Application of Management Accounting in a Business Context

This report discusses the application of management accounting in Synergy Manufacturing Co. Ltd. It explains different types of management accounting systems, methods used for management accounting reporting, and planning tools for budgetary control. It also includes the advantages and disadvantages of different planning tools used for budgetary control. The report helps in gaining a deeper understanding of how financial problems can be cured with the help of management accounting and leads to sustainable success of the company.

APPLICATION OF
MANAGEMENT
ACCOUNTING IN A
BUSINESS CONTEXT

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Explain management accounting and give the essential requirements of different types of
management accounting systems.................................................................................................3
Explain different methods used for management accounting reporting......................................5
Preparation and Interpretation of income statement under absorption and marginal costing
system..........................................................................................................................................7
Advantage and disadvantage of different types of planning tools used for budgetary control. . .9
Analysis and application of planning tools within Synergy company for preparing budget and
forecasting..................................................................................................................................10
Evaluation of how manager of Synergy uses MA planning tools to solve financial problems
and lead organization to sustainable success.............................................................................11
Comparison of how different organization are adapting management accounting systems to
respond to financial problems....................................................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting can be stated as a tool which helps in the composition of
financial statements in such a way that it helps the management in making important business
decisions. Management Accounting plays a vital role in the functioning of an organization. It
helps in planning, decision making, strategy building and identifying problems. This report will
be based on the application of Management Accounting in the Synergy Manufacturing Co. Ltd.
It is a medium sized enterprise based in United Kingdom. This report will include the importance
of management accounting systems and management accounting reporting in an organization.
Moreover, the report will study the use of planning tools in management accounting and
budgetary control and its advantages and disadvantages. The study will help in gaining a deeper
understanding of how financial problems can be cured with the help of management accounting
and leads to sustainable success of the company.
MAIN BODY
Explain management accounting and give the essential requirements of different types of
management accounting systems.
Management accounting is a widely used concept and is important for the functioning of
an organization. The financial information prepared using management accounting helps in
analysing the current situation, planning and making financial decisions in an enterprise.
The different types of management accounting systems followed by Synergy Manufacturing Co.
Ltd. are as follows:
1. Cost Accounting System
Cost accounting is a form of management accounting used by the companies in order to
identify all the cost incurred in the process of production (Ameen, Ahmed, and Abd Hafez,
2018).
Benefits of Management accounting systems and its integration within the organization
Synergy Manufacturing Co. Ltd. uses this system of management accounting for the
purpose of recording all types of cost related to operations and production of the company. Cost
accounting benefits the company by identifying the cost incurred, bringing cost efficiency,
planning and making important business decisions. It further helps in ascertaining per unit cost
of manufacturing in an organization.

2. Job Costing System
Job costing is used by companies in order to identify the cost allocated to specific jobs. It
is a form of cost accounting (Azudin, and Mansor, 2018).
Benefits of Management accounting systems and its integration within the organization
This method of accounting is also used by the Synergy Manufacturing Co. Ltd. as it is a
manufacturing firm. It helps the company in identifying the cost of material, overheads and
labour while carrying out a specific job. The benefits of job costing in relation to Synergy
Manufacturing Co. Ltd includes ascertaining profit for specific jobs, identifies unprofitable jobs,
budget control and comparison of estimates with actual costs incurred.
3. Inventory Management System
A process through which companies keep a track of their inventory from purchasing of
raw material to the process of production and to the selling of their finished goods is known as
the Inventory Management System. It uses methods such as FIFO, LIFO, AVCO for the purpose
of valuation of the inventory held in an enterprise (Bulgakova, and et.al, 2018).
Benefits of Management accounting systems and its integration within the organization
These methods of inventory management are used by the Synergy Manufacturing Co. Ltd
for the valuation of inventory within the organization. With the use of inventory management,
Synergy Manufacturing Co. Ltd can better organize their inventory, build accuracy in inventory
management, increase profitability by reducing their cost, provide better experience to their
customer base and increase its productivity.
4. Price Optimization System
A method of accounting specifically used by the companies in order to determine a
standard price for its products and services which is beneficial for both the company as well as
the customer. This method of management accounting is referred to as Price Optimization
System (Maheshwari, Maheshwari, and Maheshwari, 2021).
Benefits of Management accounting systems and its integration within the organization
Synergy Manufacturing Co. Ltd makes use of this method by analysing the financial
information and then deciding upon the most effective prices for their goods and services. The
company tries to set the best prices while launching their products in the market with the help of
price optimization system. The benefits of Price Optimization System include maximization of

profits and sales as customers are more likely to buy products which are affordable for them.
This further helps the company in analysing consumer purchasing patterns so as to offer them
with what they need. This enhances a company’s rate of return and help the company in
providing instant changes as per the market patterns.
Explain different methods used for management accounting reporting.
Management accounting reporting refers to specific reports made by the company with
the help of information used in financial statements. These reports can be used by the enterprise
in making important business decisions by critically analysing the information. The different
methods of management accounting reporting and its integration within the organization is as
follows:
Budget Reports
Budget reports are those reports in which a company creates an estimated budget required
for the functioning of their business. This estimated budget is then compared with the actual cost
of the company so as to analyse the current scenario of the company (Pedroso, and Gomes,
2020).
Synergy Manufacturing Co. Ltd uses budget reports for setting an estimated budget for
the help of internal management of the organization. This estimated budget is used for measuring
the actual performance of the company. Thus, helps the enterprise in making tough decisions.
Cost Managerial Accounting Report
Cost Managerial Accounting Report consists of all kinds of costs allocated to raw
materials, labour and overheads which are used in the process of production and manufacturing
of finished goods (Pedroso, Gomes, and Yasin, 2020.).
Cost Managerial Accounting Report is used by Synergy Manufacturing Co. Ltd. This
report benefits the company by mentioning the cost incurred in preparation of each product
versus its selling price. This helps in evaluating the profit margin of the company.
Inventory and Manufacturing Report
This report helps an organization in determining the exact amount of raw materials,
finished goods and other necessary inventory available, and decide upon if there is a need to
order so that the manufacturing and production process can run smoothly (Shchyrba, 2018).
This form of managerial accounting reporting is implemented by the Synergy
Manufacturing Co. Ltd for the efficient and smooth functioning of their manufacturing process.

This Report further helps the company in increasing sales and profit of the enterprise. With the
help of Inventory and Manufacturing Report, the chances of happening of stock outs can be
decreased and the delivery performance of the company increases.
Performance Report
A Performance Report is of great help as it involves the data resulted from the
comparison of set budgets with actual performance of the company. This report can be made for
a time period as required by the company. A good performance report always leaves a space in
which the employees of the company can share their ideas for the betterment of the company.
This report is used by the Synergy Manufacturing Co. Ltd as it aids an organization in
achieving future goals by constantly evaluating the current performance of the company. It helps
in identifying those areas of business where it has scope of improvement.
Job Cost report
A job cost report refers to a report which consists of costs, profits and expenses related to
each job individually. This report provides a base for the future planning by determining the jobs
of similar nature and then combining them into a single head (Weetman, 2019).
Job Cost Report is successfully executed by the Synergy Manufacturing Co. Ltd in to
their organization. It helps the enterprise by determining the profit involved in each particular
job, helps in ascertaining those areas which are no longer serving profit to the company. Since, it
is eligible of determining the cost associated with individual jobs, it helps the company
identifying the extra cost incurred in each job and then act accordingly to control the cost.

Preparation and Interpretation of income statement under absorption and marginal costing
system
Income statement under absorption costing
For the year ended March, 2020
Particulars Details Product A Details Product B
Sales unit 4600 3200
Selling price 180 150
Sales Revenue 4600*180 828000 3200*150 480000
Less Cost of sale:
Cost of production 575000 311500
Less closing stock 46000 529000 26700 284800
299000 195200
Less variable selling
overheads 4600*2 9200 3200*2 6400
Less Fixed
administration
overheads 54000/8500*5000 31765 54000/8500*3500 22235
Net Income 258035 166565
Working Notes:
Calculation of cost card under absorption costing
Particulars Product A Product B
Direct Material 30 24
Direct labor 36 24
Variable production
overheads 24 16
Fixed production
overheads (210000 /
8500) 25 25
Total cost of production 115 89

Income statement under marginal costing
For the year ended March, 2020
Particulars Details Product A Details Product B
Sales unit 4600 3200
Selling price 180 150
Sales revenue 4600*180 828000 3200*150 480000
Less Variable cost
excluding closing
stock 4600*92 423200 3200*66 211200
Contribution 404800 268800
Less Fixed cost:
Fixed production
overheads 210000/8500*5000 123529 210000/8500*3500 86471
Fixed administration
overheads 54000/8500*5000 31765 54000/8500*3500 22235
Net income 249506 160094
Working Note:
Calculation of cost card under marginal costing:
Particular Product A Product B
Direct material 30 24
Direct labor 36 24
Variable production
overheads 24 16
Variable selling cost 2 2
Total variable cost 92 66

Interpretation:
On the basis of above calculation, it is identified that absorption profit of product A as
well as product B is higher as compared to marginal profit. It is only because, the fixed cost of
production absorbed in the closing stock in the case of absorption costing which results into
higher profit. Further, it is also because total number of units produced in the year is higher than
the number of units sold in the year. Thus, profit under absorption profit is higher than the profit
under marginal costing.
Advantage and disadvantage of different types of planning tools used for budgetary control
The most common types planning tools which is used by the Synergy Manufacturing for the
purpose of budgetary control are as follows:
Budgets tool: This is a planning tool of management accounting which involve
preparation of various budgets such as cash, production, purchase variable cost budgets etc. With
the help of this management of Synergy company can predict the money require to meet the
production activity of business.
Advantage of budgets:
 Preparing the budget helps in improving the coordination among the department.
 It improves the proper allocation of resources among department and activities which
further leads to budgetary control (Bracci and et.al., 2021).
Disadvantage of budgets:
 Sometime rigid and complex budget create major problems and also causes perception of
unfairness.
 It also creates competition for resources among the department of company.
Variance analysis tool: This is another tool of budgetary planning which involve the
identification of gap between the budgeted and actual cost of the company by the management of
Synergy manufacturing.
Advantage of variance analysis:
 This helps the company to eliminate the unnecessary cost along with the evaluation of
performance of each department.

 This also helps in identifying unfavourable gap between actual and standard for further
adoption of corrective actions.
Disadvantage of variance analysis:
 This is quite expensive and time consuming to company because detail research is
required under this planning tool.
 For using this tool, the detail knowledge of financial terms and items are required
because without this the management of Synergy company can’t use this tool (Young and
et.al., 2021).
Pricing strategy tool: Pricing strategy is one of the best planning tool of budgetary
planning because this involves price of goods and services which is charged by company from its
customers. This policy involves premium, value-based, penetration, economy, skimming pricing
etc. For example, Synergy ltd uses customer base pricing strategy for their goods and services.
Advantage of pricing strategy:
 This is basically one of the best strategy with the help of which synergy company can
determine ideal price of their goods that customers are willing to pay.
 The another benefit of this strategy is to increase sales and profitability of business along
with gaining higher customer base.
Disadvantage of pricing strategy:
 Sometime setting the price at what customers willing to pay is causes heavy loss to
company rather than what it should cost.
 This also leads to loss in profit and increase in competition in the market (Alsulmani,
Alkindi and Ahmed, 2021).
Analysis and application of planning tools within Synergy company for preparing budget and
forecasting
Preparing budgets and forecasting is basically one of the most significant role of
management of Synergy manufacturing company which provide them control over business
money. This also help them in focusing on their financial goals which is only possible with

flexible budgets and putting money aside in term of reserves. For example, with the help of
variance analysis tool application by the management of Synergy within the business the
company able to identify whether the gap between the actual and budgeted is high or low and
favourable or unfavourable (Mancini, Lombardi and Tavana, 2021). Further, if the gap is
unfavourable than Synergy management can adopt strategy to control its budgets such as training
to employees so that wastage of resources gets reduced, purchasing of raw material at low cost in
large lots so that their cost of production will reduce etc. In this way, the manager of synergy
company can apply this planning tool to improve their budgeting and forecasting.
Evaluation of how manager of Synergy uses MA planning tools to solve financial problems and
lead organization to sustainable success
The different ways through which planning tools of management accounting helps managers
of Synergy Manufacturing in preventing and solving financial problems are as follows:
 By establishing KPI: This is one of the way with the help of which manager of Synergy
company are solving financial problems. In this they basically set the key performance
indicators to track the financial performance of company. For example, Benchmarking
the company helps the managers to identify the key area where they are lacking and how
they can solve it.
 By preparing reports: The managers of Synergy company can prepare the report on
trends of the market which further help them in analysing value of their business. For
example, with the help of social and environmental trends managers can build the value
of Synergy business in the market (Secinaro and et.al., 2021).
 By performing financial statement analysis: When it comes to decision-making,
financial statement analysis is one of the best resources. This helps the manager of
Synergy to identify whether their business profit is high or low as compared to its
competitors so that they can further increase the same.
 By describing impact of sustainability issues: Sometime poor campaign strategy of the
company leads to the poor financial performance. Thus, describing the impact of
sustainability issues will help Synergy manager in selecting the campaigns which will
definitely increases their sales or customer base.

Evaluation of how solving financial problem through MA tools help manager to guide their
organization towards sustainable success:
The manager produces report on sustainability issues which helps them to identify the
financial and non-financial information need to be disclose in annual report which further leads
to sustainable success. The decision on pricing, investment appraisal, budgeting will not only
solve financial problem but also leads to sustainable success. For example, with the help of
management accounting tools, the management accountant for Tesco has identify that the
accounting scandal was happening within the business in the year 2014 (Antonelli and et.al.,
2021). The impact of which the company has started apologizing with the customers and started
disclosing each and every sustainability information of the company in their financial reports. In
this way, every company especially Synergy need to understand disclose social, economic and
environmental performance of their company to users in order to increase sustainable success of
business.
Comparison of how different organization are adapting management accounting systems to
respond to financial problems
Particulars /
Management
accounting
system
Ratio Analysis Break-even Analysis Investment appraisal
Meaning Ratio analysis is a
management
accounting system
which means
analysing the
financial, efficiency,
liquidity and
investment
performance of
company based on the
calculated ratios (Kan,
This is a system of MA
which state the sales
point of the company
where they will neither
earn profit nor it will
incur any loss. This is
best for increasing the
profit of business.
Investment appraisal system
of MA state the investment
project which are highly
profitable to company and if
the company will invest in
such project they will able
to get higher return from it.

Agbodjo and Gandja,
2021).
Name of
company
adapted this
system and
financial
problem they
are facing
Tesco is a UK based
largest retail company
has adapted this
system of MA to deal
with the financial as
well as competition
problem within the
business.
Financial problem:
The profit of the
company has started
decreasing with the
entry of its new
competitor Sainsbury.
Verdant Leisure is a
company of UK which
uses this system to deal
with their financial
problem.
Financial problem:
The company basically
faces difficulty to
known which product
and service line are
more profitable to
company (Beusch and
et.al., 2021).
Synergy Manufacturing
has adopted this system for
solving financial problem.
Financial problem: The
company unable to generate
higher returns from its
investment or sometime the
return on investment is
lower than cost of
acquisition of same fund.
Responses to
financial
problem
In order to deal with
this problem, Tesco
has started using ratio
analysis. The company
basically compared
their own performance
with that of its
competitors using ratio
and started offering
various discounts,
offers to customers to
retain and attract loyal
and new customers.
With the help of this
system, Verdant
company has identified
its break-even sales
which help them to
known how much
minimum units they
need to sale to start
earning profit. In
simple term, this helps
the company to know
the products or services
which are generating
profit and losses to
business. So that
The company has uses Net
present value method of this
system to identify higher
profitable projects. As per
this, the management of
Synergy company easily
identify which profitable
projects using simple
formula. This formula
involves present value of
future cash inflows minus
present value of cash
outflow or initial
investment. The overall
impact is that the return on

company can stop
producing unprofitable
product.
investment of the company
has increase and they able to
pay the cost over their
acquisition of funds
(Antonelli and et.al., 2021).
CONCLUSION
The report has concluded the meaning of management accounting along with the application
of various management accounting system and reports within Synergy Manufacturing company.
The report has also computed the income statement under absorption and marginal costing.
Lastly, the report has concluded the different planning tools along with their advantage,
disadvantage and comparison within organizations.

REFERENCES
Books and journals
Bracci, E. and et.al., 2021. Accounting for (public) value (s): reconsidering publicness in
accounting research and practice. Accounting, Auditing & Accountability Journal.
Young, K. M. and et.al., 2021. Psychological Contract Research in Accounting
Literature. Advances in Accounting Behavioral Research.
Alsulmani, A. H., Alkindi, S. S. and Ahmed, E. R., 2021. Customer Accounting Information and
Omani Service Companies’ Performance. International Journal of Finance & Banking
Studies (2147-4486), 10(2), pp.79-88.
Mancini, D., Lombardi, R. and Tavana, M., 2021. Four research pathways for understanding the
role of smart technologies in accounting. Meditari Accountancy Research.
Secinaro, S. and et.al., 2021. Blockchain in the accounting, auditing and accountability fields: a
bibliometric and coding analysis. Accounting, Auditing & Accountability Journal.
Antonelli, V. and et.al., 2021. Accounting for biosecurity in Italy under COVID-19
lockdown. Accounting, Auditing & Accountability Journal.
Kan, K. A. S., Agbodjo, S. and Gandja, S. V., 2021. Accounting polycentricity in Africa:
Framing an ‘accounting and development’research agenda. Critical Perspectives on
Accounting. 78. p.102234.
Beusch, P. and et.al., 2021. Management control for sustainability: Towards integrated
systems. Management Accounting Research, p.100777.
Ameen, A.M., Ahmed, M.F. and Abd Hafez, M.A., 2018. The Impact of Management
Accounting and How It Can Be Implemented into the Organizational Culture. Dutch
Journal of Finance and Management. 2(1). p.02.
Azudin, A. and Mansor, N., 2018. Management accounting practices of SMEs: The impact of
organizational DNA, business potential and operational technology. Asia Pacific
Management Review. 23(3). pp.222-226.
Bulgakova, S.V., and et.al, 2018. Management accounting in effective structures of an
organization. Research Journal of Pharmaceutical, Biological and Chemical
Sciences. 9(5). pp.1095-1105.
Maheshwari, S.N., Maheshwari, S.K. and Maheshwari, M.S.K., 2021. Principles of Management
Accounting. Sultan Chand & Sons.
1

Pedroso, E. and Gomes, C.F., 2020. The effectiveness of management accounting systems in
SMEs: A multidimensional measurement approach. Journal of Applied Accounting
Research.
Pedroso, E., Gomes, C.F. and Yasin, M.M., 2020. Management accounting systems: an
organizational competitive performance perspective. Benchmarking: An International
Journal.
Shchyrba, I., 2018. Management accounting in the management system of the enterprise. Finanse
i Rachunkowość Nr 5. p.137.
Weetman, P., 2019. Financial and management accounting. Pearson UK.
2