Management Accounting and Budgetary Tools for Eastern Engineering Co. Ltd

This report discusses the principles of management accounting, importance of integration of MA system, techniques and methods used for management accounting reporting, advantages and disadvantages of budgetary tools, and how different organizations are adapting management systems to respond to financial problems with Eastern Engineering Co. Ltd as an example.

UNIT 5 ASSESSMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
1...................................................................................................................................................3
2...................................................................................................................................................4
3...................................................................................................................................................5
4...................................................................................................................................................6
CONCLUSION................................................................................................................................9
REFERENCES................................................................................................................................1

INTRODUCTION
Managerial accounting (MA) is the process of identification, measurement, analysis and
interpretation of financial information of the company using the various tools and techniques.
The report will be based on Eastern Engineering Co. Ltd. The report will discuss the principles
of management accounting and importance of integration of MA system within Eastern
Engineering company using three examples. Further, the report will discuss the different
techniques and methods used for management accounting reporting, advantage and
disadvantages of the budgetary tools. Lastly, the report will compare how different organizations
are adapting management systems to respond to financial problems.
1.
Principles of Management Accounting
The four principles of managerial accounting that Eastern Engineering Co. Ltd have to follow
within their organization are as follows: Influence: This principle state that the information that is present in the financial
statement influence the decision-making process of users of financial investment. Thus,
Eastern Engineering company should present financial information in simple, concise and
standardized format (Atkins and Maroun, 2018). Also, they should cover all the material
information within report that affect the decision-making of stakeholders. Relevance: Another principle of MA is relevance which state that Eastern Engineering
company should cover relevant information only in the financial statements. Example of
relevant information involve past, present and future, external and internal information,
financial as well as non-financial information. Value: This principle of MA state that the information present in financial reports must
be valuable. It means Eastern Engineering have to provide all information regarding the
business to its users because it helps in better decision-making.
 Credibility: The last principle state that Eastern Engineering company management
accounting experts should know their ethical responsibility (Atkins and Maroun, 2018). It
means they should aware of organization ideals, governance and interpersonal
commitments while preparing annual reports in order to improve trust as well as
reliability of shareholders.

Importance of integration of management accounting system within Eastern Engineering
Co Ltd:
Cost Accounting system: This is first system of management accounting which helps in
identifying the per unit production cost of products based on distribution of total cost into direct
and indirect cost. For example, with the integration of this MA system in Eastern Engineering
company, the manager able to identify the cost per unit of its products which further help in
setting suitable price of products and services (Mensah, 2019). This system will help the
manager of Eastern Engineering company to take decision on make a product in house or buy a
product from open market.
Inventory Management system: This is another MA system which help in identification
of closing stock of raw material and also for inventory valuation. For example, Eastern
Engineering company can easily value its closing stock with the help of various methods of
inventory valuation such as LIFO, FIFO, weighted average etc. It helps the Eastern Engineering
company to maintain the right level of stocks within the business that ultimately result into the
reduction of wastage of resources.
Price-optimising system: This is another significant management accounting system
which state that company should analyse its product demand in market before making any
change in its price. For example, if Eastern Engineering wants to increase its product and service
price, then manager of company first needs to analyse and research that whether customer is
willing to pay more or not (Nawaz and Koç, 2018). If yes that Eastern Engineering company can
do so, but if not than the company should avoid it in order to save its customer base. This system
will help Eastern Engineering company in increasing its profit margin.
2.
Techniques and Methods used for Management Accounting reporting:
Budget report: This report states the estimations and expected earnings and expenses the
company will earn and incur in future. For example, in order to achieve the future goals and
objective of business, the manager of Eastern Engineering company can prepare flexible
production, purchase, sales, cost and cash budgets (Burritt and et.al., 2019). This helps Eastern
Engineering company in understand its past trends and on the basis of past trends the company

can estimate the future outcome of the business. The growth rate is a way through which the
company can estimates future assuming except any uncertain event.
Accounts receivable aging report: This report covers and maintain the information
regarding the list of debtors or customer from whom the company need to collect payment and
list of suppliers to whom the company need to make payment. For example, Eastern Engineering
company can use this method of management accounting report to ensure quick debtor collection
and creditor payment management within the business (Di Vaio and Varriale, 2018). The impact
of which the creditworthiness of business will improve in the market. Not only that, this
reporting method also helpful for identifying their customer behaviour and on that basis the
company can provide EMI option.
Cost managerial report: This is another method used for management accounting report
in which generally all the cost are recorded such as raw material cost, labour cost and overhead
cost in order to divide them with the number of units produced. This helps the company to
known the raw material, labour and variable overhead cost per unit produced within business.
For example, If Eastern Engineering company wants to known the its production cost per unit,
then they can use this method of reporting. This further help the company to know inventory
waste and optimization of resources among the department so that manager can make decision
regarding product line continuity and discontinuity.
3.
Advantages and Disadvantages of budgetary tools are as follows:
Variance Analysis: This is one of the budgetary tools which help Eastern Engineering
company in identifying the gap between actual and standard cost as well as income. So, that the
manager of Eastern company can further take corrective action to reduce the gap between actual
and budgeted figures. The company basically use this tool for both financial as well as non-
financial aspects.
Advantages of variance analysis:
 This helps the managers of Eastern Engineering company to eliminate unnecessary cost
on the basis of evaluation of each department performance (Weigel and Hiebl, 2018).

 This tool also helps in determining whether the gap between actual and standard is
favourable or unfavourable and big or low so that they can adopt corrective actions
accordingly.
Disadvantages of Variance analysis:
 Adoption of this tool is quite expensive for company because the company need to hire
experts for this role.
 Deep market research is required for this tool integration.
Investment appraisal: This is another one of the significant budgetary tools which is used by
organization for capital budgeting (Weigel and Hiebl, 2018). For example, Eastern Engineering
company can use this tool to select the profitable and suitable investment proposal out of the
alternatives based on either NPV or IRR method.
Advantages of Investment appraisal:
 The benefits of investment appraisal are that it helps the company to select the best and
profitable investment plan or project after considering the time value of money concept.
This concept plays vital role in converting the future cash flows into the present cash
flows.
 The company can use this to earn high profit and further use the same profit in research
and development or sustainable planning so that the brand image of company will
improve in the eye of customer, society, government as well as local community.
Disadvantages of Investment appraisal:
 This hiring of people with advance financial management knowledge, expertise and skills
is required for this tool implication which is time-consuming as well as expensive for
businesses.
 The economic factor such as inflation rate influence the investment appraisal results
which further leads to wrong interpretation and decision (Vershitskaya and et.al., 2020).
4
Management accounting systems can be explained as a group of accounting processing
which includes certain procedures and controls in order to record business transactions within an
organization. It provides the users of information a basis to make important business decisions.

The internal users of information such as managers uses the financial information in order to
review its own business policies and the take steps in order to formulate strategies for resolving
certain issues and take actions to mitigate their impact (Malitskaya, and et.al., 2019). Similarly,
the external users of information such as shareholders of an organization needs to know the
financial position of a company and determine if it is profitable to invest in an organization or
not. There are a few financial problems faced by organizations which can be solved by
implementing management system. This has been explained below:
Financial
problems
Eastern Engineering Co. Ltd Coventry Engineering Group
Inconsistent cash
flow
The company was facing the issues
with inconsistent cash flow within the
organization. Therefore, the
enterprise decides to formulate
certain strategies of management
accounts systems in order to resolve
the issues. For the same, the company
asked its suppliers to extend the time
period in which the company is
supposed to pay for the raw materials
and inventory purchased (Okeke, and
et.al., 2022). The company also
offered discounts to its customers on
receiving early payments in order to
increase the flow of cash within the
company. The company also decided
to engage itself with the consumers in
order to make them understand the
situation and influence them release
the payments. This helps the
company in improving the credibility
of the company as it is providing
For the purpose of solving the
issue of inconsistent cash flow
within the organization, the
company can contact those clients
which are the main customers of
the organization and buys the
product of the company in bulk.
The company also formulated
strategies which could help the
company in getting discounts from
the suppliers and grab the
opportunity if it finds one. The
company also took steps to
identify the faults in accounting
process of the organization in
order to identify the main cause
leading the company towards
inconsistent cash flow. For the
same, the company conducted an
internal audit of the accounts in
order to identify the costs incurred
in each process and if it is

discounts to the consumers on early
payment and improving the
inconsistent cash flow among the
organization.
exceeding the set limit or not. The
company verified the cost of
inventory incurred and the amount
of revenue generated within a
period in contrast to the cost
incurred. This helps the company
in determining its current position
and taking actions in order to
resolve the existing issues for the
same.
Incurring huge
costs
Budgets play an important role in an
organization. With the help of using
certain budgets can company reduce
its costs and expenses and enhance
the profitability of the company. The
company can make use of different
kinds of budgets such as flexible
budgets, capital budgets. With the
help of a budget, the company
identify different costs associated
with the business and segregate them
in the budget. The company set a
certain amount to the extent which
the company thinks the variable cost
will be incurred. When all the costs
will be associated with the business
will be allocated within the budget,
the company will gain an idea as hoe
it should work on reducing the cost
and take steps which guides them in
not exceeding the set limit.
The company identified that the
amount that it is incurring towards
the expenditure of the company in
too high. For the same, the
company decide to review the
accounting information. For the
same, the purchased new and
efficient plant and machinery.
With the help of high and modified
technology, the company tries to
reduce the manufacturing cost
associated with the business. By
using this technique, the company
increased the production level of
the company without affecting the
cost of expenditure (Pavlov, 2020).
The company also reviewed its
variable cost which includes
telephone expenses, travelling
expenses, salary, cost of stationary,
postage and many more. The

company took steps for the
purpose of reducing these costs in
order to reduce the overall cost of
the organization. The company
reduce the money spent on
marketing o the traditional media
and focused only on the digital
media marketing tools in order to
control the cost incurred.
CONCLUSION
From the above report, it can be concluded that in order to smoothen the business
processes operating within an organization, it is important for that organization to consider and
implement various tools of budgetary control and management accounting. The report also
discusses how financial problems can be solved with the help management accounting.

REFERENCES
Books and journals
Atkins, J. and Maroun, W., 2018. Integrated extinction accounting and accountability: building
an ark. Accounting, Auditing & Accountability Journal.
Burritt, R. L. and et.al., 2019. Diffusion of environmental management accounting for cleaner
production: Evidence from some case studies. Journal of Cleaner Production. 224.
pp.479-491.
Di Vaio, A. and Varriale, L., 2018. Management innovation for environmental sustainability in
seaports: Managerial accounting instruments and training for competitive green ports
beyond the regulations. Sustainability. 10(3). p.783.
Malitskaya, V., and et.al., 2019. Development of accounts receivable management in Russia.
In Education Excellence and Innovation Management through Vision 2020 (pp. 723-
728).
Mensah, J., 2019. Sustainable development: Meaning, history, principles, pillars, and
implications for human action: Literature review. Cogent Social Sciences. 5(1).
p.1653531.
Nawaz, W. and Koç, M., 2018. Development of a systematic framework for sustainability
management of organizations. Journal of Cleaner Production. 171. pp.1255-1274.
Okeke, O.C., and et.al., 2022. Inventory management and financial sustainability: insight from
quoted manufacturing firms in Nigeria. International Journal of Managerial and
Financial Accounting. 14(1). pp.84-97.
Pavlov, S. A., 2020. THE ADVANTAGES OF DEVELOPMENT AND EMPLOYMENT OF
THE MS EXCEL-BASED BUDGETARY ANALOG OF ANDON, AS A MEANS OF
OPERATIONAL CONTROL AS A PART OF THE INTRODUCTION OF THE
BALANCED SCORECARD. Modern Science. (12-5). pp.315-318.
Vershitskaya, E. R. and et.al., 2020. Present-day management of universities in Russia: Prospects
and challenges of e-learning. Education and Information Technologies. 25(1). pp.611-
621.
Weigel, C. and Hiebl, M. R., 2018. Beyond budgeting: review and research agenda. Journal of
Accounting & Organizational Change.
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