Management Accounting Practices and Trends

This assignment analyzes recent research in the field of management accounting. It examines current themes and trends, drawing upon various academic sources to understand the evolving nature of this discipline. The review includes perspectives on the societal relevance of management accounting innovations, approaches to validation and evaluation in qualitative studies, and the use of partial least squares structural equation modeling (PLS-SEM) in management accounting research.

MANAGEMENT ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Different management accounting system and their essential requirements..........................1
P2 Methods used for management accounting reporting............................................................3
TASK 2............................................................................................................................................5
P3 Marginal and absorption costing method...............................................................................5
TASK 3............................................................................................................................................7
P4 Advantage and disadvantage of using different planning tools that can be used for
budgetary control at workplace...................................................................................................7
P5 Way in which firms are adopting mangement accounting system in order to respond to
financial problems.....................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
Table 1Profit by absorption costing method....................................................................................4
Table 2Profit by marginal costing method......................................................................................5

INTRODUCTION
Management accounting is the one of the field that is gaining wide popularity among
business firms. This is because cost control is the one of the main objective of the firms and
management accounting is the dicipline that assist firms in sorting out these problems. In the
present research study varied management accounting system are discussed in details. Apart
from this, varied reporting systems that are quite popular among varied entities are also analyzed.
In midle part of the report, profit calculation is done by using varied approaches. At end of the
report, varied planning tools in respect to budgetary control are discussed and MA system that
can be adopted to tackle financial problem are also explained.
TASK 1
P1 Different management accounting system and their essential requirements
To
The Small White Elephant Date: 14-2-2018
Subject: Management accounting systems and reporting systems
Management accounting is the one of the field which underpin cost control strategy of the firm
by providing relevant inputs that are considered for preparing mentioned tactics. It is tool that
assist company to foray in respect to cost control. Varied management accounting systems are
evolved in past few years according to requirement of different companies. Selection of
maangement accounting system largely depeneds on firm product portfolio and type of
decisions or elements on which company intends to keep control. Varied management
accounting systems that can be taken in to account by the business firm are as follows. Cost accounting system: It is the accounting system widely adopt by the corporate at
workplace to obtain an overview of the summed value of fixed and variable expenses
in the business (Harris and Durden, 2012). In this regard, Small White Elephant at
initial stage categorize expenses in category of fixed, variable and semi variable
expenses and at end of the specific duration whenever required all elements values that
are in fixed, variable and semi variable category are added together. By doing so
overall cost that is incurred in the products are identified. Thus, it can be said that by
using cost accounting system it can be identified that which are the products where
variable expenses made are high or fixed expenses incurred are high. Cost accounting
system is used by most of business firms because fixed expenses are certain in the
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business but variable expenses are dynamic in nature and with passage of time same
get change regularly. Thus, it can be said that cost accounting system matter a lot for
the company because in it cost classification is done in the proper manner and assist
them in making decisions at workplace in terms of cost control. Process costing system: Process costing system is one under which each and every
stage that is related to process is taken in to account for costing purpose. Means that
while producing products varied stages are performed. In process costing for each of
these stages costing is done at Small White Elephant. Hence, it can be said that process
costing system have high importance for the manufacturing firms. By adopting this
costing system they identify that in which stage of production cost is high. Thereafter,
analysis can be done and it can be identified that which are the components due to
which cost of production is high duirng specific stage (Chiwamit, Modell and Yang,
2014). If possible unproductive steps are removed from the production process and by
doing so cost control is done. Hence, it can be said that process costing system have
due importance for the firms as it assist firm in cost control and curtailment. Job costing system: Job costing system is one under which for each job costing is done
separately. This accounting system is adopted by the firms who manufacture products
based on customer order received. Different orders have vaired specifications and due
to this reason same costing is not possible in case of all products. Hence, under job
costing system separately for each job expenses are recorded and by applying specific
technique cost is computed. Hence, it can be said that job costing system is the one of
the most important costing system that is mostly used by the automobile makers in
their busuiness. By using job costing system products where cost is high can be
identified and on preliminary stage efforts can be made to control cost. By doing so
profitability is enhanced in the business. It can be said that job costing system is
adopted by large number of firms in their business practice. Throughput costing system: It is another accounting system under which costing is
done in different manner. Mentioned system is also known as modern costing system
and it was developed by Israeli businessman (Nitzl, 2016). Under this accounting
system all tasks are analyzed deeply and on that basis activities where cost is high are
identified and controlled. Hence, it can be said that there is significence of througput
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accounting system for the business firms because also like other system facilitate cost
control.
P2 Methods used for management accounting reporting
To
The Small White Elephant Date: 14-2-2018
Subject: Management accounting systems and reporting systems
Reporting is the one of the most important task in the business that play vital role in its
growth. This is because through reporting managers comes to know about things that are going
on in the business. Reporting can be done through charts and tables. Many advanced softwares
like Tableau are used by the firms for visualization purpose. Different facts are revealed from
these tables and images about business performance. In current time period business are
increasing at rapid pace and due to this reason it become difficult for firms to keep check on
expenses and manag company operations. There are different softwares that can be used by the
firms for making business decisions because in them reports are generated and for same there
is need to just put an input in the software. It can be said that there is huge importance of the
maangement accounting reporitng for the firms (Hopper and Bui, 2016). Automatically
software by taking in to account all inputs prepare management accounting report which
encompas varied facts that can be used to make bsuiness decisions. Management accounting
reporting refers to the situation where diffeent sort of reports are prepared and used for making
business decisiosn. All these report reflects firm performance on different fronts. On basis of
these reports it is identified that which are those areas where condition is good or bad.
Corrective actions are taken on basis of relevant inputs. Budget report: In budget report varied budgets are given like incremental budget, fixed
budget or flexible budget in respect to varied departments like production, marketing
and finance etc. In these reports actual expenses are also listed and on basis of
comparison that will be made it will be identified that whether expenses are in control
of the firm or there is need to take action on time to handle condition. It can be said
that budget report help firms in identifying multiple facts and figures and show them
area where there is need to actually do the work in order to control expenses in the
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business. Budget report are prepared monthly, quarterly, half year and annual basis and
by making comparison with actual performance is accessed. Thus, it can be assumed
that budget report have due importance for the firms. Job cost report: Job cost report is also prepared by many firms like Small White
Elephant specially those that are working in automobile sector. In this report, in
respect to varied jobs cost are given (Van der Meer-Kooistra and Vosselman, 2012).
These costs can be further classfied in to fixed and variable as well as semi variable
expenses. It can be said that deeply cost can be analyzed by using job cost report. It is
one of the most important reporting method that is used on large scale by the firms.
Companies that produce products on basis of specfic specifications usually use job cost
report in order to make business decisions. Income statement: Income statement is another statement which is prepared by all
firms whether their size is large, small and big. Under income statement revenue and
expenses are listed and from revenue amount expenes are subtracted. On yearly basis
income statement values can be compared with other and on that basis it can be
identified whether expenses increase or decrease in the business. Apart from this, by
doing analysis it can also be identified that what proportion of sales is covered by
specific sort of expenses in the business (Kihn and Ihantola, 2015). On yearly basis by
considering this factor comparison can be done and it can be identified that which sort
of expenses are increasing at fast rate. By preparing cost control tactics situation that
was out of control is bringing in control by the managers. Account receivable reporting: It is the another mode of reporting under which entire
calculation and detail of account receivable are given in the reporting. It is the one of
the important reporting method because in business time to time goods are sold on
credit basis to the business firms. In the report, one can easily identify customers from
whom higher amount of sales is made through receivables. Thus, focus can be made on
such customers in respect to making credit sales and management on time can make
effort to control bad debt in the business. All these things lead to strong control on
bloackage of cash in the business and also assist firm in taking steps on right time to
control bad debt. Overall, it can be said that account receivable reporting assist in
improving maangement at workplace.
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TASK 2
P3 Marginal and absorption costing method
Table 1Profit by absorption costing method
Amount Amount
Particulars 21000
Sales 9100
Cost of production -1300
Less: Closing stock 7800
Variable cost 13200
Contribution
Less: Variable sales indirect expenses 600
Less: Fixed cost, production overhead 2000
Administration expenses 700
Selling cost 600 3900
Net profit 9300
Table 2Profit by marginal costing method
Amoun
t Amount
Sales 21000
Less: Cost of production 11200
Less: Closing stock -1600
9600
Less: Over absorption of fixed production
overhead -100
Production cost of sale 9500
Gross profit 11500
Less: Variable sales overhead 600
Less: Fixed costs and administration cost 700
Selling cost 600 1900
Net profit 9600
There are two approaches that can be used to compute profit for the business firm. These two
approaches are marginal and absorption costing methods and it can be seen from table given
above that profit in case of former approach is 9600 and in respect to latter method profit amount
to 9300. On analysis of facts it can be seen that there is minor gap between both values because
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calculation approach vary from each other. It is the slight difference in the approach that make
both approaches different from each other. However, both methods are usually used by the
companies to make decisions and it depend on their requirement that which of approach they
find more appropriate for profit calculation. There are some fundamental difference between
marginal and absorption costing method. One of them is that in case of marginal costing method
only variable expenses are taken in to account. There is another method which is also known as
absorption costing method and under this both fixed and variable expenses are taken in to
account (Ahmad, 2013). It can be said that there is difference between both marginal and
absorption costing method and firms according to their requirement can select any method to
compute profitability in the business. In terms of profit marginal costing method give better
results than absorption costing. It is inevitable to understand the fixed expenses and other sort of
expenditures that are made in the business. Fixed expenditures are those that remain static or
unchanged irrespective of level of production. This is because fixed expenses are made on assets.
Whatever, expenses made in terms of fixed cost are deducted in same year from sales value. In
this way, both variable and fixed expenses are included in overall cost of product and deducted
from sales value. Opposite to this, in marginal costing method variable expenses only are
considered. This is the reason due to which high amount of profit is revealed by marginal then
absorption costing method. It can be said that it depend on managers that which of approach they
find more suitable for profit calculation. This is because some managers may want to view effect
of both fixed and variable expenses on profit. Such kind of managers will prefer to use
absorption costing method (Sunarni, 2013). On other hand, if manager intend to know effect of
marginal cost on profit then in that case it will be better to use marginal costing method. Thus,
there is importance of both marginal and absorption costing method for the business firms. It can
be said that use of marginal costing method will be appropriate for the firm because for
producing goods only variable expenses are incurred not fixed expenses. Hence, inclusion of
fixed expenses in profit calculation does not seem appropriate. However, fixed expenses are
incurred in the business and same is capital expenditure for the firm and due to this reason its
deduction from sales cannot be avoided. Hence, it is very important to ensure that both
approaches are used at workplace because they reflect different scenarios to managers. Both
approaches are appropriate and managers according to need must use these methods to perform
calculation. In usual practice it is observed that most of firms use absorption costing method
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because it give clear overview of costing that is observed in the company. Absorption costing
method is the extension of the marginal costing method. Importance is given to both these
approaches by the business firms but high priority is given absorption costing over marginal
costing approach (Christ, 2014). In researches that are conducted earlier it is observed that firms
whether they are small, medium or large in size are using absorption costing method. Hence,
there is wide popularity of mentioned method among business firms.
TASK 3
P4 Advantage and disadvantage of using different planning tools that can be used for budgetary
control at workplace
There are number of planning tools that are used by the firms in their business and all of
them have some advantages and disadvantages. Different sort of planning tools that are available
to the business firms are budget and capital budgeting appraoches. In class of budget
classifications can be done. Cash budget: It is the one of the most important budget that is usually prepared by the
firm which is Small White Elephant. Under cash budget varied items of cash inflow and
outflow are included. Opening cash balance is recorded and on same revenue amount is
added. In this way overall cash inflow amount is computed. From cash inflow amount
expenses are subtracted and in this way net balance is calculated and same is transferred
to the next month. Again same process is carried out and in this way cash budget is
prepared by the business firms (Zaleha Abdul and et.al., 2011). There are some of
advantage and disadvantage of the cash budget for the firms and same are explained
below.
Advantage
 Main advantage of using cash budget is that by using same high level of control is
maintained on expenditures in the business. This is because firm makes an attempt to
make actual expenses beneath determined standard. In some cases actual expenses are
greater then standard then in that situation corrective actions are taken to improve
condition.
 Other main advantage of using cash budget is that it help firm in controlling expenses in
systematic way. Means that first of all estimation is made about likely growth of sales
reevnue in the business. Expenses are accordingly computed in the budget and by doing
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so in systematic in right direction and to great extent effort is made to control expenses in
the business.
Disadvantage
 Major disadvantage of cash budget is that projection is made by estimating growth rate. It
is possible that managers estimate this growth rate in wrong manner. If same happened
then in that case budget will be prepared in wrong direction. Thus, this will lead to
making wrong decisions in the business. Fixed budget: Fixed budget is one under which same values are taken in to account for
every month and year and no change happened in values (Abrahamsson, Englund and
Gerdin, 2011). It can be said that fixed budget is quite different from cash budget and it is
not flexible like cash budget that is formed in the business.
Advantage
 One of main advantage of using fixed budget is that one does not need to consume lots of
time in preparing budget. This is because budget is already prepared and there is no need
to do modification in same. Hence, lots of time is saved.
 Managers does not need to face problem of determining growth rate of sales as it is very
difficult task to determine growth rate of the business, number of factors need to be
considered. In case wrong estimations are made projection goes in wrong direction.
Hence, it can be said that use of fixed budget prevent managers from doing
brainstorming.
Disadvantage
 Major disadvantage of fixed budget is that values can not be altered and situation keeps
on changing consistently. Hence, fixed budget can proved suitable to the company in
single year but every it can be right to follow same budget because with change in
situation profitability of product also change. Zero based budgeting: This is different approach of budgeting and under this last year
budget is not considered and department heads at their own level determine value of the
elements of the budget (Shields, 2015). In this approch top manager demand budget from
department managers. After understanding condition and determining assumptions all
department heads prepare budget for their departments. These budgets are send to the top
manager for approval. After slight discussion top manager either approve budget or make
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some modifications in it and then give final approval to the managers. After approval
fund are given to the department heads. In this way, entire mechanism in respect to zero
based budget work.
Advantage
Major advantage of zero based budgeting is that it is the systemaic approch that is used to
prepare budget as first of all mangers determine budget at their own level and then same
is discussed with top managers (Viere, von Enden and Schaltegger, 2011). Such kind of
procedure ensure that budget will be prepared in proper manner.
Disadvantage
Major disadvantage of the zero based budget is that budget of all departments are
interrelated to each other. If one department prepare budget in wrong manner then other
department budget automatically become wrong. Hence, all these things will lead to
making wrong business decisions. Capital budgeting method: Capital budgeting method refers to the project evaluation
methods like payback period, IRR, NPV and ARR that are used to measure viability of
the project. In order to select any project these techniques are applied on cash flows
which are estimated by managers and from different angels profitability of project is
measured.
Advantage
One of major advantage of using capital budgeting method is that by using same best
alternative is selected by the firm. In determining final cash flows expenses are also taken
in to account and every attempt is made to control those expenses. Hence, in this way
budgetary control method assist in cost control.
Disadvantage
 Major disadvantage of capital budgeting is that in same growth rate is taken in to account
and if same is estimated wrongly then cash flows will be computed wrongly which will
ultimately lead to selection of wrong project in the business.
 Other major disadvantage of capital budgeting method is that while preparing cash flows
for the project number of assumptions are made. Means that there are number of elements
that are coverd in these cash flows. It is possible that analyst make wrong assumption in
respect to multiple elements of cash flows (Becker, Ulrich and Staffel, 2011). On basis of
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these elements multiple calculations are performed in model. If actual expenses are
greater then determined values then in that case it is difficult task to identify that what are
the reasons or what sort of variables are wrongly estimated due to which actual and
estimated values become different from each other.
P5 Way in which firms are adopting mangement accounting system in order to respond to
financial problems
Financial problems are usually observed by the firms in their business and it may be
related to inability control cost or credit crunch etc. In order to sort out these financial problems
there is need to adopt management accounting systems so that in proper manner company can
respond to financial problems. Some of the management accounting systems that can be adopt to
solve relevant issue are explained below. Key performance indicators: It is the one of the important tool which is used to evaluate
company performance. In this method some parameters are fixed and comparison of
obtained results are made with these parameters. By doing so direction in which there is
need to work can be determined. In respect to KPI firms normally use softwares like
Tableau in which KPI are developed and actual data is plotted against KPI. By doing so
gap that exist between both is identified in proper manner. It can be said that KPI is the
one of the important approach that can be used to solve problem. For example company
take loan at flexible interest rate and it want to track its performance so that decisions can
be taken on time and control can be made on finance cost (Management accounting, what
is management accounting?., 2017). On KPI on one side current market interest rate can
be plotted and on other side fixed interest rate can be plotted and by doing so it can be
identified whether good performance is achieved or there is need to made to make
improvement in same by adopting any strategy in business which cover loss that is
observed in the business due to gap that exist between both interest rate. Balanced scorecard: Balanced scorecard is the one of the technique that is used to
evauate firm performance. For balance scorecard there four areas that are analyzed like
financial, customer, learning and growth as well as internal business process. In respect to
these areas four things are determined like objectives, measures, target and initiatives.
Means that in respect to each component objectives are determined and measures are
determined. Apart from this, targets are ascertained that need to achieved in respect to
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elements of balance scorecard. Initaitves are also mentioned in scorecard that will be
taken to ensure that determined target will be achieved in every condition. Hence, it can
be said that there is huge importance of balance scorecard approach for the busines firms. Financial governance: Under financial governance approach for each and every
employee that is handling financial affairs roles and responsibilities are clearly
determined and it is ensured that these roles and responsibilitie does not overlap each
other. Thus, it can be said that financial governance in case of any crisis or situation help
management in making someone responsible for negative consequences. Such kind of
practice make employee liable and motivate them to give their best for benefit of an
organzation.
CONCLUSION
On basis of above discussion it is concluded that variety of management accounting
systems are available to firms as option. Management must select one of best option that best suit
its requirements. It is also concluded that marginal and absorption costing both approaches are
best and firm either can use both of them or specific one according to business needs. There are
number methods that can be used to solve financial problems. Managers can adopt all aproaches
at workplace like financial governance, KPI and benchmark altogether to ascertain that financial
problem will be handeled on time.
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REFERENCES
Books and journals
Abrahamsson, G., Englund, H. and Gerdin, J., 2011. Organizational identity and management
accounting change. Accounting, Auditing & Accountability Journal. 24(3). pp.345-376.
Ahmad, K., 2013. The adoption of management accounting practices in Malaysian Small and
Medium-sized Enterprises. Asian Social Science. 10(2). p.236.
Becker, W., Ulrich, P. and Staffel, M., 2011. Management accounting and controlling in German
SMEs–do company size and family influence matter?. International Journal of
Entrepreneurial Venturing. 3(3). pp.281-300.
Chiwamit, P., Modell, S. and Yang, C.L., 2014. The societal relevance of management
accounting innovations: economic value added and institutional work in the fields of
Chinese and Thai state-owned enterprises. Accounting and Business Research. 44(2).
pp.144-180.
Christ, K.L., 2014. Water management accounting and the wine supply chain: Empirical
evidence from Australia. The British Accounting Review. 46(4). pp.379-396.
Harris, J. and Durden, C., 2012. Management accounting research: An analysis of recent themes
and directions for the future. Journal of Applied Management Accounting Research. 10(2).
p.21.
Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management
Accounting Research. 31. pp.10-30.
Kihn, L.A. and Ihantola, E.M., 2015. Approaches to validation and evaluation in qualitative
studies of management accounting. Qualitative Research in Accounting &
Management. 12(3). pp.230-255.
Nitzl, C., 2016. The use of partial least squares structural equation modelling (PLS-SEM) in
management accounting research: Directions for future theory development. Journal of
Accounting Literature. 37. pp.19-35.
Shields, M.D., 2015. Established management accounting knowledge. Journal of Management
Accounting Research. 27(1). pp.123-132.
Sunarni, C.W., 2013. Management accounting practices and the role of management accountant:
Evidence from manufacturing companies throughout Yogyakarta, Indonesia. Review of
Integrative Business and Economics Research. 2(2). p.616.
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