Management Accounting: A Comprehensive Guide to Financial Success

This comprehensive guide explores the fundamentals of management accounting, covering essential concepts, techniques, and applications. It delves into cost analysis, budgeting, and financial reporting, providing insights into how organizations can leverage management accounting to optimize performance, solve financial problems, and achieve sustainable success. The guide examines various planning tools, including standard costing, cash flow analysis, and cost accounting, highlighting their advantages and disadvantages in the context of budgetary control. It also analyzes how organizations adapt management accounting systems to respond to financial challenges and achieve long-term growth.

Unit – 5
Management Accounting
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Contents
Introduction:...............................................................................................................................4
LO1............................................................................................................................................5
P1. Explain and give its essential requirements.....................................................................5
P2. Different methods used in management accounting reporting........................................6
M1. Benefits and their application within an organizational context....................................7
D1. Integration of management accounting systems and management accounting...............8
LO2............................................................................................................................................9
P3. Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costing..................................................................9
M2. Apply a range of management accounting techniques and produce appropriate
financial reporting documents..............................................................................................11
D2. Produce financial reports that accurately apply and interpret data for a range of
business activities.................................................................................................................12
LO3..........................................................................................................................................13
P4. Advantages and disadvantages of planning tools used in the budgetary control. [M3].13
LO4:.........................................................................................................................................16
P5. Compare how organisations are adapting management accounting systems to respond
to financial problems............................................................................................................16
M4. Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success.....................................................................................17
D3. Critically evaluate how planning tools for accounting respond appropriately to solving
financial problems to lead organisations to sustainable success..........................................18
Conclusion:..............................................................................................................................19
References:...............................................................................................................................20
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Introduction:
Being the management accountant of the Zylla company, which is the large multinational
organisation undergone with a number of changes over some time. The major change which
has occurred is in the acquisition, locations, and restructuring so the company wants to
manage the accounting. In this report, the manager has explained about the management
accounting systems and the management accounting techniques which help in ascertaining
the cost of the company. The report also includes the different management accounting tool,
budgetary control system and forecasting budgets. The report also gives the brief description
about the marginal and absorption costing which is the important technique to analyse the
cost. The report also states how the management accounting helps in solving the financial
problems. Planning tools and management accounting techniques maintains the proper
accounting of the company and helps in increasing the growth of the company. The report
also explains the benefits of the management accounting and budgetary control system.
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LO1.
P1. Explain and give its essential requirements.
Management accounting
The procedure of preparing management accounts and reports which are used by the
managers of the firm to make the decisions. These systems guide the managers of Zylla
company in the process of decision-making and improve the effectiveness of the decision-
making process. These systems can be used by the managers at the top and also the managers
at the ground level who takes the day to day decisions in the firm (Hilton and Platt, 2013).
Essential requirements of management accounting systems
The style of management
It means the autonomy allowed in the Zylla company. As for different organizations,
different powers are delegated, this changes the use of management systems. In an
organization where autocratic style is followed the company’s top management requires more
information and in the company following democratic system that s from bottom to top the
lower level managers require more information. This changes the requirement of
management accounting systems (Ward, 2012).
The organizational structure of Zylla Company
The organizational structure affects the system, if the company has a vertical system then
managers will require narrow information but in much depth, whereas in horizontal
organizations a lot of information will be required but in simple terms.
Information quality
The information collection process in the organization can be different and also the quality of
the information collected. If the information s collected randomly and is less reliable it will
be used accordingly and on the other hand, if a deeper analysis has been made then the
information will be analyzed in a more sophisticated manner (Dale, 2015).
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5

P2. Different methods used in management accounting reporting.
Cash flow analysis
Cash flow statements are used for analyzing the inflow and outflow of cash and cash
equivalents in an organization (Reid and Myddelton, 2017). This system is used for the
purpose of knowing the situation of cash in the organization. It offers valuable insights into
cash position and how they were earned. It also helps the managers in their decision-making
process. These statements ensure the proper cash flow for the firm and prevent ant future
financial crises. It further ensures that the liquidity of the firm is maintained so that
unforeseen expenses can be met (Drury, 2013).
Management Information System (MIS)
MIS is a computer-based system where all the financial information of the company is stored
in digital format. This enables the managers of the company to access the information in an
organized manner. This system enables the managers to have complete access to the
information and make the decision in an effective manner. This increases the overall
productivity of the firm and enables the firm to increase its profitability. It also eases the
work of managers as they can find all the important information in one single place. This
system further helps the top management to monitor the performance of the firm.
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M1. Benefits and their application within an organizational context.
Benefits
This system helps the managers of the Zylla company in the process of decision making and
also assists in preparing budgets and implementing them in an effective manner this improves
the overall efficiency of the budget-making process I the organization. This system increases
the productivity of the firm by ensuring proper control of the process in the firm. It also
improves the profit-making capacity of the firm by reducing the costs and regularly
monitoring them. Finally, this system improves the overall functioning of the organization by
providing the manager’s in-depth information about the organization and improves the
quality of their decisions and by effectively monitoring them it also prevents variances
(Yalchin, 2012).
Application
This system is used by the managers for making decisions in a scientific manner. This system
helps the departments of Zylla Company to work in harmony as the responsibilities are
properly delegated. This system improves the level of inventory of the firm. By regularly
notifying managers about the future shortages and reorders the system helps to manage
optimum inventory levels and prevent any future shortages, this ensures regular supply for
production department. This system can be used by the organization in multiple dimensions.
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D1. Integration of management accounting systems and management accounting
reporting in the organizational process.
This system can be used by Zylla Company by, first of hiring staff that will help the firm to
implement the system. This includes accountants and computer operators. The accountants
will help the firm to use cash flow statements, cost accounting, standard costing, marginal
costing, etc. The computer operators will help the firm to implement management
information system and monitoring the above-mentioned systems (Taipaleenmäki and
Ikäheimo, 2013). This system also requires cooperation from the managerial staff as the
system is based on the contribution from the departmental managers. This system is having
many spheres and can be implemented at different levels. It only requires coordination among
various departments for its implementation. In simple words, the process is the training of
employees, setting up of cost centres, integration of cost data and introduction and using the
management accounting techniques in the organization.
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LO2.
P3. Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costing.
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10

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M2. Apply a range of management accounting techniques and produce appropriate
financial reporting documents.
Differentiate management accounting techniques helps in producing the appropriate financial
reporting. In this report, the manager has explained the two essential management accounting
techniques such as Marginal costing and Absorption costing.
Marginal costing: Marginal costing basically called the variable costing only. Marginal cost
is the cost which is charged to the variable cost and it is the one additional unit of an output.
In marginal costing fixed cost remains same at each level of unit and variable cost changes as
per the change in the unit cost. Fixed cost is treated as the period cost of the company
whereas the variable cost is treated as it changes as per the outcome changes. Marginal
costing is the technique which helps in taking the decision of the company Zylla. The
marginal cost emphasises on the changes which have occurred and helps in considering the
decisions of the company. This technique is essential as it critically evaluate the allocation of
resources for the better results. Marginal cost is also known as the average cost of the
company and it is consist of direct labour, material and direct expenses and variable
overheads. Marginal cost also helps in controlling over expenditure, recovery of overhead,
short-term planning of profit and shows the profits which are realistic (Nawaz, 2013)
Absorption costing: In absorption costing we calculate the overhead expenses which is also
as indirect expenses and direct cost. Absorption costing means all the cost which is absorbed
in manufacturing cost which is produced by per units. It is the cost of the finished goods of
inventory and also includes the direct material, labour and manufacturing overhead expenses
of both fixed and variable. In absorption costing all the expenses are determined as the basis
of function. Absorption costing is the predetermined cost of the company which evaluates the
value of the manufacturing cost. This technique helps in determine the products selling price.
This method of costing is widely used in ascertaining the cost (DRURY, 2013).
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D2. Produce financial reports that accurately apply and interpret data for a range of
business activities.
The financial report of the management accounting tool of marginal and absorption is
different in the reconciliation statement. Reconciliation statement is the financial accounts of
the company which shows the ascertainment of the cost of the whole year and also shows the
financial position of the Zylla Company. The reason for the difference in the amount of the
both is that marginal costing takes both the cost fixed as well as variable but the absorption
costing takes the manufacturing expenses also such as administration and selling and
distribution overhead. The difference is because inventory is taken into absorption and
marginal focus on the variable cost (DRURY, 2013).
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LO3.
P4. Advantages and disadvantages of planning tools used in the budgetary control.
[M3].
There are a number of planning tools used in the process of budgetary control. These tools
assist in preparation and forecasting of budgets. They are –
Standard Costing
Standard costing is a system where standards are set for each product that is standards for the
cost to be incurred these standards could be based on past experience or industry averages.
These systems help managers in controlling the costs of the company by comparing the
actuals with standards (Drury, 2013).
This system has a number of advantages it helps the managers of the company to keep a
check on the costs of production, it informs the management about the cost which is industry
averages and hence to compete with others the firm must maintain its costs below the
standards set. This system helps the firm to improve its profitability and increase its
productivity by meeting the standards set. This system increases the effectiveness of
decision-making process in the Zylla Company. This system also suffers from a number of
disadvantages though the standards set help the managers in improving the performance the
standards are not always desirable and at times can be detrimental for the firm. If standards
are set at a lower criterion than what a firm is already following than it will not help the firm.
Additionally, standards are mere targets they do not have any guidelines to achieve them, this
leaves much of the work on the managerial discretion which increases biases in the decision-
making process.
Standards costing help managers of the firm to forecast and prepare budgets. It provides
managers about the information from different firs main the industry and helps in setting the
targets for the following year. Secondly, the system helps the managers to compare the
information of firms in the industry and improve the forecasting process. This swill improves
the competitiveness of the firm. Finally, the system increases the effectiveness of setting
targets and thereby improving the budget-making process.
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Cash flow analysis
These statements show the cash inflow and outflow of the firm for the period for which they
are prepared. As this system is not based on accrual principle these statements only record the
transactions which are done in cash which paints the accurate picture of cash balances of the
firm (Drury, 2013).
It helps the management of the firm to make decisions regarding various investments and
know whether the firm has the resources or not. This system increases the effectiveness of
decision making regarding the cash projects. The system also faces a number of
disadvantages; this system can be manipulated by the managers by delaying the payments for
goods and services or buying the good on the lease. As these situation do not affect the cash
balances this will represent the incorrect picture of the firm. The cash flows are prepared on
the basis of historical cost and because of this, it fails to assess the future cash flows
(Yalchin, 2012).
This system increases the effectiveness of forecasting as future plans can be made based on
the cash flows of the firm. This helps the firm in the allocation of resources in an effective
manner. It also helps the firm to decide the future cash flow requirements for meeting the
working capital requirements and the firm can manage for finances in advance and prevent
any financial crisis. This also assists in the overall process of budget making.
Cost accounting
This system is used for controlling cost in the organization. It regularly monitors the costs
incurred and makes the suitable adjustments and reduces the overall cost of production. It sets
targets and regularly monitors the variances form the targets (Drury, 2013). This helps the
management of the company to maintain the costs and increase the overall profitability of the
firm. Further, the system helps the managers to achieve the targets effectively by making sure
the variances are recognized in time and corrective action is initiated. This system aims to
reduce per unit cost of production thereby helps the managers to produce goods and services
at lowest possible cost. This system suffers from a number of limitations, thought across
accounting helps the managers to reduce the costs but at the same time, the implementation of
the systems also requires investment ad if the exceeds the benefit series then this system
instead of reducing costs increases it. This system is based on estimates and if estimates turn
out to be wrong then it can reduce the effectiveness of costs control (Yalchin, 2012).
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The cost accounting system helps the managers to forecasts the costs and prepares the
budgets of the organization. This system improves the efficiency of budgets by regularly
monitoring the variances form the budgeted targets. This system eases the process of budget
making and improves the overall effectiveness of the budget implemented. It allows keeping
the costs in control and thereby means the purpose of budget making that is reducing costs
and increases the profitability.
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LO4:
P5. Compare how organisations are adapting management accounting systems to
respond to financial problems.
Many organisations and companies adopting the management accounting systems to respond
to the financial problems because management accounting tools give the proper solution to
the problems related to finance. Management accounting gives the information of the
financial data with the help of different accounting tools. It gives us the [proper information
on the cash flows available in the organisation and also about the financial position of the
company. Management accounting tools help in making the budget regarding the future and
also assist in planning the outcomes. It also makes policies and formulates the procedures
regarding the future. Management accounting also helps in giving the solution of the
problems related to strategic business. Management accounting system helps in controlling
the performance of the company and also helps in organising the finance of the company
properly. Management accounting coordinated the different activities and operations which
help in solving the financial problems.
Some organisation adopts marginal costing to determine the cost of the company some
organisations adopt absorption costing because it includes all the cost of manufacturing such
as selling distribution and administration cost. Management accounting gives the proper
monetary information of ay organisation. Management accounting gives the information
about the future related projects and plans and also about the investors which helps in
supporting the report of the finance. Budgeting and operational planning help in formulating
the policies related to finance. The financial problems can be solved by the management
accounting by adjusting the budget and reducing the expenses and losses of the company and
increasing the profits and revenues of the company. The financial problem can also be solved
by setting a goal of the company and try to achieve that target anyhow. Management
accounting also helps in preventing the challenges of the company which is related to finance
and also ensures to overcome the problem of finance (Kerzner, 2017).
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M4. Analyse how, in responding to financial problems, management accounting can
lead organisations to sustainable success.
The organisation is facing many problems but the management accounting guide the
organisation to achieve the sustainable success such as (Burritt, 2014)
 If the accountant identifies the financial problem of the company that is impacting on
the organisation ability then the company can lead to the success over time.
 The organisation has to face the challenges and related to the company’s strategy,
model and with their performance.
 Analyse the impact of sustainability issues and their effect on the business
environment. It helps in dealing with the sustainable goals and also the financial
problems.
 Management accounting tools and techniques help in taking the decision process of
the company and also plan a budget which helps in leading to the sustainable success.
 Management accounting prepares the data for every transaction and data and gives the
information about the investment plan, and the pricing policies.
For the sustainable success of the company, the manager needs to find out the present
security and preserving of the company. For the sustainable development of the company, the
manager needs to find out the needs of the customers and fulfil that with the quality product.
By solving the financial problems of the company, and analysing their strength in the
business leads to the sustainable success (Kerzner, 2017)
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D3. Critically evaluate how planning tools for accounting respond appropriately to
solving financial problems to lead organisations to sustainable success.
Planning tools of the company help in solving the financial problem of the organisation that
leads to the sustainable success of the organisation. Planning tools analyse the problems that
occur in the business and gives the solution to respond to them. Planning tools are essential
for the company as it gives the estimation of the future and also helps in making a plan for
the future. Planning tools helps in maintaining the cash flow of the company. Budgets and
budgetary control helps in solving the financial problem of the organisation. If the company
wants to reduce the financial problem then they have to maintain the management accounting
tools as it gives the picture of the financial position of the company. By reducing the
expenses of the company and increasing the profit of the company we can meet to the
essential needs which also lead to the sustainable success of the organisation. Planning tools
not only helps in taking the decisions of the company but also ensures the sustainable growth
which is very essential for the company (Burritt, 2014).
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Conclusion:
Management accounting is very essential for every company whose business is expanding
day by day. Zylla Company is expanding widely and increasing the growth and profit of the
company. In this report, the management accountant has explained how the management
accounting techniques and planning tools help in reducing the financial problems. The report
explained the marginal and absorption costing and their importance in the company. The
manager has also explained the different management accounting tool which is used in the
company and their advantages in the company. The report includes the process of the
organisation leads to achieve the sustainable success of the company. It is explained that how
management accounting helps in increasing the overall performance of the company and
solving the financial problem of the company which helps in not only in achieving the goals
of the company but also increase the growth of the company.
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References:
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