Management Accounting: Techniques and Tools for Decision Making

This study material provides an in-depth understanding of management accounting, including its discrimination and systems, methods of reporting, and various techniques used. It also explores the advantages and disadvantages of planning tools in decision making. Suitable for students studying management accounting or related courses.

Management Accounting
Case Study

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Discrimination of management accounting and its systems...................................................3
P2 Methods of management accounting reporting......................................................................2
M1 Benefits of management accounting system.........................................................................3
D1 Evaluation of integration between management accounting system and various managerial
report............................................................................................................................................3
TASK 2............................................................................................................................................3
P3 Managerial accounting techniques.........................................................................................3
TASK 3............................................................................................................................................5
P4 Explanation of advantage and disadvantage of planning tools..............................................5
M2 Application of management accounting technique and procedure of financial reporting....7
D2 Procedure of financial report and interpretation of its benefits.............................................7
TASK 4............................................................................................................................................7
P5 Uses of managerial accounting system to solve financial problem........................................7
M4 Explanation of how management accounting can lead organization success by resolve
financial problem.........................................................................................................................9
D3Explantion of uses of planning tools to solve financial problem............................................9
CONCLUSION................................................................................................................................9
REFRENCES.................................................................................................................................10

INTRODUCTION
Management accounting is a part of managerial functional process. It is a systematic process in
which manager used accounting data as a source of information and take decisions well as
formulate policies by using managerial accounting information. In order to understand this
concept briefly Murrill Construction Limited has been taken. It is a manufacturing medium
size organization which engage in build highway, building, and provides maintains services
to their clients it is situated in Wokingham, UK. In this report uses of management
accounting system for taking essential decision, formulation of managerial parts through
which organization can analysis their performance is defined in a brief manner. This report
also consist uses of various management accounting technique through which manager can
identify cost and profit ratio within the given time period. It also considered how managerial
accounting tools help in overcome problems related to finance.
TASK 1
P1 Discrimination of management accounting and its systems
Management Accounting: It can be defined as a branch of accounting which is used for decision
making process. During this process accosting information is collected, recorded and analysis
and communicated to internal party of the organization. Management accounting also known as
managerial accounting (Carlsson-Wall, Kraus, K and Karlsson, 2017). The data collected from
tools and system uses by management accounting is only useful for internal party of business
entity. Managerial accounting system includes various system through which manager can
identify cost ,determine price and recognize each activity process. Manager of Murrill
Construction Limited can be use following accounting system for run their construction
activities:

help in controlling cost expenditure as wells helps in taken essential decision regarding risk
management.
 Price management system: It is adopted by organizations to determine the price of each
product of organization. Various pricing strategies has been recognized which included,
cost pricing, penetration, price skimming etc. Price management system help manager to
optimum utilization of their financial resource as well as it is useful for taken decision
regarding profit maximization policy. Murrill Construction Limited is a construction
based organization thus it is essential for their manager to adopt price mechanism system
it will help them to determine price on the basis of cost or other strategies whit they can
earn profit by their construction business (Suomala, Lyly-Yrjänäinen, and Lukka,
2014).
 Inventory management system: This system used for identifying cost incurred in
management of inventories, raw material finished goods of the organization. It is
essential part of business organization as it will useful for managing each level of
inventory . Inventory management system included various tools ABC, JIT, analysis and
technique through which organization analysis system of maximum, minimum and
normal level of stock . Manager of Limited can be used this system as it is beneficial for
their organization. They can identify easily cost of each part of construction and able to
control the wastage of each part of inventory, as they suffered from heavy losses in their
construction felid work by applying mechanism of the system Murrill Construction
Limited l will be able to maintain their balance of inventory
 Job process system: It is essential system of management accosting. Into job costing
system manager use technique through which they c identify cost of each part of process.
This system is many use in those organization which run their operational activities on
the basis of contract. Murrill Construction Limited provides their service on contract
basis thus it is require for them to adopt job costing system through which they can
control their cost and identify cost of process.
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P2 Methods of management accounting reporting
Reports are the prepared for managers to identify whatever heir organization performing well or
not. A comprehended management accounting report has been formulated by manager for
reviewing their organization performance. Following are the managerial report Murrill
Construction Limited can be apply in their business:
 Budget report: It is the most fundament managerial report. It is formulated to understand
and manage the cost across the business organization. Budget reports has been prepared
on the basis of past year performance, manager collected data and formulate report within
help in showing overall performance and income and profit statement of the business
organization. Manager of Murrill Construction Limited will be used this report in order to
identify their estimated profit and loss.
 Account receivable report: It is formulated to identify each section of customers
performance Account receivable report is a brief summery which collect information
regarding time taken by business organization to collect money, credit base of the
organization. By using data of this report manager can formulate strong credit policy go
their customers so that they can easily ay their debt amount to firm. Murrill Construction
Limited work for build highway, building, apartments thus their organization suffers
from heavy financial problem as they did not arrange money at the time they
required .Thus this report held in identify those debtor which will be not pay amount sue
of the organization
 Job cost report: It is formulated to provide a view of cost incurred in particular project.
This report help full for identifying cost incurred of each activity of project. Manager of
Murrill Construction Limited can b used this report to evaluate profitability of specific
their objective and optimize each level of operation of those activities by focusing n
business operations. This report help in cost reduction (Schaltegger, 2018).
 Performance report: It is essential part of management accounting report. This report is
prepared to identify performance of each department of he business organization. It is a
brief summary of all the report formatted in business organization. Performance report
useful for formulating strategies regarding incentive and bonus. Manager of Murrill
Construction Limited will use this report to analysis overall performance of internal
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department of business organization. It will help in focusing on each part of the
organization
 Manufacturing report: This report is formulated to centralized data related to labor,
inventory cost, and manufacturing process cost of each activity . it is a brief summary of
each production process, this report is prepared to formulated policies regarding
controlling of wastage activity.
M1 Benefits of management accounting system
Management accounting system include various formwork trough which manager take decision
regarding their future operations as well as they will be help in operating day to day
transaction. Manager of Murrill Construction Limited will be use the cost management
system to determine the strategy of calculation of cost as well as they use ABC, and EOQ
method to identify inventory cost and it will be help in making policies reading inventory
control job costing system help in evaluation cost of each process, all the mechanism of
management accosting system help in minimizing risk and maximize profits of this
organization.
D1 Evaluation of integration between management accounting system and various managerial
report
Management accounting system and various report are interrelated part of managerial process,.
Murrill Construction Limited will be used data collected from cost inventory accounting
systems as information for preparation of managerial report. Theses report are useful for
evaluate business performance of the organization.
TASK 2
P3 Managerial accounting techniques
Cost analysis is a process of through which manager can determine cost of each activity.
Business eEnterprise can use different type of cost analysis technique to calculate value
of cost. Which are describing below:
 Marginal Costing: This method of costing is used to analysis cost of production
if any additional unit add or cut from manufacturing process. It is also popular as
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variable costing as in this method only variable cot in concern as basis of cost
calculation. Marginal costing help in determining the relationship f profit with
other factors of production. It also included cost benefit analysis. With the uses of
marginal costing technique manager can identify their breakeven point as well as
they can calculate marginal safety value. This technique of costing is useful for
decision making process as well as manager use this to recognize which project is
best and give higher return as compare to other project. Marginal costing is a base
through which manager can determine operating as well as financial leverages of
the organization (Chenhall and Moers,2015).
 Standards Costing: It is one of the most useful methods of costing which is used
by medium eEnterprise specially manufacturing organization to determine cost.
Standard costing can be calculated by identifying difference between actual costs
incurred less standard costing deciding for particular activities. Manager of
Murrill Construction Limited will use this method in order to evaluate the
difference between actual cost and standard cost and in order to reduce the
difference they formulate policies and strategies. Standard costing calculate by
identifying various type of behavior which includes material, labor and overheard
variances, all these are calculate to cover up each h element of costing. Standard
costing is useful method for reducing additional cost and help in effectively
utilization of scare resource hen organization is suffers from financial problem
 Absorption costing: This technique f cost evaluation is also a part of managerial
accounting process. Absorption costing is a simple method of identification of
cost in which manager considers direct as well as indirect factors of operational
activities. It can be calculated by formatting a systematic statement in which gross
profit and net profit calculation are considered. Absorption costing help in
identifying gross, operating and net profit earn by business organization within
given time period. Manager of Murrill Construction Limited can b used this
method to use as simple method of calculation cost of each department of the
organization. Absorption costing is useful for comparison and it will help in
formulating of policies related to cost reduction as well as profit maximization
policies. Absorption costing statement helps in identify additional activities on
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which cost incurred at high rate (Hiebl, Duller, Feldbauer-Durstmüller and Ulrich,
2015).
M2 Application of management accounting technique and procedure of financial reporting
Various management accosting technique used by organization. Manager of Murrill
Construction Limited can between standard and marginal costing method in order to
evaluate cost as well as identify in the different between actual and standard costing
through which they can control their additional cost incurring activities.
D2 Procedure of financial report and interpretation of its benefits
Financial report are beneficial for providing necessary data related to the cash inflow and
outflow and well as dividend, financial and operation activities of the organization.
TASK 3
P4 Explanation of advantage and disadvantage of planning tools
Planning tools are the techniques which provides guideline to each action of operation
activity , theses tool provide brief description of each plan and procedure. Planning tools are
used to control the budgetary process. Following are the tools Murrill Construction Limited can
be used for their budgetary control process:
 Activity based budgeting: This method is used when budget are prepared on the basis of
cost incurred on allocation of each resource of the organization. In activity based
budgeting, manager formulated their budget by determine cost of each activity.
Advantage
 It is used for better allocation of resource.
 This method of budgeting control cost by providing accurate information
Disadvantage
 Activity based budgeting is complex process
 It require greater skills to use the coned of activity based budgeting within the
organization
 Rolling budgeting: In this budgeting method, manager prepared budget for short term
time period after completion of each budgeting period manager formulated a new
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budgeting on the basis of data collects by revise budget, to rectify errors (Vosselman,
2014).
Advantage
 It will help in controlling cost.
 Rolling based budget are useful for providing relive data related to future
Disadvantage
 It take time to formulate budget on continues basis.
 Employs get de motivated due to changes of polices and strategies of operating business
organization.
 Zero based budgeting: In this method of budget , managers formulated budgeting the
bias of deep research of market economy, then they formulated budget data collets from
their research . It is known as Zero as budget as in this method budgets are prepared from
Zero level
Advantage
 It provides accurate information regarding market data.
 It consider each item of balance sheet while providing information
Disadvantage
 Zero based budgeting requires high manpower which is not easy for medium size
enterprise.
 It is not essential for starting zero level for each project operate by organization
 Pricing strategies: This planning tool various types of strategies through which Murrill
Construction Limited can control the pricing cost. It includes price penetration,
skimming, discount and cost price. Manager of Murrill Construction Limited can apply
cost pricing strategy as they deal with unique contract thus they require to earn profit by
setting price of their controls which can overcome cost of operations.
Advantage
 This tool help in maximize profits
 Pricing strategies help in achieving competitive business advantage
Disadvantage
 Price of each contract is hard to determine as prices are change with factors of demand a
d supply.
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 It require expertise to take decision regarding deciding correct pricing policy through
which organization can gain profit
 Cost system: Business organization use cost system as tool of planning control. Various
costing system formulated t control cost by sing their effective method (Lapsley and
Rekers, 2017).
Advantage
 Standards costing system use to identify differences between standard and actual cost
incurred of operations
 This system is help full in increasing profit through reduce unwanted cost .
Disadvantage
 It is very difficult to select correct costing method.
 It require accuracy to apply costing system within organization
M3Using of planning tools for forecasting
Manager of Murriin will be use budgetary control method, pricing strategies and different
type of cost management system through which they an forecast future earning of their business
organization. Theses planning tools also provides benefits to determining effective pricing policy
reading each business contract through which they can earn more profit and maintaining
organizational market place
TASK 4
P5 Uses of managerial accounting system to solve financial problem
Financial Problem: It can be defined as situation in which business entity are unable to fulfill
their working capital requirement. It is the phase where the ratio of current liabilities is
high as compare to current assets. Financial problem is a phase under which organization
cannot fulfills their debt liabilities. Murrill Construction Limited is medium size
organization and past few months the organization suffers from financial problem due to
their lack of managerial skills as well as organization cannot collect money from their
customers. They can use managerial accounting tools in order to overcome with this
problem. Following are the tools of managerial accounting
Key Performance Indicator: This tool of managerial accounting has been used for analysis
performance of business organization. Manager decided an indicator and identify wt ether
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achieve target fulfill goal of performance. Manager of Murrill Construction Limited will
used this method to increase their managerial skills it will help in determine their
performance and identify errors. This method also useful for providing incentive through
which workforce get motive and increase their skills and performance to work towards
organization. By using KPI, manager can formulate effective policies (Chiwamit, Modell,
and Scapens, 2017).
Benchmarking: In this method manager set benchmark and organization needs to performed to
cover up the benchmarking target. They can decide benchmark by using rival companies
target, or benchmark divided by government authorities or they can use their past
performance as benchmark. It will help Murrill Construction Limited to collected more cash
from their customers as they need to cover up their problem of aching cash inflow activities.
It will also useful for cover up problems of finance.
Financial Governance: It is policies which are implement to track the organizational activities
to determine that organization work in legal and ethical way and follow all the rules of
constitution financial governance help into control issue and conflict related to corruption
and focus on fair treatment decision policy for organization. Manager of Murrin limited use
this policy through within they can at the tax liability ad get benefits of schemes provide by
government to tax payer, it will also help in increasing cash inflow activity within the
organization.
Particular Murrill Construction Limited Sunshine Limited
Monetary issue Financial difficulty is mainly linked
with accounting errors, this restrict
them to lean organisation actual
financial details.
This has been evaluated that
organisation issue is related to the
factor that finances are not properly
secured. This affect proper track and
assess of property value.
Techniques to
solve issues
Respective entity undertake use of
benchmarking in order to overcome
financial issues, by taking use of this
compare financial reports with other
entity and implement measures to solve
It has been evaluated that entity
manager undertake use of main
success metrics, by taking assistance
of this method company can evaluate
financial consequences and further
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them in initial stage (Granlund and
Lukka, 2017).
resolve them in then define manner. If
possible, in this assets real worth get
calculated and compare with normal
interest.
M4 Explanation of how management accounting can lead organization success by resolve
financial problem
Managerial accounting helps Murrill Construction Limited to recover from financial problem
and maintain their position in market. By using KPI and benchmarking manager will be
able to enhance the internal performance and financial governance policy useful to work in
ethical manner through which additional activities expenses cut throat and it will help in
control cash out flow and solve the issue of financial problem
D3Explantion of uses of planning tools to solve financial problem
Different planning tools help organization to lead success , budgeting method help in formulating
effective budget which help in identifying future profit and loss and it will help in decision
making process regarding future project. Manager of Murrill Construction Limited will use
planning tools to increases profit ability ratio by minimizing cost and increasing
performance capabilities of their workforce (Christ, 2014).
CONCLUSION
In today’s dynamic and competitive environment management accounting play essential role for
decision makers. It will help in formulating effective polices through which organization can
achieve their pre determine goal with sustainable competitive advantage. From the overall
report it has been identified that by using various system of managerial accounting , business
organization will b able to formulate effective managerial report which help in
reorganization of business performance within given specific time period . Marginal costing,
standard costing technique useful for determine cost of operational activities, with the uses
of KPI, benchmarking and planning tools of managerial accounting manager will be able to
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identify causes of financial losses and formulate effective policies to overcome from
financial problem and increase cash inflows activities within the organization in order to
build strong position within market place.
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REFRENCES
Books and journal
Suomala, P., Lyly-Yrjänäinen, J. and Lukka, K., 2014. Battlefield around interventions: A
reflective analysis of conducting interventionist research in management
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Carlsson-Wall, M., Kraus, K. and Lind, J., 2015. Strategic management accounting in close
inter-organisational relationships. Accounting and Business Research, 45(1), pp.27-54.
Caldarelli, A., Fiondella, C., Maffei, M. and Zagaria, C., 2016. Managing risk in credit
cooperative banks: Lessons from a case study. Management Accounting Research, 32,
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research. Journal of Management Control, 24(3), pp.223-240.
Wouters, M. and Kirchberger, M. A., 2015. Customer value propositions as interorganizational
management accounting to support customer collaboration. Industrial Marketing
Management, 46, pp.54-67.
Carlsson-Wall, M., Kraus, K. and Karlsson, L., 2017. Management control in pulsating
organisations—A multiple case study of popular culture events. Management
Accounting Research, 35, pp.20-34.
Schaltegger, S., 2018. Linking environmental management accounting: A reflection on (missing)
links to sustainability and planetary boundaries. Social and Environmental
Accountability Journal, 38(1), pp.19-29.
Chenhall, R. H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, Organizations and
Society, 47, pp.1-13.
Dekker, H. C., 2016. On the boundaries between intrafirm and interfirm management accounting
research. Management Accounting Research, 31, pp.86-99.
Hiebl, M. R., Duller, C., Feldbauer-Durstmüller, B. and Ulrich, P., 2015. Family influence and
management accounting usage—Findings from Germany and Austria. Schmalenbach
Business Review, 67(3), pp.368-404.
Vosselman, E., 2014. The ‘performativity thesis’ and its critics: Towards a relational ontology of
management accounting.Accounting and Business Research, 44(2), pp.181-203.
Lapsley, I. and Rekers, J. V., 2017. The relevance of strategic management accounting to
popular culture: The world of West End Musicals. Management Accounting
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Chiwamit, P., Modell, S. and Scapens, R. W., 2017. Regulation and adaptation of management
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Granlund, M. and Lukka, K., 2017. Investigating highly established research paradigms:
Reviving contextuality in contingency theory based management accounting
research.Critical Perspectives on Accounting, 45, pp.63-80.
Christ, K .L., 2014. Water management accounting and the wine supply chain: Empirical
evidence from Australia. The British Accounting Review, 46(4), pp.379-396.
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