
mistakes to improve the internal process and external outcomes (Evangelista de Barros and
Wanderley, 2016). Imda Tech is suffering from loss and to improve this situation, auditor
suggests the balanced scorecard method. It will be helpful for the Imda Tech (UK) to
resolve financial issues in following way:
Analysis and improvement of performance:
Balance scorecard is a measurement approach which measures the efficacy of strategy
execution and staff performance. Sometimes Situation of loss arises because of inappropriate
performance level and Imda Tech can remove this situation by applying balanced scorecard
approach (Zizlavsky, 2014). By applying this approach, the company can make a review of
staff and process performance and, can take strict action against negative factors.
Enhanced activity execution:
The sound accomplishment of deliberate strategy is also important as sound planning and
Imda tech should work to assure an effective implementation of plans. The situation of loss
explaining that plans are not implemented well and company should try to improve it.
Balance scorecard connects the process with targets and helps to run it according to the plan
which saves extra costs for business. In this way, it helps to solve business problems.
Best and improved strategy:
Balance scorecard narrates with all phases of business management and helps to make an
overall improvement. It ensures that internal process and control of business are working
well, it considers employee performance and it also measures the effectiveness of the
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strategy. In this way, it makes an overall analysis of the organisation and gives support to
eliminate the situation of loss (Zizlavsky, 2014).
Above discussion proves that balance scorecard improves the overall efficiency of company
operations and resolves financial issues.
Balance scorecard in financial governance:
Financial governance can be defined as a legal framework which is issued by the governing
authority to improve the control and fair management working within the organisation. It a
set of some rules which are applicable to companies and Imda Tech should ensure
compliance of these rules within the organisation (Sonmez and Yildırım, 2015). Financial
governance in the organisation is used to control the performance of board so that they can
work properly to gain best returns for the shareholders. Some benefits of balance scorecard in
financial governance are as follows;
 It helps to regulate the workings of the management board.
 It provides strategic guidance to the board when they required.
 It enhances the quality of decisions because the performance of the board is also
measured by the balanced scorecard approach.
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M4 you will need to analyse how, in responding to financial problems, management
accounting can lead organisations to sustainable success.
Management accounting generates numerous benefits for an organisation and Imda limited
can apply management accounting policies to improve the overall performance and structure
of business management. Some benefits of management accounting are explained below:
The motivation for Excellency: management accounting policies provides the facility of
variance analysis in which, the actual performance of business and staff is compared with
expected standards (Daraban, 2018). On the basis of this comparison, management of Imda
Tech can offer a reward for those employees which are performing very well and the same
will motivate others to improve their performance.
Proper management of activity execution: policies and approaches of management
accounting helps in various strategic planning activities like budgeting, benchmark analysis
etc. in this way, it gives a roadmap for the execution of future business activities which
ensures the profitable regulation of the business process.
The reliable base for decisions; Management decisions are taken on the basis of estimations
and historical information. Management practices cover some frameworks which deliver
accurate and Reliable l data to take the gainful decisions (Matambele, 2014).
Increased Coordination: Under management reporting practices, numerous kinds of reports
are made to upkeep the managers so that they can understand the needs and expectations of
business and can work consequently.
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D3: you will need to evaluate how planning tools for accounting respond appropriately
to solving financial problems to lead to sustainable success.`
Saving of extra cost of funding:
Planning tool provides a base to predict the future cash comings and needs and Imda Tech
can manage its resources accordingly. It displays a complete view of resource allocation
which is necessary to solve financial issues. For example, in near future, sales department of
Imda tech requires extra fund and company have inventory more than a requirement (Šiška,
2016). In this case, company management can decide to reduce the capital in inventory and
that amount can be given to sales department. In this way, it will save the extra cost of
funding.
Maximum profit:
Application of planning tools measures the performance of every employee which inspires
them to improve their performance up to standard. Improved staff performance will reduce
the employee cost and it will reflect in the form of profit increase (Matambele, 2014).
Customer satisfaction:
Planning toll helps to manage the every business operation in a balanced way. For example, it
provides assistance to company board to measure the performance unit wise. Unit wise
evaluation will motivate to disregard the deficiency which was found during evaluation. It
will ensure a correct working and improve customer faith because company staff will respond
to them without delay.
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Conclusion:
On the basis of above discussion, it can be said that management accounting and its tools
plays a decisive role in business planning and managing. The first part of above discussion
involves the meaning of management accounting and it describes that how it is different from
financial accounting. It also defines different systems of management accounting system
which are utilised by the business managers. The discussion also explains the full costing
along with variable costing and proves that both methods give different profits for the same
data and it happens due to the balance of closing stock. Different types of budgets along with
capital budgeting and the budget-making process is elucidated in above discussion which
proves that budgeting is very important to work of management and management policies
also very useful in budgeting.
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