Introduction to Management Accounting INTRODUCTION

Management Accounting INTRODUCTION 3 P 1 Explaining and evaluating management accounting systems and its essential requirements within business 3 P 2 Presenting different methods which can be used formanagement accounting reporting5 P 3 Calculating cost absorption using competitive and marginal costing system6 P 4 Explaining advantages and disadvantages of different types of planning tools which can be used for budgetary control10 P 5 Comparing ways in which organization is using management accounting system for dealing with financial problems 15 CONCLUSION 17 REFERENCES 18 INTRODUCTION Management

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
P 1 Explaining and evaluating management accounting systems and its essential requirements
within business............................................................................................................................3
P 2 Presenting different methods which can be used for management accounting reporting ....5
P 3 Calculating cost using absorption and marginal costing system ..........................................6
P 4 Explaining advantages and disadvantages of different types of planning tools which can
be used for budgetary control....................................................................................................10
P 5 Comparing ways in which organization is using management accounting system for
dealing with financial problems................................................................................................15
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting may be served as a process which in turn plays emphasis on
preparing managerial reports that aid in short term decision making. In the recent times, fore
taking profitable business decisions companies make focus on the adoption of management
accounting tools and techniques. The present report is based on Unicorn which provides
customers with wide range of choices in groceries. In this, the present report will provide deeper
insight about the requirements of management accounting tools in the context of business
organization. Along with this, it also depicts how managerial report helps in developing
competent and strategic policy framework for the near future. This report will also shed light on
the appropriateness of costing system which can be used for cost and profit assessment. In
addition to this, planning tools which can be used by Unicorn for better financial decisions will
also be discussed. Further, report also entails MA techniques which assist in responding
monetary problems effectually.
P 1 Explaining and evaluating management accounting systems and its essential requirements
within business
Management accounting is the process of identification, measurement, analysis,
interpretation and communication pertaining to information which manager undertakes for the
pursuit of an organizational goals (Management Accounting, 2019). With regards to Unicorn,
management accounting is highly significant which helps manager in making profitable
decisions. By using management accounting system business unit can manage its operations
more effectually and thereby enhances profitability aspect.
Job costing
In Unicorn, Operation costing means collecting all the cost such as material, labour and
specific overheads related to the one operation.
Advantages Disadvantages
 Assists in determining profitability
aspect of each task
 Offers basis for estimating cost of
similar jobs
 Provides with detailed assessment
regarding material, labour and overhead
 Needs more clerical work
 Lack of operation standardization
under this costing system
Highly expensive over others

cost
Expenditure accounting
Each business unit produces and sells product with the motive to generate high profit
margin. In this, it is required for the company to make assessment of per unit expenditure.
Hence, by assessing direct and indirect expenses associated with product Unicorn can determine
per unit cost. By dividing total cost from number of units produced cost per unit can be
calculated (Chenhall and Moers, 2015). Hence, by adding profit margin into per unit
consumption price can be calculated by Unicorn.
Advantages Disadvantages
 Helps in controlling financial
performance as it gives input for
standard costing
 Facilitates ascertainment of unit
production cost
 Helps in setting prices of the products
or services
 Complex in nature
 Expensive and time intensive in nature
Inventory system
Inventory system is the ongoing process of moving goods into and out of a company's
location. With regards to Unicorn effective management of inventory is highly required because
it place direct impact on cost aspect. Hence, for managing both cost and profit firm should focus
on undertaking LIFO, FIFO, EOQ etc method. Moreover, economic order quantity method
clearly presents units which need to be maintained within an organization (Elliot and et.al.,
2018). This in turn exerts control on both holding as well as ordering and thereby increases profit
margin.
Advantages Disadvantages
 Tracking of inventory level becomes
easier
 Control cost and maximizes profit
 Time consuming profit
 Need highly skilled personnel

Price optimization system
In the competitive business arena, Unicorn can attain success only when it offers products
or services at suitable cost. Moreover, now customers are looking for the retailer which offers
products or services to the customers at affordable prices. Thus, by undertaking price
optimization system business unit can assess price on which product needs to offered for
influencing customer decision making and gaining competitive edge (Kaplan and Atkinson,
2015).
Advantages Disadvantages
 Helps in setting pricing policies
 Assists in building strong customer
base
 Employees need training for operating
such software
 Expensive
P 2 Presenting different methods which can be used for management accounting reporting
Management Reports means the reports needed by different departments in order to take
the decisions for the company. As per MA, several methods are available which can be
undertaken by the firm for reporting and decision making purpose. Hence, by taking into account
below mentioned reports Unicorn can assess departmental performance and thereby would
become able to appropriate business decisions.
Budget report
This report enables manager to analyse business performance, in the context of all
departments and thereby control cost. Budget report clearly presents variances take place in the
income and expense level of firm over standards. Hence, considering the causes of variance firm
can set suitable monetary budget for upcoming time period (Kylili, Fokaides and Jimenez, 2016).
In addition to this, budget report also enables firm to measure as well as evaluate employee’s
performance and provide them with incentives.
Job cost report
It presents expenditure which associated with different project within business unit. Job
cost report is used by the firm to evaluate the figure of revenue in against to estimation with the
motive to determine profitability aspect. Job cost report provides assistance in high performing
areas so that better efforts can be made.
Accounts receivable ageing

In the context of business unit, accounts receivable ageing report is highly significant
which helps in managing cash flow to a great extent. As, it clearly exhibits time period for which
credit is taken by the customers. For instance: By undertaking this report, manager of Unicorn
would become able to assess customers or creditors who making payments within the period of
30, 60 and 90 days. Hence, using this report manager can assess problems which take place in
collection process of firm. In this way, such report helps in identifying customers who unable to
pay their balances. Considering all such aspects Unicorn can tighten its credit policies and
thereby reduce the level of defaults.
Inventory and manufacturing report
Unicorn can make manufacturing process more effective and efficient by using stock
report. Moreover, stock report contains information about physical inventory or products,
wastage level, hourly labour or per unit overhead cost. Thus, different assembly lines within
business unit can be compared easily through the means of inventory report (Van der Stede,
2015). This in turn gives clear indication about best performing departments and areas which still
require improvement.
P 3 Calculating cost using absorption and marginal costing system
Cost means the amount which is charged for any particular good by the customers. In
marginal costing system, the losing inventory is calculated by taking only variable expenses in
the account. Under absorption costing system, fixed and variable both the expenses are taken into
account while calculating closing inventory.
In the following P&L (profit and loss statements) the figures in green have been calculated
properly. Instead the figures in yellow, have not been correctly estimated or are calculations
which are not part of the P&L statement. For instance, the production cost per unit concepts must
not be included in the P&L statement. The conciliation of accounts is right
Marginal costing system
Particulars Cost per unit (in £)
Direct Material 8
Direct Labour 5
Variable O/H 3
Marginal cost per unit 16

Particulars Cost per unit (in £)
Selling price 50
-Marginal cost per unit -16
-variable selling price -2.50
Contribution per unit 31.50
Particulars Figures (in £) Figures (in £)
May: Figures
(in £)
Sales 16000
Cost of sales:
Opening inventory 0
Material (500*8) 4000
Labour (500*5) 2500
Variable o/h (500*3) 1500
8000
-Closing inventory (200*16) -3200.00
-4800
10200
-Variable selling cost -750
Contribution 9450
-Fixed costs -10000
Actual Net profit/(Net Loss) -550
Particulars Figures (in £) Figures (in £)
June: Figures
(in £)
Sales (500*50) 25000
Cost of sales:
Opening inventory (200*16) 3200
Material (380*8) 3040
Labour (380*5) 1900

Variable o/h (380*3) 1140
9280
-Closing inventory (80*16) -1280
-8000
17000
-Variable selling cost -1250
Contribution 15750
-Fixed costs -10000
Actual Net profit/(Net Loss) 5750
Absorption costing system
Computation of cost per unit
Particulars Figures (in £)
Direct Material 8
Direct Labour 5
Variable O/H 3
Absorption cost per unit 26
Particulars Figures (in £) Figures (in £)
May: Figures
(in £)
Sales (300*50) 15000
Cost of sales:
Opening inventory 0
Production cost (500*26) 13000
-Closing inventory (200*26) -5200
-7800
(Under)/ Over absorbed Fixed
production o/ h 1000

Gross Profit/Loss 8200
-Variable selling cost -750
-Fixed administration -2000
-Fixed selling -4000
Actual Net profit/(Net Loss) 1450
Particulars
Figures (in £) Figures (in £)
June: Figures
(in £)
Sales (500*50) 25000
Cost of sales:
Opening inventory 5200
Production cost (380*26) 9880
-Closing inventory (80*26) -2080
-13000
(Under)/ Over absorbed Fixed
production o/ h -200
Gross Profit/Loss 11800
-Variable selling cost -1250
-Fixed administration -2000
-Fixed selling -4000
Actual Net profit/(Net Loss) 4550
The accounts in the red circles are not part of any profit and loss statement.
Reconciliation of profit figures
Particulars May June
Profit under absorption 1450 4550
Difference in units of inventory
Fixed production overhead (200 units *£10) (120 units* £10)
2000 1200

Profit under marginal costing -550 5750
Under the marginal costing and absorption costing there is main difference of charging
the fixed cost in the valuation of the closing inventory. The valuation of closing inventory under
Marginal costing does not include the fixed costs because it only includes the variable cost
related to the production of the units.
In absorption costing, the valuation of closing inventory charges the fixed costs per unit on
the production of the normal output in the company. Absorption Costing considers all the costs
related to the production of the units which are absorbed by the company.
In the above illustration there is over absorption of the cost in the month of May due to the
increase in the fixed costs absorption. In the month of June there is under absorption of the costs
because of the units of closing inventory were less in Month of June.
Calculation of Actual performance of the company with the budgeted performance of
the company
Budgeted and Actual cost of metal generating the Product “A”
Budgeted material cost per unit of the product 2 kg at 10£/ kg
Actual Output 1000 units
Actual material purchased and used 2200 kgs
Actual material cost £20,900.00
Budget of Production
Actual output in units 1000
Kgs Budgeted per unit 2
Cost in £ per unit (each 2 kg. ) of material 10
Actual material purchased and used in £ 20900
Total cost of material a budgeted in £ 20000
Actual Costs in £

20900
Total variance
-900
Costs variance per unit in £
-0.9
Percentage (%) of variance
-4.50%
Budgeted
material cost
per unit of the
product £
Differential
per unit in £
Actual cost
per unit
10 0.5 9.5
Material price
variance=
Differential in
cost per unit
in £ *
Actual usage
in kgs
Material price
variance= 0.5 * 2200
Material price
variance= 1100 Favourable
Material usage
variance
Actual output
(units) *
Actual usage
(2 kg per
unit ) *
Budgeted
price

Material usage
variance 1000 * 2 10
Budgeted use kgs. 2000
Actual use in kgs. 2200
Differential -200
Differential in £ -2000
Unfavourable
Galway Plc material cost is been increased due to the increase in the raw material of the
company. Company has absorbed more units of raw material than the budgeted units of raw
material (Song and et.al 2017). Company’s per unit cost has been decreased but overall cost is
increased due to the over absorption of raw material.
Calculation purchases and raw material (metal) during the month of May by using
LIFO method-
Inventory ledger record for May under the LIFO valuation method
Date
Refere
nce
Purch
ase Issues
Balanc
e
(Inven
tory)
Units
£/
Units
£
Total Units
£/
Units
£
Total Units
£/
Units
£
Total
37012
Previo
us
balanc
e
(inven
tory) 50 3 150

41030 50 3 150
Bought
25
units at
£ 3.60
each 25 3.6 90 25 3.6 90
42125 25 3.6 90
Issued
36
units 11 3 33 39 3 117
43952 39 3 117
Bought
20
units at
£ 3.75
each 20 3.75 75 20 3.75 75
45047
Issued
10
units 10 3.75 37.5 39 3 117
10 3.75 37.5
46508 10 3.75 37.5 24 3 72
Issued
25
units 15 3 45
11079
Issued
5 units 5 3 15 19 3 57
Inventory calculations

Opening inventory 150
Purchase 1 90
Purchase 2 75
Issue 1 123
Issue 2 37.5
Issue 3 82.5
Issue 4 15
Balance 57
Galway Plc uses the LIFO method for calculation of closing inventory. LIFO can be
defined as the method in which it is assumed that the last purchased goods are sold first (Gao and
et.al., 2017). According to the assumption, the closing balance after every sold unit is calculated
at the price of the goods which were purchased first.
Calculation of inventory as per weighted average method
Inventory ledger record for May under the AWC valuation method
Date
Refere
nce
Purch
ase Issues
Balanc
e
(Inven
tory)
Units
£/
Units
£
Total Units
£/
Units
£
Total Units
£/
Units
£
Total
37012
Previo
us
balanc
e
(invent
ory) 50 3 150

41030
Bought
25
units at
£ 3.60
each 25 3.6 90 75 3.2 240
42125
Issued
36
units 36 3.2 115.2 39 3.2 124.8
43952
Bought
20
units at
£ 3.75
each 20 3.75 75 59 3.39 199.80
45047
Issued
10
units 10 3.39 33.86 49 3.39 165.94
46508
Issued
25
units 25 3.39 84.66 24 3.39 81.27
11079
Issued
5 units 5 3.39 16.93 19 3.39 64.34
Inventory calculations
Opening inventory 150
Purchase 1 90
Purchase 2 75
Issue 1 115.2
Issue 2 33.86

Issue 3 84.66
Issue 4 16.93
Balance 64.34
Galway Plc uses the LIFO method for calculation of closing inventory. LIFO method
refers to the method in which it is assumed that the last purchased goods are sold first (Gao and
et.al., 2017). According to the assumption, the closing balance after every sold unit is calculated
at the price of the goods which were purchased first.
P 4 Explaining advantages and disadvantages of different types of planning tools which can be
used for budgetary control
Budgetary control is used as the process in which the performance of the Unicorn are
measured in order to control the extra cost allocated and to maximize the profits. The budgeted
costs and profits are prepared to compare those with the actual performance of the company
(Bogsnes, 2016). If the company finds any variations than it take suitable actions in order to
control the costs and expenses for the company. These budgets help the Unicorn to take the
corrective actions without any delay. Budgetary control is used to cost control, proper planning,
increases in profitability, effective deviations etc.
Advantages of Budgetary control are-
 Through proper planning, coordination and control budgetary control helps in achieving
in increasing the over-all profits of the organisation.
 Budgets are prepared in order to get the effective utilisation of resources and to conduct
the business in the most efficient manner.
 It helps in better planning, coordination and control among the various departments and
thus helps in reducing the cost of production by eliminating the wasteful expenditure.
 This helps in the clearly achieving the goals and targets by setting up in advance the
budgets to be achieved in future.
Disadvantages of Budgetary control are-
 It does not takes into account the extra expenses of the company such as inflation
rates, interest rates etc.

 Budgets are not revised even there are change in the conditions. These constant
changes may create problems for the employees and they may loss their interest in
implementing those changes.
 Conflict among the different organisation also creates the problem for setting up the
goals and targets for the organisation because inefficient coordination leads to
inefficient performance.
 There is no other substitute for the organisation other than the budget. It is only the
tool of a management.
Types of planning tools used for budgetary control are-
Zero Based Budgeting-
Zero Based Budgeting is a method in which budget starts from “Zero Base”. Under this
method, employee has to justify the reason for which all the expenses must be included.
Expenses in the budgets are included on the basis of their needs and what would be profits
for the organisation if those are included in the budgets (O'Shea 2018). In this method,
budgets are prepared for the specific period regardless of whether each budget is higher or
lower than the previous one.
For example Unicorn Ltd spent $10 million last year. BOD decides to increase/ decrease
the budget by 10% for current year. So the manufacturing department will be getting $11
million or $9 million as a profit. By traditional method they estimated the expenses by $20
million only. By using ZBB method, justifying each and every expense Unicorn end up to
estimate the expense of $10.6 million.
Advantages of Zero Based Budgeting are-
 This method is accurate and looks over every department to make sure they are getting
the correct amount of money.
 This helps in the reduction of wasteful resources and also controls the extra allocation of
expenses.
 It helps in better communication within the departments through effective decision
making and budget prioritization.
Disadvantages of Zero Based Budgeting are-
 It takes a lot of time to justify each and every expense which creates the problem for
the employee.

 This takes a lot of efforts and analysis because it requires extra staff. This could cause
the process to be counter productive in cutting cost (O'Shea 2018).
Incremental Budgeting in the following composing use synonym words to avoid
redundancy. You use the word “budget” and some derivatives, at least 5 times in 4
lines. Instead you can refer to budget as: “incomes estimation”, “sourcing and usage of
funds forecast”, “source and use of funds estimation”, etc.)
Incremental Budgeting is the method in which some percentage is added to every
expense based on the previous year budget. Current year’s budget becomes the base for the
preparation of upcoming year’s budget. There is only an approach in preparing the
incremental budget and no fixed formula used in preparation of incremental budgeting (de
Campos and et.al., 2016).
This budget is useful and can be applied in those companies which have seldom changes
over years. It may lead to a company in an innovative conservative mindset which may not
be suitable for companies in all industries.
Advantages of Incremental Budgeting are-
 This method is easy for the calculations and, also easy to implement in the Unicorn.
 It eliminates the rivalry and builds value of equality among departments which makes
the preparation of the budgets easily.(This is relative)
 It is suitable for all the companies where are usually small and fixed changes in the
expenses.
Disadvantages of Incremental Budgeting are-
 This method leads to the lack of innovation and there is no cost reduction for the
managers in the organisation.
 Managers try to spend more on budget preparation which tends to increase in the
unnecessary spending by the company (de Campos and et.al., 2016).
 As the budgets are prepared on the basis of previous year’s budget so it disconnects
from real budgets benchmarks.
Flexible Budgetary Control-
Flexible Budgetary control refers to the method which uses adjust to changes in the actual
revenue levels. It is the budget which is based on the production output level of the Unicorn. The

budget is prepared on the basis of the budgeted units can be produced by the company in current
year. In this method all the costs are segregated on the basis of their nature such as variable and
fixed. The variable expenses are set on the basis of standard units by the company (Bataineh,
2018). The comparisons are done between the standard and actual performance of the company.
It can be prepared in the tabular form, charting method and formula or ratio method.
Advantages of Flexible Budgeting Control are-
 This method is useful for the company whose level of activity changes every year
because it corresponds with the change in the level of activity.
 This provides the logical comparison between the actual and budgeted expenditure of
the company.
 It is helpful for knowing the performance of the employees because the performance
can be judged by the level of activity attained by them.
 It can be easy to update for which the revenue or activity figures cannot be achieved.
Disadvantages of Flexible Budgeting Control are-
 It is very hard to estimate the level of activity for the current year based on the previous
year level of activity (Bataineh, 2018).
 It does not take into the various expenses of the company such as change in the inflation
rates and interest rates which may not show the real expenses of the company.
 Some companies do not have variable expenses and have huge amount of fixed expenses
which does not vary with the level of activity in the organisation.
Activity Based Budgetary Control
Activity Based Budgetary control is the top-down approach that requires the inputs in
order to achieve the set targets for the outputs which are achieved by the Unicorn. In simple
words, this method does not consider any past year’s standard to prepare the current year’s
budget. They are carried out to bring the efficiency in the organisation. Every activity in the
organisation is checked to know the proper allocation of expenses by the company (Lees 2017).
This method is more rigorous as compared to the other methods.
This method first identifies all the possible activities in the organisation. It then realises
all the revenues or expenses incurred for the company. The number of units is baseline for the
calculations. Cost per unit of activity and multiply that result by the activity.
Advantages of Activity Based Budgetary control are-

 The main aim of this activity is to improve the customers’ relationship in Unicorn by
eliminating the unnecessary activities and serve them with the best quality at best price.
 In this activity, budgets are prepared with more deep research and analysis. This remove
all the bottlenecks associated with the activity.
 This activity helps in cost cutting and lowers the cost of production as compared to the
competitors and gains a competitive edge in the market (Lees 2017).
 This technique helps the business as viewing it as a one business unit and not in the form
of different departments. This helps managers in preparing the budget for whole business
unit rather preparing for all the departments separately.
Disadvantages of Activity Based Budgetary control are-
 It requires the deep understanding which requires the professional employees for budget
preparation.
 It requires the in-depth research and analysis for every activity which becomes complex
in nature.
 It takes too much time in the preparation of budget because may take a lot time to prepare
the budget. In the same time, Unicorn can use its resources in other operational activities,
which can give them better results.
P 5 Comparing ways in which organization is using management accounting system for dealing
with financial problems
There are several tools which can be used by business units for assessing and responding
monetary problem. It includes variance analysis, benchmarking, KPI’s, financial governance and
balance scorecard. All such techniques are highly significant which assists in dealing with issues
and thereby helps in getting desired level of outcome or success.
 Benchmarking: By setting benchmarks in relation to income and expenses company can
evaluate its performance level. This in turn clearly indicates the extent to which goals are
met. Hence, referring the causes of non-achievement business organization can do
suitable changes in the existing strategic or policy framework (Bromwich and et.al.,
2016).
Advantages Disadvantages
 Assists in setting new paradigms
 Contributes in performance
 Adversely affect employee motivation
 Not realistic basis of performance

improvement by enhancing
competitiveness
 Offers direction for change process
measurement
 Variance analysis: On the basis of this, by doing comparison of actual performance in
against to the predetermined business unit can identify areas where improvement is
required. In other words, it clearly exhibits reasons due to which deviations occurred and
thereby gives indication in relation to taking corrective measures timely.
Advantages Disadvantages
 Assists in fixing responsibility of each
centre or department
 Remedial action can be taken timely
 Facilitates cost reduction and profit
maximization
 In the case of unrealistic standards
variance analysis offers unreliable
framework for decision making
 Key performance indicators (KPI’s): By setting KPI’s with regards to sales, profit,
market share etc business organization can do comparison of performance. Along with
this, company also assess deficiencies in the existing performance by taking into account
KPI’s setting down by leading competitors.
Advantages Disadvantages
 Offers input for setting competent
policies in against to the rivals
 Helps in developing competitive
position in the market
 Negatively impact employee
motivation and commitment
 Judged on the basis of subjectivity
rather than objective
 Financial governance: On the basis of this tool, company gathers, manages, monitor as
well as control operation by taking into account specific set of rules or principles. Hence,
by evaluating company’s performance in against to rules and policies loopholes in the
existing system can be determined easily.
Advantages Disadvantages
 Clearly exhibits deficiencies  Time consuming process

 Gives input for control
 Balance scorecard: This technique of MA enables company to measure and evaluate
performance from four perspectives such as financial, customer, internal process as well
as organizational capacity. Hence, considering this, firm can evaluate issues associated
with customers, staff, organization and existing process (Tappura and et.al., 2015). Thus,
considering issues company can take effectual measures timely.
Advantages Disadvantages
 Facilitates alignment between
company’s strategies and tasks
 Ensures sustainable organizational by
focusing on both financial and non-
financial aspects
 Difficult to implement
 Time intensive exercise
Unicorn uses the Benchmarking as the management accounting system which sets its
turnover benchmark against Tesco Ltd. The company sets Tesco company's turnover as the
benchmark for its company in order to achieve the targets of the company. Tesco uses Key
Performance Indicators as the management accounting system for its company. This system uses
four perspectives for evaluating the firm's performance. Benchmarking is better than Key
Performance Indicator because benchmarking can be done with the other companies in the same
industries whereas in KPI's the performance is checked in the company itself. Competitive
Analysis of the company is not possible in the Key Performance Indicators.
Cubic Hotel uses the variance analysis as the management accounting system for its
company. In this system, the comparison is made on the basis of past performance of the
company. The system only compares in the company itself and competitive analysis is not
possible. Thus, the Benchmarking management accounting system used by the Unicorn is better
than the other management system used by other companies.
CONCLUSION
By summing up this report, it can be concluded that using cost, inventory, price
optimization etc system Unicorn can do planning pertaining to both financial and non-financial

aspects effectually. Besides this, it can be inferred that using managerial report manager of
Unicorn would become able to take competent business which contribute in organizational
growth and profitability. It can be summarized from the report that Unicorn should employ
absorption costing system over marginal. Moreover, absorption costing system presents better
view of cost and profit referring both fixed and variable expenses pertaining to production. It can
be seen in the report that cash and operating budget helps company in making proper estimation
about income & expenses. It has been articulated that using benchmarking tool Unicorn can
resolve monetary problems in the best possible way. As, it helps in assessing deviations and
gives indications in relation to taking corrective measures within the suitable time frame.