Management Accounting: A Comprehensive Guide to Techniques and Applications

This comprehensive guide delves into the intricacies of management accounting, exploring its essential requirements, reporting methods, and applications in various business contexts. It examines key techniques like cost management, inventory management, and price optimization, providing insights into their implementation and benefits. The report also analyzes different planning tools used in budgetary control, including variance analysis, zero-based budgeting, and standard costing, highlighting their advantages and disadvantages. Furthermore, it explores how organizations adapt management accounting systems to respond to financial problems, emphasizing the role of key performance indicators (KPIs) and financial governance. By understanding these concepts, businesses can leverage management accounting to achieve sustainable success.

Management Accounting
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Table of Contents
Introduction:....................................................................................................................................3
Task 1:.............................................................................................................................................4
P1: Explain management accounting and give the essential requirements for different types of
management accounting..............................................................................................................4
P2: Explain different methods used for management accounting reporting................................9
M2 &D1: apply management techniques and reporting documents. How management
accounting and reporting is integrated processes......................................................................10
Task 2.............................................................................................................................................11
P3: describe marginal and absorption costing:..........................................................................11
M2: apply techniques and produce financial reporting documents...........................................11
D2: interpretation of data:..........................................................................................................13
Task 3:...........................................................................................................................................14
P4: Explain the advantages and disadvantages of different types of planning tools used in the
budgetary control.......................................................................................................................14
M3: You should analyse the use of different planning tools and their application for preparing
and forecasting budgets.............................................................................................................16
Task4:............................................................................................................................................17
P5. Compare how organisations are adapting management accounting systems to respond to
financial problems.....................................................................................................................17
M4 & D3: how responding to financial problems, management accounting can lead
organisations to sustainable success..........................................................................................18
Conclusion:....................................................................................................................................19
References:....................................................................................................................................20
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Introduction:
As a key to success, management accounting is playing a crucial role in modern businesses.
Currently, the discussion is based on the features of management accounting to discuss that, “is
management accounting is really beneficial for businesses and if yes how?” In context with the
business of Zylla Ltd, the report includes the explanation about different management
techniques, cost techniques and budgetary control techniques to give an understanding about
these techniques so that the senior management of Zylla Ltd. can adopt these systems to gain
sustainable success for the company. Additionally, some financial problems of Zylla Ltd which
are found during the analysis of company management system and way to remove them are also
going to be discussed in this report so that the financial director of Zylla can make suitable
changes.
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Task 1:
P1: Explain management accounting and give the essential requirements for different types
of management accounting.
As a group of some analysis and reporting techniques, management accounting is a assistance for
the company managers in the decision-making process so that they can understand the internal
situation of company and external situation of the market and take gainful decisions during the
preparation of future strategy (Butterfield, 2016). It can be also defined as a set of rules which
reduces the risk of inappropriate decision-making and supports strategy making process from
start to end as an additional management specialist.
Management accounting is different from financial accounting and key differences are as
follows:
No. Management accounting financial accounting
1. Reports generated under management
accounting does not need to be
published
Financial statements made under financial
accounting are published for the use of
external parties.
2. It is used by only internal management
to understand and managethe business
situation (Wiedemann, 2014).
External and internal both parties use it to
understand the monetary situation of the
company.
4

Management accounting is a continuous process which is run by the management within an
organisationto ensure following activities:
(Figure 1: Targets of Management Accounting, 2018)
(By Author, 2018)
Management accounting plays a veryprecious role in business management and Zylla Ltd can
adopt practices this system to improve performance and quality of strategy and business process.
Various methods of management accounting are available and some of them are explained as
below:
Cost management system: Traditionally cost accounting system used by the manufacturing
companies to manage the costs related issues but In present businesses, cost accounting could be
portrayed as system approach that intends to get an affiliation's expenses of introduction by
means of assessing the facts fees of every motion of age and furthermore settled costs, as an
instance, disintegration of capital gadget (DONIZETTI, 2016). Cost accounting will initially
evaluate and document those prices simplest, by means of then balance enter occurs with yield or
actual outcomes to assist association corporation in assessing monetary execution.
Cost accounting measure the cost which are classified in flowing categories:
5
Strategy planning to make logic based strategy
Control on implementation of planed strategies
Continuous review of implementation for improvement

(Figure 2: Targets of Management Accounting, 2018)
(By Author, 2018)
Some requirements of this system:
 Recording of each cost occurs with appropriate classification because various cost
determination techniques are used in cost accounting (Savić, et. al., 2014).
 If a company is engaged in job or batch process, cost data according to each job.
Inventory management system:
A combination of some techniques which is put to use to manage and control the stock items is
known as inventory management system. In modern businesses, inventory management system
can be defined as a mixture of some software, hardware and financial management rules which
are applied within an organisation to maintain the stock items at an appropriate level because it is
necessery to run a business without any interruption (Shen, et. al., 2014). To value the stock
following methods are used under Inventory system:
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Types of
Costs
Fixed costs
Operating cost
Direct Costs
Variable costs

Figure 3: Stock valuation methods, 2018)
(By Author, 2018)
Some requirements of Inventory management system:
 Sound Physical security of stock is necessary to effectively use Inventory system.
 Annually or quarterly (if possible) physical verification for the finding of discrepancy in
the book and actual units (Viktorovna and Ivanovich, 2016).
 Continuous use of same valuation method.
Price Optimisation system:
POS is a tool for the managers of the company which helps them to understand that how
customers react towards change in the priceof the product (Yuan, et. al., 2014). The system of
price optimisation is very useful for managers as they use it to identify best price structure for
their products and services which will be accepted between customers and will be accountable
with the target of the company of sales maximisation.
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First-in
first-out
(FIFO)
Highest
in, first
out (HIFO)
Last-in
first-out
(LIFO)
Average
cost or
weighted
average
cost.

Some requirements of POS structure:
 Market trend analysis report to understand the situation of market that it is highly
growing, stable or crises (Vives, et. al., 2014).
 Study of customer base and product nature to find that is company have any monopoly
related tothe product?
 Information about past experiences in the context of sales and prices.
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P2: Explain different methods used for management accounting reporting
Management reporting works to provide useful information to the business managers to support
them in planning and decision-making process. Zylla Ltd can use it to improve its internal
information flow system. Following reports can be made by Zylla Ltd under management
reporting:
Budget reports:
The budgetreport is one of the most important reports which are made under management
accounting. Historical data of company operation and, estimations according to the market
situation is used to prepare budgets, and all items of revenue and expense are included in it to
make a plan for future activities (Sullivan, 2018).
Performance report:
It is used by the enterprise clerks to examine noticeable utilization and earnings to entirety that
has been allotted. The distinctions are organized and tested to support in selecting new spending
designs. The information in association with those wholes is sorted out with the assistance of
execution reports. These reviews are enrolled every year despite the way that there are
associations that need month to month or quarterly reviews. An official requires similar reports
to empower them to test and select the prospect of the association to the volume augments in
charges and respectively age increases.
Cost Reports:
Cost Reports assist organization clerks to enlist prices of things which are made via ordinary
statistics. Such information joins the price of factors, overheads, paintings and a few specific
expenses (Jokinen, 2017). Cost reports are a kind of organization accounting reports which have
to seem, and used to layout and watching net incomes.
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M2 &D1: apply management techniques and reporting documents. How management
accounting and reporting is integrated processes.
Management techniques have a very important role in modern business which produces a lot of
benefits if it is applied effectively. Zylla Ltd can use gain following benefits from management
system by applying techniques accurately.
Quality of planning: management system and reporting allow the managers to make sound
planning for future business activities by providing useful information. Good planning is must to
manage the business in a gainful manner (Watts, et. al., 2014). In this way, it improves the
quality of planning.
Proficient control on cost: as a main element of finance, cost control is a very important matter
for every business. Management accounting has different techniques gives depth knowledge
about the occurring structure of costs and manager of Zylla can apply this to ensure proficient
control of costs and expenses.
Performance evaluation: Management accounting and reporting involve complete information
about the efficiency of staff. Managers of Zylla Ltd can use these reports to evaluate the
proficiency of labour so that they can take action on performance below standards.
Coordination between different units: Management accounting generates a two-way
communication which enables the managers of different departments to share their data with
each other so that business can be managed effectively (Lopez-Valeiras, et. al., 2014). For
example, by studying sales report, production manager can understand the sales structure and can
manage production accordingly.
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Task 2
P3: describe marginal and absorption costing:
Marginal costing:
A system of cost measuring which is applied to find the cost of the product by including only
variable cost as the primary cost is known as marginal costing system. In this system, the only
variable cost is included in the cost of the product and fixed cost occurs are charged over the
complete period. For example, cost of direct material, labour and overhead (variable) are charged
as cost of the product and fixed overhead costs are charged as a period cost (Aurora, 2013).
Absorption costing: also it is a cost measuring method but with different assumptions.
Absorption costing involves all fixed and variable expenses as the primary cost of the product. It
means that fixed overhead costs along with variable costs are charged at the cost of the product.
Marginal costing Absorption costing
Only variable cost as product cost Variable and fixed both costs as product cost
Not acceptable as per GAAP Acceptable as per GAAP rules
Useful in budgetary control It shows the impact of Fixed cost.
M2: apply techniques and produce financial reporting documents.
Particulars ₤ amount
Material cost per unit 10
Labour cost per unit 5
variable overhead 10
fixed overhead 15
Fixed production overhead incurred 20000
Selling and administration (Fixed) 18000
Budgeted production (units) 20000
Actual production (units) 5000
Selling price ₤ 50
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Income statement (marginal costing):
Particulars Discretion ₤ amount
Sales 50*5000 250000
Less: material and labour costs 15*5000 75000
Variable overhead cost 10*5000 50000
Total expenses 125000
Contribution 125000
Less:
Fixed production overhead 20000
Selling and administration expenses 18000
Total Fixed expenses 38000
Operating Income 87000
Income statement under absorption costing:
Particulars Discerption ₤ amount
Sales 50*5000 250000
Less:
Material and labour costs 15*5000 75000
Variable overhead cost 10*5000 50000
Fixed production overhead 15*5000 75000
Total expenses 200000
Contribution 50000
Less:
Selling and administration expenses 18000
Total Fixed expenses 18000
Operating Income 32000
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D2: interpretation of data:
Profit comparison statement ₤ amount
Income reported in marginal costing statement 87000
Less:
Difference in Absorption of Fixed production overhead * 55000
Income reported in variable costing statement 32000
* Difference in budgeted production overhead and actual occurred
(15000*5000) - (20000)
Above comparison, statements show that different profit is reported by variable and absorption
costing methods. The difference is arising due to the difference in budgeted and actual
absorption of fixed overheads. In marginal costing, fixed overhead is charged as period cost so
the amount of overhead is 20000 but under absorption costing fixed overhead is charged as unit
cost so the amount of fixed overhead is 75000.
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Task 3:
P4: Explain the advantages and disadvantages of different types of planning tools used in
the budgetary control.
Variance analysis:
As a tool to compare the actual business performance with budgeted targets, variance analysis is
the very important technique of budgetary control. Managers of different organisations put it,
into use to measure their achievements on the table of budgeted figures to find that how correctly
and efficiently they achieve their aims (Milojević, et. al., 2014).
Some advantage:
Zylla Ltd can measure its performance by using variance analysis so that discrepancies can find
and actions can be taken. On the basis of departmental budget, Zylla Ltd can measure the
performance of each department to fix the responsibility of adverse difference. Analysis of
variance helps to understand the reasons for extra expenditure, in this way it is also useful in cost
control.
Some Limitations:
As accurate and complete information related to financial matters is required, to run variance
analysis, which is not available all time (Pollard, 2014). As it needs high-quality accuracy in
calculation, efficient knowledge of financial terms is required.
Zero Base Budgeting:
In modern time, zero bases Budgeting is an amazing method of budgetary manages. In this
system, each year from now spending association is made on nil bases. It should be viable in
case your surveyed wage could be same to the assessed expenses. Around at that point, the
refinement between surveyed salary and assessed prices can be zero (Nnoli, et. al., 2016). If there
is an excess, it will likely be adjusted. For instance, if the surveyed pay is more than assessed
fees, Zylla Ltd needs to extend everything or convey in new assessed fees. With this, nothing
will visit three hundred and sixty-five days from now.
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The advantage of Zero-based
• As it starts from fresh and only current year figures, accuracy level is always high in this
system.
• As it is based on actual figures and not on past data, it ensures better allocation of resources.
• It prompts the recognizing verification of possibilities and all of the more fiscally insightful
techniques for completing matters by means of clearing all of the wasteful or abundance works
out.
The disadvantage of Zero-based:
• It is a time-consuming method because requires a net effect of previous data (Heinrich, et. al.,
2016).
•Illuminating every detail and each price is a difficult errand and calls for putting in the
overseers.
Standard costing: As a method of some rules and assumptions which are applied by the
corporates to find a logically estimated level of possible revenues and costs of a business is
knows as standard costing. We can say that standard costing is a process which put to use to
measure the standards appropriate for the purpose of budgeting.
Some advantages:
Standard costing is must to make the budgets and, Finance manager of Zylla can apply it, to
evaluate apposite standards. As it marks the reasonable level of every spending, it is useful to
control extra costs (Ocneanu, L. and Bucsa, 2012). By the use of standard costing Suitability of a
project can be found at any time because the reasonable level of expense is available all time.
Some Limitations:
 Standards are made on estimation which is not appropriate if the market condition gets
changed.
 Risky, because Wrong estimated standards affect the complete business process.
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M3: You should analyse the use of different planning tools and their application for
preparing and forecasting budgets.
Identification of weakness and strengths:
Tools of budgetary control are used to analyse the complete working structure of the business.
By applying these techniques, Zylla limited can find strong and weak Areas of working, to find
that where the company is doing well and where bad (Aurora, 2013). The areas where it is doing
well can be improved by providing extra attention to take competitive advantage and the areas of
weakness can be studied, find reasons and make a remedialaction.
Evaluation of performance:
A planning tool and techniques of budgetary manipulates like variance examination is proven to
coordinate the exam of execution efficiency (Heinrich, et. al., 2016). Basically, change exam is
utilized to inspect the qualification among arranged and sincere to goodness outcomes of
business practices and in mild of this exam; a corporate could locate manners of thinking in
helpfulness.
The logical base of estimation:
As budgetary manage tactics are used to separate spending designs, it gives primary facts about
the limit and aid availability of affiliation. These records can be used to make real estimations for
spending designs so the executive of Zylla Ltd can effect efficient to the spending design.
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Task4:
P5. Compare how organisations are adapting management accounting systems to respond
to financial problems.
To respond financial issues, management accounting gives several techniques which are very
corporative, easy to use and effective to respond to financial issues. Problems like fund crisis,
performance lack can be managed through these techniques and some of them are described
below:
Key performance indicators: KPI’s are those indicators which are applied to measure the level of
performance of an organisation to see that how effectively the organisation is working to achieve
its aims (Piela, 2017). In the context of Zylla Ltd, It can be utilised to measure the success rate of
the company by analysing the actual achievements from standards. For example, if a company
wants to find its short-term solvency, it can use financial KPI to find the level of solvency.
Role of KPI in problem-solving:
KPI plays an important role in the solving of financial problems. The main reason of financial
problems is low performance and KPI can be used to measure the performance of Zylla Ltd on a
monetary and non-monetary basis so if there is any discrepancy, finance director of a company
can take strategic action (Gabcanova, 2012). Additionally, KPI highlights the future problems
and opportunity by analysing historical data so that management of an entity can understand the
warning and take preventive action.
Financial governance:
Financial governance can be described as a set of legal rules and notifications which are issued
by the governing authorities to regulate the process of financial governance within the
organisation. As a multinational company, it is possible that management of Zylla Ltd does not
disclose correct information and in this way, their acts may affect the interest of shareholders in a
negative manner (Chey, 2015). Financial governance works as a safeguard for external interest-
holders of business for this type of acts.
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M4 & D3: how responding to financial problems, management accounting can lead
organisations to sustainable success.
As planning tool is necessary forthe modern scenario to gain assured success, Zylla limited
should apply management techniques correct manner. Following points describes that how
management accounting is beneficial to solve financial issues:
Strategic Planning: Planning is most important part of business management because acts of
business are done according to the planned strategies(Barbosa, et. al., 2014). Management
accounting allows production of several types of management reports which can be utilised by
the Zylla Ltd to make a plan according to the targets.
Risk evaluation: evaluation of risk is another important part of business management, and
techniques of management system can be applied to evaluate the risk contain the business project
(Gabcanon, 2012). As management system practices are associated with activities of the business
in a whole way, it gives pre-indications about the possible financial risks which can be
eliminated by taking required steps.
Fund Management: inappropriate fund allocation is a big reason for financial problems and this
situation can be eliminated by applying management techniques suitably. Management practices
give complete knowledge about the future fund needs and fund inflows which can be used to
manage the available fund as per planned strategy.
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Conclusion:
On the basis of above report, it can be said that management accounting becomes an essential
part of modern businesses. The report says that management accounting and its techniques
covers a wide area and generates numerous benefits for the business. As it helps to resolve
financial problems we can say that management accounting prevents financial problems.
Discussion about Costing system is another important part of this report because the cost is
directly associated with profits and two methods of cost measurement is included in this report.
Some techniques of budgetary control are also elucidated in this report and after the complete
study of this report, finance head of Zylla Ltd will be able to understand weak points of company
management system and by removing that, the company will gain sustainable success in the
market.
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