Management Accounting: A Comprehensive Guide to Cost Analysis, Budgeting, and Financial Reporting

Management Accounting
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Contents
Introduction:....................................................................................................................................3
P1. Explain management accounting and give the essential requirements of different types of
management accounting..............................................................................................................4
P2. Explain different methods used for management accounting reporting................................7
P3. Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costing......................................................................10
P4. Explain the advantages and disadvantages of different types of planning tools used in
budgetary control.......................................................................................................................14
P5: Compare how organizations are adapting management accounting systems to report
financial problems.....................................................................................................................19
Conclusion:....................................................................................................................................22
Bibliography..................................................................................................................................23
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Introduction:
The management accounting report which is prepared in this assignment relates to the various
concepts and systems associated with application of management accounting system in an
organisational context which is working in the current business environment. The report will
include the explanation to various type of management accounting systems and their role in
performing the various management functions in the organisation. The report will include
applying various techniques of management accounting and cost accounting and generating
appropriate financial reports for the company. The use of different planning tools of budgetary
control and their use in planning and finding the variances for the company will be analysed in
this report. Thus the overall report will help in understanding the overall process of management
accounting and its benefits in current business environment.
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P1. Explain management accounting and give the essential requirements of different types
of management accounting.
Management accounting can be defined as the operational function of the managers of the
company in order to perform smoothly their various functions regarding planning, organizing
and controlling. The information are presented and interpreted in this function in order to assist
management in decision making function and taking important economic decisions of the
company (Otley, 2016).
Evolution and subjectivity of management accounting:
The innovative concept of management accounting originated in late 1990’s when the industrial
revolution was at its peak and there was a need to recognize one of the systems which can assist
the company in generating value added reports and helping the investors and management in
taking their investment and management decisions. There was lot of subjectivity involved in
management accounting in comparison to financial accounting as it involves the forecasting of
future results and creating future plan of actions by interpreting the present as well as past reports
of the company.
Management accounting vs. financial accounting
Basis Financial accounting Management accounting
Objective The objective of financial
accounting is to generate
financial reports of the
company by utilizing the
accounting records (Renz &
Herman, 2016).
The objective of management
accounting is to provide
management with value added
reports for taking crucial
business decisions.
Sources The sources of information
utilized in financial
The sources of present, past as
well as future scenario are
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accounting relates to only past
data.
utilized in this function.
Users External users like creditors,
investors
Internal users of company like
managers, staff.
Regulations Required set of laws and
regulations as applicable to the
company (Quattrone, 2016).
No required set of reporting or
regulations to be followed.
Functions of management accounting:
Planning – The function helps in making the actions plans by utilizing the reports generated by
applying these techniques in the company.
Controlling – The cost reduction and cost control can be implemented by adopting the various
techniques of management accounting function in the production or distribution process.
Analysis and evaluation – It allows the company to evaluate the current performance in regard to
financial as well as non financial performance and position (Fayard, 2015).
Various types of system along with their requirements
System Description Requirements Example
Cost accounting
system
The information about
cost items of the
manufacturing
process is presented in
this system
The system requires
proper accounting
records of each and
every cost item
incurred in the
manufacturing
Determination of unit
cost of product and
preparing income
statement.
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process.
Financial accounting
system
The information about
the financial items of
the company is
presented in financial
statements (Lapsley &
Rekers, 2017).
The system must be
integrated with the
cost accounting
system
Statement of financial
position, Profit and
loss account
Management
accounting system
The function of
extracting, recording
and presenting the
management
information for
decision making.
The system should
enable in efficient and
effective decision
making.
Standard costing,
Variance analysis
reports
Tax accounting The system concerned
with maintaining the
tax issues of the
company in line
The other systems
must be aligned and
integrated with this
system (Rothaermel,
2015)
Tax journals produce.
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