Management Accounting: A Comprehensive Guide to Financial Success

This comprehensive guide delves into the intricacies of management accounting, exploring its role in driving financial success. From understanding the fundamentals of cost accounting and budgeting to analyzing key performance indicators (KPIs) and implementing effective financial governance, this resource provides a practical framework for optimizing organizational performance. Discover the power of management accounting techniques like marginal and absorption costing, and learn how to leverage planning tools such as PESTEL, SWOT, and Porter's Five Forces to navigate complex business environments. This guide equips you with the knowledge and skills to make informed financial decisions, enhance profitability, and achieve sustainable growth.

Management Accounting
1

Table of Contents
Introduction..................................................................................................................................4
LO1..................................................................................................................................................5
P1................................................................................................................................................5
P2................................................................................................................................................6
M1................................................................................................................................................8
D1..............................................................................................................................................10
LO2................................................................................................................................................11
P3..............................................................................................................................................11
M2..............................................................................................................................................13
D2..............................................................................................................................................15
LO3................................................................................................................................................16
P4..............................................................................................................................................16
M3..............................................................................................................................................19
LO4................................................................................................................................................21
P5..............................................................................................................................................21
M4..............................................................................................................................................22
D3..............................................................................................................................................24
Conclusion..................................................................................................................................25
2

References..................................................................................................................................26
Introduction
The assignment is based on the management accounting in the Zylla company which
wants to replace their system with the new one as per the requirement. There is a
description of it and the essential requirement of the same in an organization. The
methods of reporting are also stated along with the benefits of the management
accounting systems. There is the inclusion of the relation between the management
accounting system and reporting with respect to the organizational context. The various
techniques of cost such as marginal and absorption costing are also included along with
its practical applicability. The various types of planning tools related to budgetary control
and management accounting are there on the assignment along with there advantages
and disadvantages. The importance of management accounting in determining the
problems and responding to it for the attainment of the success is also stated. The
planning tools are important for the success of solving the financial problems is included
to better understand the benefits of them.
3

LO1
P1.
The accounting can be divided into three categories financial accounting, management
accounting and cost accounting. Management accounting can be defined as the
analysis of the information that is being recorded in the financial accounting and cost
accounting techniques (Carrer Ride, 2016). The management accounting is the reason
for the shortcomings of the financial accounting as the financial accounting consists of
all the financial transaction only but in the diverse market, there are various other
factors that are surrounding the organization that needs to be analyzed for growth and
sustainable success.
The importance of the management accounting is as follows:-
Improve Quality and reduce cost – The market in this new era of technology and
modernization is very volatile and is very difficult to survive with proper earning. The
methods and techniques that are used in the management accounting are useful in
improving the quality of the company and reduce the cost providing an advantage over
the other competitors (Ghanbari, and Vaseli, 2015). The organizations are looking
forward to adopting these new methods to have effective management of the resources
that are available to have better efficiency and productivity.
Decision Making – The decision making is an important task which puts a lot of
pressure on the managers due to the diverse and complex condition that is prevailing.
The management accounting tools such as the ABC, ABM, Target costing, ERP, Six
Sigma etc. have facilitated the managers to forecast the various factors and also look at
the internal performance of the coming resulting in effective decision making (Ghanbari,
and Vaseli, 2015). The range of techniques helps in making continuous improvement in
the process and improvements in the financial positions of the company. The decision
making is made effective with the right decisions that are being taken by the
management with the help of analysis.
4

P2.
Costing Reports – The costing reports components are the price and quantity or the
volume. The reports that are included in the costing reports are Sales variance reports,
Material cost variances, labor cost variance and Overhead Variances. The Costing
reports have 4 steps for the preparation of the reports which are as follows:-
The costing reports is an effective tool to analyze the cost involved so that
improvements can be made in case of there is unfavorable results to increase the
profitability and efficiency.
Operational and cash reports – The operational reports are prepared for the day to
day activities such as the marketing, Production, selling as well as the cash budget. The
reports are prepared on the basis of the long-term goals and preparation of the plans.
The operation reports are useful to determine the reasons for the deviation in the results
that are being achieved by the organization. To achieve the long-term goals it is
important to break it down in short objectives and try to achieve them in an effective
way.
5
Setting of
standards
Comparison
with actual
Reporting
of Variance
Corrective
actions

Departmental wise reports - The departmental wise reports are prepared by the
center managers of the organization on the basis of their respective departments such
as the Revenue earned, the cost incurred, as well as the investments that are being
made by the company. The methods include determining the returns that every
department has earned such as return on investment.
Appraisal Reports – It is important to check the feasibility of the investment project that
is being considered which can be understood with the help of the Investment appraisal
reports. There are various techniques that can be used for understanding the viability
such as the Payback, Net Present Value (NPV), Accounting rate of return (ARR),
Internal Rate of return (IRR) etc. making the decision making regarding the project
effective and beneficial for the organization.
(Figure - Project Appraisal Method)
(Source - Jinali, 2014)
6

M1.
Price Optimisation – The price has been a critical factor in the profitability of the
company due to various factors such as the volatility in the market condition with the
increase in the globalisation. The increase in the choice to the consumers has made the
organisation think about the pricing to be effective in various factors (Guy, 2012).
The price optimisation technique can be useful in the following way:-
The organisation can be beneficial in financially by helping to focus on the important
components of such as the margin, volume with respect to the revenue generated. It is
useful in providing the consistency among the sales and also alignment with the
strategies.
Job-Costing – The job costing is useful where there is a variety of products and it is
important to allocate the period cost to the respective jobs. To determine the profitability
of each division and products it is important that there are proper apportionment and
allocation of the cost to respected jobs which can be possible with the help of the Job
costing system (Ingram, 2018). It further results in determining the actual performance
and the key areas where the company must focus to increase the profitability of the
company. The Unit cost can be determined for the purpose of the managerial decision
making.
Inventory Management – There are a various benefit that is associated with the use of
inventory management system such as:-
7
Price
Optimisation
Direct
Financial
Benefits
Consistency
Allignment
with the
strategies

The techniques and ideologies changed with the change in the market conditions and
time. The managers focus on increasing the production and decreasing the cost instead
of talking about an increase in the price of the product which made it important for the
organisation to look at the inventory management (Mwangi, and Nyambura, 2015). The
Effective management is important in having an effective level of the inventory which
reduces the cost of the company that is earlier invested in the stock. Inventory
management results in continuous supply and controlling of the cost by having the
optimum level of stock.
Cost- Accounting – The cost accounting is useful in attaining the financial
sustainability through effective management. The cost accounting is useful in setting up
of optimum pricing strategy by taking in account all the cost involved (Dražić, et. al.,
2016). It is useful for the organisation in determining and decision making about the
price. It is useful in increasing the profitability and productivity of the company by
reducing the cost involved in the production and making improvement in the efficiency.
8
Increased Production
Cost Control
Reduce Supply
Continous Supply

D1.
The management accounting systems and reporting are important for the organisation.
The reporting is based on the information and data that are being recorded in the
system used by the organisation. The management accounting system is useful in
recording of the data but for an effective analysis it is important that there is proper
reporting of the data recorded which is being done by the management accounting
reporting. The system and reporting both are important for the decision making of the
organisation. The managers are able to take the decisions depending upon the reports
that are being generated. It is important to have a comparison and analysis of the
results that are being achieved by the organisation which can be possible with the
presentation of the data in a format which can be easily understood and comparable
(Smith, 2017). The management accounting system is an effective tool to keep a track
of all the transactions that are being recorded. The management accounting reporting
helps in reducing the cost of the company and management of the inventory levels. The
management accounting system and reporting are important for the effective
management increasing the productivity and profitability by providing a better
management of resources.
9

LO2
P3.
Unit Cost £
Direct Material 5
Direct Labour 5
Variable Production
Overhead
2
Variable Sales Overhead 2
Selling Price 40
Actual Production
overhead
150
0
Actual Marketing and
Administration cost
overhead
150
0
Income statement as per Absorption
Costing
2016
£ £
Sales Revenue (40 x 500) 20000
Cost of Sales :
Opening Stock 0
Production cost (10 x 600) 6000
Fixed production OH 1500
Variable Production Overhead
(2 x 600)
1200
Add Closing Stock 1450
Gross Profit 12750
Variable Marketing and
Administration Cost (2 x 500)
1000
Less Fixed Cost
Marketing and administration
cost
1500 2500
Operating Profit 10250
10

Income statement as per Marginal
Costing
2016
£ £
Sales Revenue (40 x 500) 20000
Cost of Sales :
Opening Stock 0
Production cost (10 x 600) 6000
Variable Production Overhead
(2 x 600)
1200
Cost of Goods Sold 12800
Add Closing Stock (12x 100) 1200
Variable Marketing and
Administration Cost (2 x 500)
1000
Contribution 13000
Less Fixed Cost
Marketing and administration
cost
1500
Production overhead cost 1500 3000
Operating Profit 10000
11

M2.
The cost accounting techniques that are being used for the presentation of the data
includes the Marginal and Absorption costing. There are different types of cost such as
fixed cost, variable cost etc. The fixed cost remains same and does not change with the
change in production whereas the variable cost show changes with the level of
production. It is important to have a proper allocation and apportionment of the cost for
an effective costing of the product.
Marginal Costing – The marginal costing is the technique used by the managers for
the purpose of internal use. Marginal costing is the technique where only the variable
cost is being considered for the calculation of per unit of the product. It is useful in
calculating the contribution that is being provided by each and every unit (Garcia, 2017).
The marginal costing technique charges the fixed as the period cost and write it off in
the same period on the basis of the actual amount incurred. The marginal costing
technique is useful in facilitating the decision making and allocation of the resources by
the managers. The profit in the marginal costing is less in comparison to the absorption
costing.
Absorption Costing – The Absorption costing is the technique that is used for the
purpose of the stakeholders of the company. The absorption costing technique not only
considers the variable cost but also charge the fixed cost to the cost of the product as
under or over absorption of the cost. The gross profit is calculated through the
absorption costing and used to fulfill the statutory requirement. The absorption costing
technique absorbs the fixed cost of the production cost (Bragg, 2016). The absorption
costing technique is important to identify the profitability of the company. The profit in
comparison to marginal costing is more due to the absorption of the fixed cost incurred
instead of charging it at full in the same period. The fixed cost is carried forward in the
closing stock of the company.
The profit in both the techniques will be same in the long run. It will also be same if the
opening and closing inventory are same and there are no changes in the fixed cost of
12

the company. The techniques used depend upon the objective for which it is being
calculated such as for the purpose of internal management or to meet the financial
obligations.
13

D2.
Interpretation of the results achieved
It can be interpreted with the help of the income statement prepared through the
absorption and marginal costing technique that there is the difference between the
profits of the techniques. The profit in the absorption costing is higher in comparison to
the marginal costing. The profit through absorption costing techniques is 10250
whereas the profit from the marginal costing technique is 10000. The difference
between the profits of both the techniques is due to the fixed cost of the closing stock of
the company (Bragg, 2016). The absorption costing techniques uses the under and over
absorption method and charges it to the production cost instead of taking it as the
period cost because of which there is some part of the fixed cost in the closing stock of
the company resulting in a difference of 250. It can be stated that in case of the long run
the profit from the marginal as well absorption costing remains same.
Reconciliation of Profit £
Absorption costing profit 10250
The fixed cost of closing
inventory (2.5 x 100)
250
Marginal Costing Profit 10000
14

LO3
P4.
The budgetary control can be defined as the comparison of the actual and budgeted
results. It is useful in determining the performance individually as well as a whole of the
organisation.
The different types of planning tools are as follows:-
PESTEL – The Pest consists of Political, Economical, Social and technological factors.
It is useful in determining the macro environment that is surrounding the organisation.
Advantages
The PESTEL analysis is useful as it saves the time and cost involved. It is also useful in
providing the insight about the macro factors that are surrounding the organisation
providing the guidance to the managers and facilitating decision making (Kolios, and
Read, 2013).
Disadvantages
15
Planning
tools
PESTEL SWOT Porter's
Five Forces
Balance
Scorecard

The disadvantage of the analysis is that it needs to conduct on the regular basis but it
takes a lot of time to conduct the same. The changes in the environment are difficult to
anticipate by the technique due to changes in factors (Kolios, and Read, 2013).
SWOT – The SWOT Analysis is useful in determining the Strength, Weakness,
Opportunities, and threats to the organisation. It is useful in determining the capabilities
of the organisation and ability to compete with rivals.
Advantages
It is useful in meeting the goals and objective of the organisation by analysing the
favourable and unfavourable effect of the factors surrounding the organisation. It is also
important in determining the problems that are there and solving them (Nordmeyer,
2018).
Disadvantages
It is important that there is the specific format of the data which is comparable to each
other. There is no significance or ranking of the individual variables which are included
in the SWOT Analysis.
Porter’s Five Forces – The Five forces are useful in determining the industry in which
the organisation is working and facilitates the decision making of the company.
Advantages
The Porter’s five forces are useful in getting a competitive advantage over the rivals of
the company. It is useful in getting an advantage by overcoming the weakness and
grabbing the opportunity.
Disadvantages
There are various assumptions for the analysis of the technique which deviates the
results that are achieved. It is not able to meet the current diversified conditions,
16

Balance Scorecard – The balanced scorecard is used to understand and determine
the performance of the organisation in an effective way. It includes both the financial as
well as the non-financial aspect of the performance.
Advantage
One of the advantages is that it considers both the aspect financial as well as non-
financial. The balanced scorecard is useful in determining the effect of one aspect on
other.
Disadvantage
The individual performance is neglected in the technique as there is focus on the overall
performance and encouragement. The large variables can result in inefficient decision
making and scorecard of the performance.
17

M3.
The preparation of the budget is important for the achievement of the goals and
objectives. Preparation of budget includes the following steps (Tutors on the net, 2014):-
These steps are useful for the establishment of the effective management. The planning
tools of the budget
PESTLE – The technique is useful in determining the identifying the macro factors that
are surrounding the organisation. The budget can be effective after forecasting of the
macro environment such as the Political, Economical, Technological, Legal as well as
the environmental factors. The factors surrounding the organisation help in the setting of
effective standards of the budget and take decisions accordingly (Business Essays,
18
Budget Centre
Establishes
Determination
of limiting
factors
Time period for
the budget
Forecasting of
Period
Review of
budget
Monitoring and
improvement

2016). The factors play a crucial role in forecasting which can be analysed by PESTLE
Technique.
SWOT – The SWOT Analysis is used to identify the strength which is useful for the
preparation of the budgets. The budget is prepared as per the goals and objectives
which can be best made by analysing the positive as well as the negative factors of the
organisation. The SWOT analysis helps the organisation to identify the problems that
can be faced as well as the opportunity that will be there facilitating in decision making
regarding the budget formation.
Balance Scorecard – The balance scorecard is used to determine the results that are
being achieved. It is important that there is an analysis of the results that are being
achieved by the organisation which is possible with the technique such as the balanced
scorecard (Price, 2017). It is useful in making improvements and overcomes the
weakness. It is useful in the preparation of budget and forecasting by the analysis of the
results.
Porter’s Five forces – The Porter’s Five forces are useful in determining the factors
such as the new entrants etc. These forces can affect the business and profitability of
the organisation which can be determined by the organisation (Bondigas, 2018). The
Porter’s five forces are useful in determining the limiting factors that can affect the
profitability and productivity of the organisation. The Five forces are useful in
determining the factors and to set the budget as per the conditions prevailing in the
market.
19

LO4
P5.
Quality of Information – The management accounting systems are used in the
providing a good information. The management accounting system is used in the
recording of each and every data resulting in a quality of information. The MIS is helpful
in determining and analysing the information that is being recorded and checking of the
same with proper reconciliation (Gartenstein, 2018). There is a recording of every
transaction which also helps in stating that the information is true and fair after analysis
of the same.
Timeliness – The timeliness is an important factor which helps in financial decision
making. The management accounting systems are able to record the transactions as
and when they are conducted. The data is stored of which analysis can be done
anytime resulting in an effective decision making and allowing the managers to choose
the best option out of the available one. The timeliness also helps in anticipating the
factors surrounding the organisation and to take steps accordingly.
Availability of resources – The resources available is always less in comparison to the
needs and allocation. The management accounting system is useful in determining the
resources available and to effectively utilise the same to increase the profitability of the
company (Gartenstein, 2018). The management accounting systems are able to
analyse the area which requires extra care and allocation can be done accordingly
making it beneficial for the organisation by proper planning of the funds that are
available along with the utilisation of the same.
Effective Coordination – The management accounting systems helps in establishing
an effective coordination among the various departments of the organisation. There is
the establishment of the authority along with the responsibility. It is also useful in
strategic planning making everyone aware of the goals and objective of the organisation
and the ways through which they can be achieved.
20

M4.
There are various techniques that can be used in the management accounting to tackle
the financial problems that are being faced by the organisation. It is important that the
financial problems are solved to attain the sustainable success. The financial problems
can be solved in the following way leading to achievement of sustainable success:-
KPI’s – These are the indicators of performance which considers the financial as well
as the non-financial aspect such as the revenue, customer service etc. The KPI’s are
useful in solving the financial problems related to the customer satisfaction and base. It
is useful in determining the performance and also making it better (Muriana, et. al.
2016). The customers are everything in the business and it is important to retain them
as well as attract the new which can be possible with the KPI’s. It will help to focus not
only the financial transactions but also the qualitative factors that can affect the
business.
Financial Governance – The financial decisions are very important for each and every
organisation as there can be unfavourable effects if they are resulted wrong. The
financial governance helps in setting up of the roles and responsibilities which can ease
the decision making and also help the person accountable for the mistakes if any
conducted (Osadchy, and Akhmetshin, 2015). The financial governance can maintain
the level of decision making among the managers and employees for an effective
management as well as a safeguard from any risk that is being associated with the
decision making.
Benchmark – It is important for the sustainable success to compete and be better than
the rival in the industry. The benchmarking is the technique which helps to identify the
systems and process that are being used by the highly established and big companies.
The benchmarking technique can be useful in making there process better and effective
by analysing the procedure thus helping in optimum utilisation of the resources. This
further helps in increasing the productivity and efficiency of the company.
21

(Figure – Benchmarking process)
(Source - Ward, 2018)
Budgetary Target – It is important that there are goals and objectives of the
organisation so that the performance can be measured. The target helps in better
allocation of the funds and resources that are available to the organisation thus resulting
in effective management. The budgetary targets are also useful in maintaining a control
and coordination among the organisation as everyone is aware of the goal that needs to
be achieved. The financial problems such as the performance and allocation are tackled
by the way of budgetary targets.
22

D3.
The planning tools are beneficial in attaining the sustainable success as they safeguard
the organisation from the threats that can hamper the profitability of the organisation
The planning tools with the help of analyses are able to determine the threats along with
the opportunity which results in increase in the revenue and profits of the company. The
planning tools helps in strengthening the internal factors as well as the external factors
which minimises the risk that is being involved and grabbing the opportunities which are
best suitable for the organisation. The sustainable success can be achieved by
performing better than the rivals in the market. The planning tools helps in analysing the
factors such as the micro and macro factors which can affect the business resulting in
an advantage over the competitors. It is important that the company is able to earn the
profits keeping the cost at minimal. The techniques used by the planning tools are
effective in improving the cost involved regularly. They are useful in determining the
under or overutilization of resources that are available in the organisation and
decreasing the cost involved. It can be stated that higher the cost lower is the
profitability whereas lower the cost higher is the profitability.
23

Conclusion
It can be concluded with the help of the assignment that the management accounting
and types of management accounting are very much essential to increase the
profitability and attain the sustainable success. It can be stated that there is the
difference between the profitability depending on the technique used by the
organisation. The planning tools are helpful in forecasting by analysing the various
micro as well as the macro factors that are surrounding the organisation. They also lead
to solving of the financial problems and helps the organisation to achieve the goals and
objectives that are being set by them. The conclusion can be made that the reporting
and system work together with each other. These are useful for the organisation in the
decision-making process as well as the establishment of control and coordination. The
management accounting is important for each and every organisation to expand and
grow in the market.
24

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