Application of Management Accounting

This article discusses the principles and benefits of management accounting, different techniques and methods used for management accounting reporting, and how to prepare and interpret accurate income statements using marginal and absorption costs. It also emphasizes the importance of integrating management accounting systems within an organization and provides examples of management accounting systems and their applications.

Application of
Management
Accounting

Table of Contents
Introduction......................................................................................................................................3
Management Accounting and Its Integration with Management Accounting Reporting System.
.....................................................................................................................................................4
An evaluation of the benefits of the Management Accounting systems and their application
within an organisational context..................................................................................................4
An explanation of the principles of management accounting and why it is important to
integrate management accounting systems within an organisation. You are also asked to
provide an explanation of different techniques and methods used for management accounting
reporting.......................................................................................................................................5
Different Techniques and Methods Used For Management Accounting Reporting...................6
Prepare and interpret accurate income statements for the company using a range of
management accounting techniques, such as marginal and absorption costs..............................7
Profit statements using Absorption costing.............................................................................7
Profit statements using Marginal costing................................................................................8
Conclusion.......................................................................................................................................8
References........................................................................................................................................9
Books & Journals.........................................................................................................................9

Introduction
Management accounting is a type of management accounting that encompasses the process of
presenting financial data as well as all of the resources needed by an organization's manager to
make decisions. This accounting system provides statistical data that assists managers in doing
various tasks such as making better and more accurate decisions and controlling corporate
activity. Managerial accounting is primarily employed by the organization's internal team,
making it a distinct concept from financial accounting. It aids in the development of executive
financial statements in order to make short and long-term decisions in order to achieve
organisational objectives. It also aids managers in determining product or service prices by
supplying all relevant information such as market conditions, profitability, and so on.

Management Accounting and Its Integration with Management Accounting Reporting System.
Management accounting is the ability to recognize, measuring, analysing, summarizing, and
evaluating data presented to managers in order for them to make key company choices. One of
the main goals is to keep track of the costs involved with the production of goods or services for
the organization. Managerial accounting delivers quantitative and qualitative data on operational
and financial performance to businesses (Xie, 2019). While accounting information is concerned
with how creditors and others use this information to evaluate performance by making choices,
managerial accounting is concerned with how owners, managers, and employees use it
internally. The systems that organisations build to control and plan operations and support good
decision-making are referred to as a firm's accounting management system. Standard finance
reporting has aspects that make it valuable to both shareholders and creditors while also limiting
its applicability to a wider audience. Financial statements, which are only focused on historical
financial outcomes, are created in a standard format from period to period and contain identical
information across business sub-groups. Management accounting is an important concept which
is used by almost all the companies in order to manage the use of money in a planned and
efficient way (Phornlaphatrachakorn, 2019). The management accounting system and
management accounting reporting is related to each other because they are interdependent on
each other. In context to Synergy Manufacturing Ltd., an effective management accounting
reporting system should be developed and maintained so that the accounting system should also
be used in a proper manner. This will ultimately help in improvising the company's performance.
It is highly important for this organization to use the integration if the management accounting
and the management accounting reporting system in an effective way so that the organization can
achieve the organization goal in an effective manner.
An evaluation of the benefits of the Management Accounting systems and their application
within an organisational context.
Some benefits of management accounting with their applications are mentioned below:
Management Accounting System Benefit Application
 Cost accounting system Measuring and improving
efficiency.
With the use of cost accounting
system, Synergy Manufacturing
Ltd., can measure its efficiency

in relation to cost, time, efforts
etc. It can also compare the actual
figures with the economy
standards to increase its
efficiency levels.
 Inventory Management
System
Avoiding stock outs and excess
stocks.
A better planning and
management of inventory system
will help Synergy
Manufacturing Ltd., to avoid
the stock outs as well as the
wastage of the food stock.
 Job Order Cost Accounting
System
Keep track of individuals
and team performance.
This accounting system will
benefit the managers of Synergy
Manufacturing Ltd., to keep a
check on the performance in
order to maintain high level of
efficiency and productivity.
An explanation of the principles of management accounting and why it is important to integrate
management accounting systems within an organisation. You are also asked to provide an
explanation of different techniques and methods used for management accounting
reporting.
Management accounting principles (MAP) were created to help integrated reporting enhance
management information objectives, internal operations, financial application, customer value,
and capacity utilisation in order to meet corporate goals in the most efficient way possible (Scott,
2019). There are various importance of the principles of management accounting and they are
mentioned below in different points:
 Planning: Financial and non-financial information is delivered to management at regular
intervals, such as weekly or fortnightly, in management accounting. Forecasts, budgets,
and in-depth analysis are included in this presentation. As a result, it aids management in
the planning of corporate activities.

 Making decisions: Management accounting is used for decision-making since it provides
numerous charts, projections, and analyses. This helps in keeping a high level of
efficiency along with the essence of effectivity.
 Recognize warning indications of an issue early on: Because the accounts are supplied
at regular periods, management may detect if a product is performing poorly early on.
This will help overcome limits early on and prevent losses in the future (Saeidi and
Othman, 2017).
 Management at the strategic level: Management can make recommendations on
whether to keep a product or change the sales approach based on the facts supplied in
management accounting. Because management accounting is not governed by any laws,
management can determine which areas deserve additional research and investigation and
develop plans appropriately.
Different Techniques and Methods Used For Management Accounting Reporting
Management accounting reporting is regarded as a vital and necessary component of any
business. It essentially paints a picture of how well a company is operating. This is a method of
showcasing a company's current financial situation across a certain time period (Krishnan, 2020).
Accounting records are used to compile all financial information relating to the organisation.
Additionally, these reports aid in the making of critical business decisions. Management
accounting reporting can be done in a variety of ways, as listed below:
• Margin analysis: The most significant analysis in managerial accounting is the margin
analysis. This analysis aids in establishing the break-even level so that production
processes can be optimised. It is primarily concerned with determining the best sales mix
for the company's goods. It is crucial in determining what additional advantages can be
obtained using the same resources and actions. The corporation uses margin analysis as a
way of management accounting reporting in order to optimize profitability.
 Analysis of Constraints: This form of study focuses on the bottlenecks that exist within
a company. Because bottlenecks have complete power over a company's profitability, an
organization's focus should be on maximising bottleneck utilisation. The profitability will
be unaffected if the focus is kept on other aspects. Bottlenecks can be found almost
anywhere, thus it's a vital idea to understand (Burritt and Christ, 2017).

 Capital Budgeting: This strategy is concerned with the examination of information that
is extremely important in making decisions about capital expenditures. It primarily entails
the computation of NPV (Net Present Value) and IRR (Internal Rate of Return), which
aids finance managers in making capital budgeting decisions.
 Trend analysis and forecasting: This is a strategy or a procedure for predicting current
trends based on historical trend data. This study is based on past data, which aids in
anticipating future patterns. This essentially focuses on present trends in order to
anticipate future ones through comparative research. It also contains a number of tactics
that might aid an organisation in determining current and upcoming trends through
forecasting (Hutaibat and Alhatabat, 2020).
Prepare and interpret accurate income statements for the company using a range of management
accounting techniques, such as marginal and absorption costs.
Profit statements using Absorption costing
Particulars Product – A (4600 * 180) Product – B (3200 * 150)
Sales Revenue
Less Cost of Sales:
Direct Materials
Direct Labour
Fixed Overheads
Fixed administration
overheads
Total Profit
828000
138000
165600
276000
54000
194400
480000
76800
76800
128000
54000
144400

Profit statements using Marginal costing
Particulars Product – A (4600 * 180) Product – B (3200 * 150)
Sales Revenue
Less Cost of Sales:
Direct Materials
Direct Labour
Fixed Overheads
Total Profit
828000
138000
165600
276000
248400
480000
76800
76800
128000
198400
Conclusion
Following the discussion above, it can be stated that management accounting plays an important
role in providing substantial insights that assist a company's management in analysing,
interpreting, and making choices. The emphasis is on accelerating the management and
classification of the company's numerous types of costs, resulting in more effective financial
management and control. There are a variety of planning methods that may be used in a business
to encourage smooth financial operations and eliminate the uncertainties that may arise as a
result of future events. Techniques like as benchmarking, key performance indicators, effective
research, and excellent financial planning should be used to solve financial challenges. Marginal
analysis and absorption cost analysis are used to generate income statements and compute
profitability.

References
Books & Journals
Xie, B., 2019. Westliche Management-Accounting-Instrumente in China. Springer Fachmedien
Wiesbaden.
Phornlaphatrachakorn, K., 2019. Influences of strategic management accounting on firm
profitability of information and communication technology businesses in
Thailand. International Journal of Business Excellence, 17(2), pp.131-153.
Scott, P., 2019. Introduction to Management Accounting. Oxford University Press, USA.
Saeidi, S. P. and Othman, M. S. H., 2017. The mediating role of process and product innovation
in the relationship between environmental management accounting and firm's financial
performance. International Journal of Business Innovation and Research, 14(4), pp.421-
438.
Krishnan, R., 2020. Across the Great Divide: Bridging the Gap between Economics-and
Sociology-Based Research on Management Accounting. Journal of Management
Accounting Research, 32(2), pp.21-25.
Burritt, R. L. and Christ, K. L., 2017. The need for monetary information within corporate water
accounting. Journal of environmental management, 201, pp.72-81.
Hutaibat, K. and Alhatabat, Z., 2020. Management accounting practices’ adoption in UK
universities. Journal of Further and Higher Education, 44(8), pp.1024-1038.
Samuel, S., 2018. A conceptual framework for teaching management accounting. Journal of
Accounting Education, 44, pp.25-34.
Avelé, D., 2021. Between management accounting tools and analysis of the performance of
municipal public services: a case study. African Journal of Economic and Sustainable
Development, 8(4), pp.319-339.
(Xie, 2019)(Phornlaphatrachakorn, 2019)(Scott, 2019)(Saeidi and Othman, 2017)(Krishnan,
2020)(Burritt and Christ, 2017)(Hutaibat and Alhatabat, 2020)(Samuel, 2018)(Avelé, 2021)