Management Accounting Concepts and Applications

This assignment delves into the core concepts of management accounting, examining its role in organizational decision-making. Students are tasked with analyzing a range of academic sources, including research articles and textbooks, to understand various aspects of management accounting such as budgeting, cost accounting, performance measurement, and sustainability reporting. The assignment encourages critical evaluation of current research trends and their practical implications for businesses.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................2
P1. Essential needs of management accounting system..............................................................2
P2. Techniques used for MA reporting.......................................................................................3
M1: Advantages of MA..............................................................................................................5
D1: Critical evaluation of reporting system................................................................................5
TASK 2............................................................................................................................................5
P3: Use of costing methods in evaluation of net profit...............................................................5
M2: Various accounting methods...............................................................................................7
D2: Evaluation of profit and loss statements..............................................................................7
TASK 3............................................................................................................................................8
P4: Advantages and disadvantage of using planning tools.........................................................8
M3: Critically analysis of planning tools..................................................................................10
D3: Use of tools to overcome financial problems.....................................................................10
TASK 4..........................................................................................................................................11
P5 to resolve financial issue with the use of MA .....................................................................11
M4: Evaluation of financial issues............................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Accounting is the systematic process of data collection, summarising and recording of
financial transaction which is related with the business operations. While, management is
responsible for providing proper planning, controlling and maintaining effective records and
balance in company’s financial statements. Combination of both can help company to attain its
long and short term goals and objectives (Ahmad and Kamilah, 2013). It is considered as one of
the important aspects of business entity in order to regulate its day to day financial transactions.
In this project report, “Sollatek” company uses various accounting techniques and
methods to control and maintain their operations. Firm has appointed a account office to prepare
a well organise report that can provide necessary information regarding accounting system in the
business organisation. This report involves various analysis of costing and reporting methods
that can help them to calculate good or bad outcomes. Also, different planning tools which are
used by Sollatek in order to manage their operating expenses and cash-flows are explained here.
The performance of two companies is compare at the end of this report.
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TASK 1
P1. Essential needs of management accounting system
Accounting system is the concern with sourcing, analysis and communication of various
decisions which are associated with the relevant financial and non-financial data. It is based on
the positive impact of decision for transformation of administration. Management accounting
plays an important role in guiding right direction the manager and company as well. Crucial
decisions which are helpful for the growth, performance and modification are based on type of
accounting system used by Sollatek (Bodie, 2013). It has been determined that scope and
significance of management accounting are highly essential for making effective financial
decision. It consists of several types of accounting data which are associated with financial
reporting like costing, inventory analysis and many more. The results are effective if company is
using more accurate and reliable information.
In order words, all irrelevant data can affect the profitability of the cited company. The
manager needs to plan perfect strategies according to the set standards so that desired outcomes
can be attained. The interest of shareholders is required to be considered by the account
managers because they are responsible for providing right direction to company. The major
aspects of any business concern is to generate as much profit so that long term and short term
objectives can be meet out. The resources of company can be utilised by applying proper
accounting system so that less chances of wastage can occur. Accounting system helps managers
to estimate the total cost incurred by firm over the production of goods and services. It is one of
the most accountable aspects that are required to be kept as a part of planning process because
overall decision of future plan is based on the financial position of company.
All are determined by using information from various accounting statements which are
prepared by the managers during year. Prime motive of managers is to increase maximum
revenue by using least cost over the expenses. As, they know that resource are in very limited
and that can be used through applying right techniques and methods which can help them to
minimise wastage. During the procedures of new project, sollatek incurs heavy capital over its
set up and necessary requirements that all are managed and control by accounting system
(DRURY, 2013). The department of finance is responsible for evaluating total cost and losses
which are going to be invested during starting of new venture with the use of various MA
systems. As a account officer, it is my sole responsibility to use perfect accounting system so that
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more positive outcome can be generate in coming future. Some of the accounting systems are
discussed these are: It is generally related with the procedures of gathering of data, summarising
it, recording into the concern books and analyse them by using right techniques before posting it
to financial statements. Because, these are considered as that costs which are incur by the
company during the production of product and services. During that process certain costing are
need to be considered such as normal, standard and actual costing. Inventory accounting system
is referred as a systematic record of stock information that is related with company’s production
process. It is used to manage, relocate and control various stock material that are going to be
implemented in the production process. Main purpose of this system is to track stock level,
summary related with order and analyse report of deliveries. Price optimisation system is the
numerical data used by managers of Sollatek to determine how clients will respond to different
prices for products and services through other channels. Focus of company is to estimate the
price that will fulfil the needs like maximising operating cost for the year. Job costing system is
concerned with the procedures by which determination of assigned cost that are related on a
specific lot size of activities under which both individual and organisation is related with. In this
system, analysis is done by observing products which are relatively different from each other.
Management accounting is known as a dynamic process that mainly targets on effective
accounting policies which are related with company. It is mostly associated with the strategic
development and effective decision making system.
P2. Techniques used for MA reporting
In every business concern, management accounting reporting is considered as one of the
important systems which can help company to analyse financial transactions. It is organised by
using right reporting system that provides more accurate results in the near future. The
transactions which are collected from operations are firstly analysed before posting it into
accounting books of accounts. It is done so because most of the major decision are taken on the
basis of those entries made by accounts managers (Gates and et. al., 2011). MA is responsible for
the interaction all department which is working for common objectives. They are mostly related
with all those factors which are affecting the performance of administration such as internal and
external. The social and cultural aspects are need to be considered while making a well planned
reporting. All those data which are related with Sollatek business operation are recorded into
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management accounting system. Before discussing various reporting techniques we should first
know about few things.
Report: It is known as an account provided for a specific matter, particularly in the form
of an official statements or document, after consult with proper investigation and approval of the
top management.
Reporting of financial statements: A reporting concern is an entity or business that
formulate financial reports. By taking necessary information from various sources. It consists of
company' performance, growth position and total investments. The accounts department look-
after all the valuable data by taking help of activities, various situations and important
investments which are essential for the development of business. In other ways, it is known as
techniques of providing necessary information to the higher authority. It also provides right
direction to other expertise those carries important skills and capabilities to frame well and
accurate accounting reports. It is prepared by using past and current year performances. It is done
to gain positive and innovative ideas for future investment those are made by outside
stakeholders. It will be more helpful for the management to draw a perfect plan that can guide
the company to achieve it set objectives. Reporting gives management necessary information
regarding Sollatek current year performance by analysing costs incurred over production of
products and services. It also presents how expenses can be managed in order to earn future
profits. It also provides information about what is the major cause of less profit in previous year
and make corrective steps to overcome these issues. In accordance to manage the financial
changes and reactions in the company they need to go through various reporting systems. Some
of the reporting system that are useful for Sollatek are as follows: Operational budget reporting
reporting system is used to get information about the expenditure which are done by the
company during the year on the production of goods and services. It helps accounts managers to
determine actual costs incur by sollatek. It consists of various sub units such as sales budgets,
variables budgets and other manufacturing budgets. Inventory management reporting is related
with management and control of inventory position in the company. Different types of physical
stocks those are used by Sollatek are used by mangers to prepare report. It will guide them to
check the level of inventory. There are various methods which can helpful for stock control such
as EOQ and ABC analysis.
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Job costing reporting costs which is associated with manufacturing of goods in a set lot
size are considered under this reports. As, this will help to determine the sequence, timing and
date of manufacturing. It will also provide information about total profit generated by each
activities in a year. Performance report reporting can be more drastically help the accounts
department to analyse current year performances of the cited company (Kotas, 2014). It is done
with comparing data from past year with current. It provides motivation to the employees as
well as organisation in order to attain its objectives. Account receivable report particular reports
are based on the data which are recorded by using cash information. Those cash transactions
which is deal in credit or cash are target and recorded to know that exact time of recovery.
M1: Advantages of MA
In an organisation such as Sollatek, they require a well organisation management
accounting system which can record and analyse its daily business transactions. It will be more
helpful for them to reach at their necessary destination. There is various system available with
the managers from which they can select either of them to get more accurate results. The main
advantages of MA are to increase efficiency foe company with the available resources. Some
other are related with profitability and future sustainability of company existence.
D1: Critical evaluation of reporting system
In Sollatek company, they need to analyse their financial data by using right accounting
report. It will be collected by using necessary information from various departments those are
responsible for essential management of financial stability. On the basis of their reporting, top
management will take future decision. Some of the available reporting system are job costing
which provide information about each activities as how much time they are taking to complete a
project. Other are inventory system and performance report which guide managers to maintain
proper balance among each department. Future, this will help to estimate total costs and losses
which are affecting the performance of the company.
TASK 2
P3: Use of costing methods in evaluation of net profit
Costing is a term which is used by an organization to estimate data assembling and
analysis of key elements of costs which are incurred to attain set objectives. These are simply
related with production costs that is used by managers to produce maximum units with the
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available resources (Hopwood and et. al.,2010). Costing includes various costs such as variable,
fixed or semi-variable costs. On the other hands, such amounts which is shown with the billing
charts as costs. It is further used in preparation financial statements. The Sollatek may use
various costing techniques in order to attain accurate net profit information. Some of them are:
Absorption costing is said to be that methods in which overheads are inter-changed
between a costs of other product and services and current values. Few costs are absorbed with
extra unit of production. It will be related with direct material, labour and other overhead
charges. It consists fixed overhead.
Marginal costing refers as those costs which are used by company in production of one
extra unit of product. Under this procedures, it may be directly impact with total number of
production costs incur by Sollatek company (Merchant and Kenneth, 2012). The other name of
this costs are prime cost, but it does not consider fixed costs. It represents relationship between
profit and volume.
Comparison among these two:
Marginal costing Absorption costing
By use of this costing method, company can
take valuable information to make future
decision. As this is related with those costs
which are incur on production of an additional
product unit.
Under this techniques, allotment of cost which
is required during cost of production are
determined.
Only variable costs are taken during
production process, while fixed costs are
considered as period costs.
Under this method, both variable and fixed
costs are used.
Outcome from this costing methods are results
in Net profits.
Here, the results are analysed by using
contribution per units.
Both overhead costs are included under this
costing method.
Expenses such as selling and distribution,
production cost are included under this costing.
Income statements through Absorption costing
Particulars Amount
Sales 35*500 17500
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Less:
Production cost 6+5+2+3 = 16*500
8000 8000
Gross profit 9500
Less:
Variable sales overhead 500*1 500
Selling and administrative cost expenses (800+400) 1200 -1700
Total Profit / Loss 7800
Computation of marginal costing through using Income statements
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2 - 7800
Closing stock: 100*13 - 1300 -6500
Contribution 11000
Less:
Variable sales overhead 500*1 500
Fixed overhead -1800
Selling and administrative cost expenses (800+400) -1200 -3500
Total Profit / Loss 7500
From the above information, the company have two best option by which they can
analyse their net profits. The one is absorption costing with 500 of actual sales unit they are
getting a profit of 7800 and by marginal costing with the same units they are generating 7500.
The sollatek need to adopt marginal costing because, it provides more accurate results.
M2: Various accounting methods
In every business administration, different accounting system are followed in order to
attain maximum profitability. This business of Sollatek is relies on the company' performances
which are determine by using right accounting system (Elsevier, 2015). In future planning, the
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above discussed accounting techniques are more effectively used in achieving future goals. It is
used to analyse future and actual and standard cost balances. Techniques such as goals
transparency and provide consistent feedback. Provide regular training and development for the
account managers.
D2: Evaluation of profit and loss statements
As per the above mentioned information, company can use either of the methods that
would provide more relevant profit. In order to earn maximum profit both costing methods are
effective. Because, if they are going with marginal costing they incur 7800 net profit with 500
units of actual sales. While, if they are going with absorption costing they are receiving 7500 of
net profits with the same units. Difference of 300 units as net earning is collected from this
research.
TASK 3
P4: Advantages and disadvantage of using planning tools
Budget refers as future estimation of total cost and expenses which are incur by company
with its limited resources. The prime objectives of budget preparation are to estimate the future
costs that are going to be utilised by an organisation. It is known as detailed financial plan of
action. It consists of total lists of revenues and expenses for declared period of time. Budgeting
control simply imply measuring, reporting, examine and providing necessary suggestion on the
basis of budget performances. All those planning and controlling of various aspects of
production process is determined under this process. It is considered as personal responsibilities
of a managers in regards to establishing various effective measure in relation to attain its aims
and objectives (Kotas and Richard, 2014). The major purpose of Sollatek is to control and
maintain effective balance among regular operations of company's data. It is mainly based on
perfect control system that assist the departments to formulate its business targets.
Procedures of budgetary control:
Future estimation of budget needs stages, managers required to make appropriate plan to
manage their daily activities through using effective ideas from the development of each
departments. With the use of perfect strategies company can assists to earn huge profit by
investing minimum cost over production expenses. It is related with various internal and external
aspects which are affecting profitability during the years. Actual costs are need to be considered
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major decisions are based on type of costs company are using during the production process. It
determines actual cost and performances that are regulated in current years. By the use of this,
managers can develop two reactions such as favourable and unfavourable. The one which is
more accurate are need to be taken into consideration and adverse are transfer for further
analysis. Evaluation among actual and standard costs: In this steps, budgets are prepared by
using actual cost figures.
In the budgetary control process, it is considered as one of the important phase in which
necessary decision are taken into consideration (Nixon and Burns, 2012). The variances among
variable costs, budgets costs sales are evaluated under this process. The results are generated by
using values by comparing actual costs or standard costs. The outcome from this will be more
effective if information is accurate and correct. Review phase is considered as last phase in
budget control process. Under this, various suggestion and feedbacks are analysed. The
appointed managers are given responsibility to determine various mistakes and essential
requirements from every department (Caglio and Ditillo, 2012). In this report of mangers, they
need to present various facts that consists of valuable information about budget that whether this
budgets are going to fulfil the needs of company. Is the cost are reduced by using appropriate
techniques. If all goes in well planned manner, then management will approve budgets for
further existences.
Some important planning tools are:
Operating budgets: It is related with those budgets which are used in order to manage
their expenses that are incur by the company while, manufacturing process (Callahan, Stetz and
Brooks, 2011). It is also known as annual budgets of an activity that represent various terms in
which budgets may be classified. It consists of reimbursable tasks and services for other
departments. It can be determined by using various budget such as sales, variance etc.
Advantages of this approach Regular maintains of record can help the company to attain
maximum profitability. Fur sustainability can be achieving by using right cost estimation
techniques on weekly, monthly or yearly basis. On the other hand, disadvantage in managers are
having limited information this budget won't be applicable.
Cash budget is related with that information which is related with cash transaction that
are done from various activities such investing, financing and operating. It is used to determine
total cash invested by company in each activities (Burritt, Schaltegger and Zvezdov, 2011).
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Positive and accurate information of cash inflows and outflows are analysed with the use of this
budgets. If payback period is competed, then cash flows are ignoring. It is not used to measure
profitability of the company.
Static budget is those budgets which cannot changes with the changes in volume (What
Are the Advantages and Disadvantages of Using a Static Budget, 2017). It anticipates amounts
about inputs and outputs that are received before the time of situation begins. The results are
always varying from the actual outcome as because they are only used while planning of future
activities. Its benefits is formulate under various term and situations under which values are
based on assumption basis.
Forecasting tool: It is said to be an important tools which is used to estimate future cost and
expenditure that are a company is going to incurred during the period of time. It also analyse
future value of growth procedures for chosen time frame.
Advantages: It used to guide business with necessary information regarding use to make
decision regarding future of an organisation.
Disadvantage: The main demerit of forecasting is similar as that of any kind of
techniques of estimating the future because no one can sure about upcoming implications.
Contingency Tool: It is an effective planning assessment that effect as per the market changes or
business disruption which can have on company. It allow management to pressure-test strategies
and risk assessment.
Advantages: It perceived future uncertainty that are based on administration past
experiences. It can easily be helpful to control risk factors that are present in an organisation.
Disadvantage: It often requires businesses to have plenty of resources to back up their
contingency strategies.
M3: Critically analysis of planning tools
In the estimation of better results companies are using various planning tools which can
provide them positive results. The main purpose of using such kind of tools is to control extra
costs and get maximum profitability (van der Steen, 2011). With the use of necessary tools
company can target to earn as much revenue as they can to cover its long term debts. Few of
them are operating budget which is more effective tools of company to control its expenses
because on that basis financial position can be estimated.
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D3: Use of tools to overcome financial problems
In Sollatek company or any other business concern, they are having some sort of
financial issues which can impact the profitability and growth level of the company. Financial
and non-financial issues are making more impact on sustainability aspects also. In order to
overcome those issues, company are using balance scorecard system which can help them to
solve various issues. Some other are key performance indicators which is used to analyse the
performance of the company position.
TASK 4
P5 to resolve financial issue with the use of MA
There are different issued which influence business operation in the short and long term
manner. These issues can be related with the financial or non-financial and need to be resolved at
the initial level. Such problems increase due to mismanagement of funds and under-utilization of
financial and other resources. It will increase the various problem which leads to reducing profit
and revenue for the company (Becker, Patrick Ulrich and Michaela Staffel, 2011). Therefore,
this is the responsibility of the company in order to minimise these problems and provide a long
term growth and development. For instance, they can use balanced score card so that to reduced
mismanagement of financial deficiencies in the longer run. There are various potential investors
who seek the current performance of the company to invest their capital to getting an expected
return out of them. Further, they also consider firm future position which provide a long term
profit which is very crucial for them. The manager of Sollatekis responsible to review their
overall financial position and make their decisions in order to attain their established target in an
effective manner (Quinn, 2014). For instance, the cited firm need forecast their expenditure in
advance and also arrange its financial resources which can be internal and external sources and
its cost of capital. They make sure that such cost should be minimized.
Comparison between Sollatekand Unicorn Grocery
Pitfield London Sollatek plc
This company is focused on those areas
where operational cost can be minimised.
Pitfield Londonare using their current and
historical data to make their decision more
effective.
It is small company in which area of
operation is limited which required to make
their decision in more effectively.
The firm are monitor their operations on
regular basis so that they increase their
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In this firm management analyse its actual
and planned budget and identify variances
which is very significant for them.
profitability (Ward, 2012).
Sollatek also analyse its financial position
on regular over a period of time and
improve its performance level in the near
future.
M4: Evaluation of financial issues
The another major issue is related with the risk assessment for a particular project. There
is various risk associated with a project which involves financial risk, political risk, legal risk,
environmental risk etc. This is responsibility of top management to prevent or overcome these
risk which can help to maintain its financial position good in the market. For instance, the role of
government policies is very critical for a proposed project and need to be implemented in a
manner so that they can meet its short and long term objectives and maintain its competitive
position in the market which is very significant for a small business corporation.
CONCLUSION
From the above mentioned report, it has been concluded that management accounting
system helps effective utilization of financial resources. This report contained various
information such as different approaches of management which helps to determine profit and
revenue of the company. This report also compares the various tools in the context of Pitfield
London and Sollatek and its application in different context. The role of business corporation is
to understand the overall concepts in order to maintain its profit and revenue in the longer run.
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What Are the Advantages and Disadvantages of Using a Static Budget. 2017.[Online]. Available
through: <https://www.fool.com/knowledge-center/advantages-disadvantages-of-using-
a-static-budget.aspx>.[Accessed on 26th October 2017].
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