Management Accounting Techniques and Tools

The report concludes that management accounting is a key part for internal management of any organization. It highlights different kinds of accounting methods like cost accounting system, inventory management system, etc., which help in various functions. The report also discusses the income statement of the selected organization using marginal and absorption costing methods, as well as the role of management accounting techniques in solving financial issues.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
TASK 1............................................................................................................................................1
P1 Role of management accounting and essential requirements of different types of
management accounting systems.................................................................................................1
P2 Different method of management accounting reporting:........................................................3
M1 Benefits of management accounting systems:.......................................................................4
D1 Management accounting system and reporting are integrated within the organisation
process..........................................................................................................................................4
TASK 2............................................................................................................................................5
P3 Use of management accounting techniques to improve the costing techniques.....................5
M2 Management accounting techniques to produce management accounting reports...............7
D2 Management accounting reports that apply in a range of different business activities.........7
TASK 3............................................................................................................................................7
P4 Planning tools used in the management accounting...............................................................7
M3 Use of different planning tools and their application for preparing and forecasting budgets.
......................................................................................................................................................9
TASK 4............................................................................................................................................9
P5 Comparison of different management accounting techniques to resolve the financial issues.
......................................................................................................................................................9
M4 Management accounting method to respond the financial problems..................................11
D3 Different budgets of planning and controlling can be used to solve the financial issues that
can lead in achieving the sustainable success............................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
The management accounting or managerial accounting is defined as the process of
analysing, examining, classifying, recording and reporting of useful financial information into
annual account so that complete position of company performance can be determined (Ward,
2012). In present business scenario, it is the responsibility of internal manager to make authentic,
appropriate and timely report that support in making decision and improving overall
profitability.. In general term, the procedure of analysing cost related to business operation that
aid to prepare internal financial reports, accounts and records that further helpful for manager in
decision making process so that desired goals and objective can be attained. To better understand
the important of management accounting Continental Clothing Company Ltd has been selected.
The respective company was established in the year of 1998. It is a manufacturing and designing
company of cloths as well as distribute the cloths in the garment decoration industry.
In this report, various management accounting system and report with there essential uses
have been discussed. The report also cover various accounting techniques that are used to
prepare different report for an organisation. Additionally, the report also discuss the use of
different management planning tools and methods that help to resolve various kind of financial
problems.
MAIN BODY
TASK 1.
P1 Role of management accounting and essential requirements of different types of management
accounting systems.
Role of management accounting system-
In present business scenario, the concept of management accounting mainly includes
collecting, analysing and reporting of useful financial information that are relevant to operation
and finance of a company(Kaplan and Atkinson, 2015). These reports are further handed to
internal manager of each department so that profitability, productivity and performance can be
improved for upcoming period. The role of management accounting systems are mentioned
below:
 Helps to analyse margin: It supports in identifying the exact amount of cash inflows and
outflows that is generated by business form a specific product or operations.
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 Helps in material requirement planning- The management accounting system plays a
significant role for planning the needed raw material for production. Like inventory
management system can help in the estimating requirement of material. The Continental
Clothing Company Ltd can use management accounting system for analysing their raw
material need.
 Helpful in effective decision making- The management accounting system plays a
significant role in the effective decision making. This is possible because it provides
internal reports to the managers that becomes basis for decision making.
Different management accounting system and their requirement-
The management accounting is categorised into different parts and each part has own
importance in the aspect of the organisation(DRURY, 2013). The Continental Clothing
Company, use a wide range of management accounting system for effective management of
functions. Herein, some types of management accounting systems are mentioned below:
 Price optimisation system- The price optimisation system is a kind of accounting system
that is related to determining right price of products and services. Eventually this
accounting system offers a kind of framework that is beneficial in analysing the
perception of the customers at different pricing level. As well as due to the system of
management accounting, organisation can judge about the pricing of products and
services. Eventually, this accounting system is required for price assigning. Herein, the
Continental clothing company they use this system of assigning the price of
manufactured cloths.
 Inventory management system- The inventory management system is a type of
management accounting which is related to the effective management of raw material and
prepared stock in the warehouses. Due to this system, companies can check the
movement of raw material in entire production process. Additionally, inventory
management system is required for analysing the quantity of raw material and finished
goods in the warehouses. The Continental clothing company use this system to check
the raw material(flax, wool, silk, denim) for production of cloths. As well as because of
this system, they are able to make effective purchase of new raw material. Apart from it,
company can keep an extra site of eye on the available finished clothes in the stores and
they manufacture new stock accordingly.
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 Cost accounting system- The cost accounting system is also known by the product
costing system. Due to accounting system, companies can estimate the cost of products
and services. Eventually, this provides a basis that helps in analysing the exact amount of
cost that occurs during the manufacturing process (Otley and Emmanuel, 2013). Cost
accounting is required for evaluating the profitability by comparing selling amount with
the total cost. In the Continental clothing company, they use this system for computing
overall cost of the manufacturing of cloths which becomes a basis for further activities
(profit analysing, cost control). The cost accounting system is categorised into two parts
which are as follows:
Process costing system- As the name assists, it is a type of costing system which evaluate
cost in each manufacturing process. This is helpful for above company for calculating cost at
different process.
Job order costing system- The job order costing system is related to the accumulating the
manufacturing separately for each job. The Continental clothing company, can compute the cost
of each job which is assigned in the manufacturing process.
P2 Different method of management accounting reporting:
Management accounting reporting is a method of making reports on the basis of
information provided by various management accounting system. The Continental clothing
company, prepares different type of reports on the basis of financial and non financial
information that is offered by accounting system. Herein, some reports are mentioned below:
 Budget reports- The budget reports are those reports which are useful in measuring the
actual performance by comparing actual revenue and costs with the standards(Renz,
2016). This report enables companies in evaluating their actual performance. The
Continental clothing company, make this report for comparing their actual cost with the
budgeted cost as well as to compare actual revenue with the estimated revenues.
 Inventory cost reports- Inventory cost reports contain information regarding to the
different inventory costs (ordering cost, carrying cost) and availability of raw material,
finished goods in the stores. Due to these reports organisation can evaluate about how
much quantity of raw material and prepared stock is stored in warehouses. The above
manufacturing company use this report in managing the cost of inventory and for
checking the availability of raw material for the manufacturing.
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 Cost managerial accounting reports- The cost managerial accounting reports includes
information like labour cost, material cost and other costs which occur in the
manufacturing process. Due to this report, companies can check about the amount of
different costs as well as can control the cost. The Continental clothing company makes
this report to know about the different costs in manufacturing of cloths.
M1 Benefits of management accounting systems:
Management accounting systems are beneficial for different functions of the organisation
(Banerjee, 2012). Herein some advantages of different management accounting systems are
mentioned below:
 Advantage of price optimisation system- This system is important for assigning the right
price of products and services. The Continental clothing company use this system for
determining accurate price of the manufactured cloths.
 Advantage of inventory management system- It is beneficial in the effective management
of raw material and finished goods in entire supply chain system. The above company
applies this system for analysing the availability of raw material in their stores and they
make purchase for new stock accordingly.
 Advantage of cost accounting system- The cost accounting system is important for
computing the overall cost of manufacturing. This system is beneficial for the
Continental clothing company in checking the cost of manufacturing of cloths. As well as
due to this system, they can check their profitability.
D1 Management accounting system and reporting are integrated within the organisation process.
Management accounting system and management accounting reporting, both are related
with other. Eventually, in the absence of management accounting system it is difficult to make
the reports because all the needed information (financial and non financial) is received from the
different accounting systems (Maas, Schaltegger and Crutzen, 2016). For example Continental
clothing company prepares accounting reports like budget reports, inventory cost reports etc.
with the use of various accounting systems including inventory management system, cost
accounting system etc. Basically their combination with each other is integrated with the process
of organisation.
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TASK 2.
P3 Use of management accounting techniques to improve the costing techniques.
Absorption costing method- The absorption costing method is a type of costing method in
which fixed and variable costs are considered as the product cost (Kotas, 2014).
Marginal costing method- The marginal costing method is a kind of costing method in
which variable costs are considered as the unit cost and fixed cost as the period cost.
Summary of financial data- The Continental clothing company has the standard cost for
year 2018 which consists following cost: direct labour of £15, direct material of £18 and variable
production overhead of £9. Additionally, fixed production overhead per annum is of £75000.
This overhead is calculated on the basis of budgeted output of 22000 units. The actual cost is
similar to the standard cost.
Selling and distribution overhead are as follow: fixed are of £180000 and variable are
10% of the sales value. The selling price is of £95 per unit and company's production in the
2018, is of 5000 units. They sell the 4500 units in that year.
Income statement of Continental clothing company for the year ended 2018 as per
marginal costing:
Interpretation- The company is earning the net profit of £150750 in the 2018 and their
sell is of £427500 by selling 4500 units @ £95 each. Their variable cost is of £252750 and
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contribution is of £195750 which is deducted by fixed expenditures(£45000) to calculate the net
profit.
Income statement by absorption costing method:
Interpretation- The Continental clothing company is generating the net profit £157550 by
the absorption costing method in 2018. The selling amount is the same as in the marginal costing
method. Their cost of goods sold (COGS) is of £231750 which is deducted from the sales
amount to calculate the gross profit at normal. Further, gross profit at actual (£202550) is
calculated by adding the under absorption amount of £6800 in the gross profit at normal. As well
as fixed cost of £45000 is deducted from the gross profit to get the net profit.
M2 Management accounting techniques to produce management accounting reports.
Management accounting techniques are useful for preparation of the accounting reports.
Like in the Continental clothing company they have used the marginal and absorption costing
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techniques to prepare the income statement (Chenhall and Moers, 2015). Both the accounting
techniques are being used by the company for the year 2018 to produce the income statement. So
it states that management accounting techniques are useful in making the various kind of
accounting reports.
D2 Management accounting reports that apply in a range of different business activities.
Management accounting reports are useful in providing the result of the all the business
activities. Herein, the Continental clothing company they make the income statement by
absorption and marginal costing method (Herzig, Viere, Schaltegger and Burritt, R2012). Their
net profit in the marginal costing method is of £150750 and in the absorption costing method net
profit is of £157550. So in both techniques company is gaining the net profit. Hence it shows that
management accounting reports are useful in concluding the actual result of different business
activities.
TASK 3.
P4 Planning tools used in the management accounting.
Advantages and disadvantages of different planning tools of budgetary control.
Budgetary control may be defined as a type of controlling process which is related to the
setting of financial and non financial goals. After this, it compares the actual result with the
estimated targets. Due to this control technique, companies can assess the actual performance of
different activities. There are different kind of planning tools of the budgetary control some of
them as mentioned below:
 Static budget- This is also known by the fixed budget. It is a kind of budget that does not
change due to change in the sales and volume. Eventually, this budget does not flex in
relation to increase and decrease in the sales (Messner, 2016). The Continental clothing
company makes this budget for those activities which are going to be fixed in a particular
time period. Herein, advantages and disadvantages of this budget are mentioned below:
Advantages- This type of budget does not require any update during the budgeted time
period, due to this it becomes easy for the managers to focus on the important activities.
Additionally, the information of the static budget can easily track because this budget does not
change. The Continental clothing company takes the mentioned advantages by making this
budget.
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Disadvantage- The static budget has the disadvantages like complexity in understanding
about the budget. As well as in some situations, companies need to update their budget due to
huge change in the sells but this budget prevents to the companies for making any changes. The
above mentioned company faces these issues when they implement the static budget. Like if they
make this budget for a particular time period and during that time period company's sales
increases then it becomes difficult for the company to make change in this budget.
Zero based budget- The zero based budget (ZBB) is a type of budget that is made from
the zero base and it does not consider the past budget's information. Eventually, in this type of
budget each activity has its justification before entering in the budget. This budget includes
important activities which can impact to the financial performance of the company. The
Continental clothing company makes this budget for those activities which are crucial for the
company. The advantages and disadvantages of this budget are mentioned below:
Advantages- The main advantage of this type of budget is that it brings fairness and
accuracy in the budget by making process because each activity has its justification. As well as
this budget focuses on the efficient use of available resources. If above mentioned manufacturing
company use this budget then it would be beneficial for them in making effective use of
resources in the manufacturing process and their budget will be accurate.
Disadvantage- Though this budget is beneficial for the companies but it has some
drawbacks like it takes too much time because it starts from the zero base. Same as zero based
budget making is a complex process, it can be made by those organisations who have enough
knowledge of it.
Flexible budget- Flexible budgets are those budget which flex as the change in the sales
and volume. Generally, this budget is easy to use because it allows users to make needed changes
due to change in sales or other activities(. Bobryshev, Tatarinova, Grishanova and Frolov, 2015).
Flexible budget is also known by the variable budget because of its nature of change. The
Continental clothing company makes this budget for long time period so that they can make
suitable change as per the change in the volume of production or sell. Same as the other
mentioned budget, this budget has some advantages and disadvantages which are as follows:
Advantage- One of the key advantage of this budget is that it is easy to use because it can
be change as sales and other factors flex. As well as flexible budget is stressless budget. The
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Continental clothing company prepares this budget and make the change if their sell and
manufacture increase or decrease.
Disadvantage- The disadvantage of flexible budget is that it enables cheating. This is why
because company can manipulate the estimated data according to their suitability. As well as in
some conditions, this budget becomes difficult to understand due to more changes in every
month. The above company face the issue of complexity of this budget. Additionally, due to
more changes it becomes tough for the company to evaluate the actual performance.
M3 Use of different planning tools and their application for preparing and forecasting budgets.
There are different kind of planning tools of the budgetary control which are useful in the
making of budgets. The Continental clothing company, use various kind of planning tools like
zero based budget, static budget and flexible budget and due to these budgets they accurately
forecast the other budgets. This is why because all the required information are being provided
by different types of planning tools of the budgetary control. Basically, in the absence of these
planning tools, it will be difficult for the above company to make the budgets because planning
tools act as the base of forecasting.
TASK 4.
P5 Comparison of different management accounting techniques to resolve the financial issues.
Financial issue- Financial issues are those issues which arises due to lack of financial
resources in the organisations (Adler, 2013). There are many factors which are the reason of
financial problems. Due to these financial issues companies face many problems because finance
is the key to run all other functions. Herein, some types of financial issues are mentioned below:
 Increasing in debt due to many loans- It is a kind of financial problem in which
organisation do not have enough cash or fund to pay their liabilities. In this situation,
company face many other problems because of low fund.
 Spending more then income- This financial issue arises when company spends more cash
and earns low. In this situation, organisation makes expenditures on different activities
but they get lower revenue in compare to expenses.
So these are the major financial issues which are faced by the companies. There are many
management accounting techniques which are useful to overcome from the financial issues.
Herein, some accounting techniques are described below to resolve the financial problems:
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 Benchmarking- It is a kind of technique which is related to comparing the process and
policies of company with other companies of the environment. Eventually, this is
beneficial in adopting the best policies by comparison.
 Key performance indicator- The key performance indicator (KPI) is a kind of framework
that analyse about how effectively an organisation is achieving their goals. Basically, this
tool is useful in focusing on those activities which are high performing.
 Balance scorecard- The balance scorecard is a kind of performance measurement
framework which translate an organisation strategies into clear objectives. Due to this,
employees can be aware about the organisation's goals and objectives.
 Financial governance- Financial governance may be defined as a process in which
company collects, manage and monitor the financial information.
Herein, comparison of Continental clothing company and Sew port is mentioned below:
Basis Continental clothing company Sew port company
Financial
problem
The company is facing the financial
issue of lower earnings in compare to
expenditures. Eventually company is
investing in the different segment of
production of cloths but overall revenue
is less in compare to total cost. Due to
this they are getting the major issue of
lower fund for their other functions.
The Sew port company also deals in
the manufacturing of the clothing
products. They are facing the
financial problem of the lack of fund
to pay their creditors. The reason of
this issue is that they do not have the
enough cash.
Techniques On the basis of their situation, their
problem can be solved by applying
“Benchmarking”. This is a kind of
approach which compares the policies
and plan of a particular company with
the other successful companies of the
competitive environment. If above
company implements this technique
then it will beneficial for them to adopt
In this situation, their problem can be
solved by implementing the “KPI”. It
is a kind of technique which analyse
about which activities are beneficial
for the company. If above company
applies this technique then it would
be easy for them to overcome from
their financial problem. This is why
because due to this technique they can
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the right production process for the
manufacturing of cloths and it can help
in reducing the overall cost of
production. As well as due to this, their
production process can be enhance. So
this technique can help to the company
in overcoming from the financial issue.
focus on those activities (financial
and non financial) which are
profitable for them. As well as if they
invest in profitable activities then
their revenue may increase and they
will be able to pay their creditors
easily.
M4 Management accounting method to respond the financial problems.
The management accounting methods and techniques are useful in solving the financial
problems which may occur due to many reasons. Like in the Continental clothing company, they
use benchmarking techniques to resolve their financial issue of spending more then income. As
well as the other comparing company also use the KPI technique to solve their financial problem.
So it shows that management accounting methods are useful in solving the financial issues.
D3 Different budgets of planning and controlling can be used to solve the financial issues that
can lead in achieving the sustainable success.
The planning tools for planning and controlling can beneficial in solving the financial
problem of the organisation(Edwards and Boyns, 2012). This is why because these budgets
consist all the needed information to solve the financial issues. Like in the Continental clothing
company they use different budgets like zero based budget, static budget etc. to solve their
financial issues. This is why because these all budgets have the financial information that may
become the basis of problem solving. If organisation is able to solve their financial problem
effectively then it can lead in gaining the sustainable success.
CONCLUSION
From above project report it has been concluded that management accounting is a key
part for internal management of any organisation. This is why because it consists different kind
of accounting methods like cost accounting system, inventory management system etc. All these
accounting methods help in various functions. As well as this report concludes about the income
statement of the selected organisation with the use marginal and absorption costing method.
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Apart from it, report states about various planning tools like ZBB, static budget etc. and role of
management accounting techniques in solving the financial issues. As a junior management
accountant of the above company it is recommend to the board of director that they should apply
all the mentioned management accounting types and techniques for effective management as
well as for solving financial issues.
REFERENCES
Books and journals:
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Ward, K., 2012.Strategic management accounting. Routledge.
Kaplan, R .S. and Atkinson, A .A., 2015.Advanced management accounting. PHI Learning.
DRURY, C .M., 2013.Management and cost accounting. Springer.
Otley, D. and Emmanuel, K. M. C., 2013.Readings in accounting for management control.
Springer.
Renz, D., 2016. The Future of Nonprofit Leadership and Management.The Jossey-Bass
Handbook of Nonprofit Leadership and Management, New Jersey: Jossey-Bass.
pp.734-745.
Banerjee, B., 2012.Financial policy and management accounting. PHI Learning Pvt. Ltd..
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting.Journal of Cleaner Production. 136.
pp.237-248.
Kotas, R., 2014.Management accounting for hotels and restaurants. Routledge.
Chenhall, R. H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management control.Accounting, organizations and
society. 47. pp.1-13.
Herzig, C., Viere, T., Schaltegger, S. and Burritt, R .L., 2012.Environmental management
accounting: case studies of South-East Asian companies. Routledge.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice.Management Accounting Research. 31. pp.103-111.
Bobryshev, A .N., Tatarinova, M. N., Grishanova, S .V. and Frolov, A. V. E., 2015.
Management accounting in Russia: problems of theoretical study and practical
application in the economic crisis.Journal of Advanced Research in Law and
Economics. 6(3 (13)). p.511.
Adler, R., 2013.Management Accounting. Routledge.
Edwards, R. and Boyns, T., 2012.A history of management accounting: The British experience.
Routledge.
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