Management Accounting Concepts and Techniques in Decision Making

This document discusses the benefits of adopting a management accounting system, provides income statements for different costing methods, explores various planning tools and their advantages and disadvantages, and compares organizations based on their use of management accounting to respond to financial issues.

Management
Accounting Concepts
and Techniques in
Decision Making

Contents
TASK 1............................................................................................................................................3
M1. Benefits of adopting management accounting system....................................................3
TASK 2............................................................................................................................................3
P3 Income statements for both the costing methods..............................................................3
M2 Apply a range of management accounting techniques....................................................7
TASK 3............................................................................................................................................8
P4. Different planning tools with its advantages and disadvantages.....................................8
M3 Importance of planning tools for budgeting and forecasting process............................10
TASK 4..........................................................................................................................................11
P5 Comparison of organisations on the basis of use of management accounting to respond
financial issues......................................................................................................................11
M4 Respond to financial problems, MA lead to sustainable development..........................13
REFERENCES..............................................................................................................................14

TASK 1
M1. Benefits of adopting management accounting system
System Benefits
Cost accounting system  It method allows managers to analyse the Creams
Ltd biggest branded goods in a way that suits them.
 This also allows precise pricing for the goods to be
calculated by providing the right cost information.
Inventory management
system
 Through maintaining sufficient stocks, this help
manager can boost the performance and profitability of
Creams Ltd.
 Supported by this method, the company has the details
and accurate inventory level understanding.
Job costing system  Managers evaluate the performance of a company's
individual jobs.
 It provides full billing specifics such as salaries, services
and other running costs which are extended in different
occupations throughout the enterprise.
Price optimisation system  It program facilitates the application of the most
favourable sales policy inside the business so as to
preserve a profitable return.
 It also allows the correct costs of products to be set so as
to maximize the loyal consumer base.
TASK 2
P3 Income statements for both the costing methods
Marginal costs: This was also recognised as indirect expenses were used in the method for
calculating profit only operating costs so that will help to describe break even, minimum safety
process for the business. It can also be described as a cost analysis which recognises overhead

costs as production cost whilst also fixed operational expenses are handled also as cost of the
period.
Absorption Costing: This costing approach involves deduction from the sale of the finished
goods in the main expenditure. The administrators of Creams Limited ensure that their income
cover all expenses incurred in the manufacture of various products (Malmi, 2016). This costing
method recognizes both constant and variable expense of production as expense of the
commodity.

M2 Apply a range of management accounting techniques
Activity-based costing: ABC is a costing method for associated products and services that
determines labour and expense of administration. This expensive accounting method recognizes
the relationship between rates, processes and finished products, adding additional costs to
commodities less critically than traditional methods to calculating the same.

Cost-volume profit analysis: CVP analysis is basically a cost-accounting method that
examines the impact of varying expense and volume levels in similar period on net sales. The
CVP model, which is often commonly accepted as a break-even model, aims to measure the
break-even point under varying rates of sales and cost systems and can be beneficial to
management when creating short-term economic choices.
TASK 3
P4. Different planning tools with its advantages and disadvantages.
Budgetary control is described as the process by which businesses prepare expenditure for
the future term and compare it again with actual performance such that the discrepancy can be
measured. A company's executives will easily detect inconsistencies and suggest suitable
corrections when matching the predictions to the actual figures. This process guarantees that
Creams Ltd management knows, within a time period, the budget constraints of various
operations. Such regulation is critical since unnecessary spending adversely affects company
revenues.
In utilizing the budgetary monitor, Creams Ltd key objective is to assess the difference
between the real and budgeted estimates that is crucial to the organization's progress. This leads
to increased business productivity and production in a timely manner. Budgeting plays a critical
function in preparation and management, because it facilitates the allocation of money that is
allocated for the most productive purpose, thus ensuring business stability (Quattrone, 2016). A
successful budgetary control mechanism facilitates the coordination of the different operations
and guarantees the company's efficient and organized operation. It often incorporates suggestions
from increasing layers of management to plan the program and also promoting divisional
collaboration. In the sense of Creams Ltd a few of the primary planning methods are described
below:
Cost budget: It is a budgetary plan for the forthcoming year, covering specified company
spending. This specifies all of the risks involved with the business activities and accidents. This
is the estimated possible cost that a business will potentially experience in future when carrying
out different operations. It became the most successful approach for adequately managing
development and cash flows of Creams Ltd over various operational and non-operating
expenditures. Here are the strengths and pitfalls of expense budgeting:

Advantages:
Cost forecast is an easy means for the Creams Ltd budget planner to plan potential
company expenditures. This therefore facilitates the recognition of the disparity between the
budgeted expense and real spending on a single operation. Therefore, this expenditure allows it
possible to determine whether to allow a change to any project in the next year in order to reduce
costs. Moreover, incorporating these strategies by Creams Ltd increases risk understanding,
encourages adequate resource use as well as allows the employee to function in the right manner
to minimize expenses and maximize performance (Otley, 2016).
Disadvantages:
This expenditure plan takes some extra time to determine the total cost of the elements
conducted, thereby delaying the business operations many times. Leadership also demanded very
much from the expenditure and the administration should be liable if such expectations were not
met. The main downside to this strategy is that it relies on the estimates of the prior year owing
to which management chooses at times to reduce operations that require large expenses however
such practices will be competitive in the future based on the circumstances of the sector.
Zero-based budgeting: This process of analysis will clarify new cycles of expenditure for
each new phase. The process starts at a point nil, deciding the requirements and expenditures of
increasing organizational operation (Nitzl, 2016). The main goal of this budgeting strategy is to
reduce extra spending, taking into consideration the situations in which spending will be
reduced. It is necessary to verify any bill to manage Creams Ltd before it is integrated into the
current expenses. Here are a few of Creams Ltd's positives and disadvantages to zero-based
budgeting:
Advantages:
ZBB is a creative financial planning to enable Creams Ltd handle money efficiently, since
it provides fresh projections for increasing operation from 0 and does not take into consideration
any previous details. This budgeting approach promotes greater operational management and
cooperation and allows workers to accept responsibilities (Lachmann, Trapp and Trapp, 2017).
The key benefit of this expenditure plan is the removal of unhealthy activities which further
allow cost-effective solutions to be found and the optimum usage of available resources in order
to achieve the massive profit.

Disadvantages:
This budgeting phase is highly time-consuming for creams Ltd but is far more
complicated to tolerate any adjustment to the budget for each year. Therefore assessment of all
Creams Ltd products is becoming a daunting job for boss again and again. In planning ZBB
budgets Creams Ltd requires a trained and skilled representative leader that increase the overall
employees’ turnover.
Capital budgeting: It is described as the manner wherein the firm determines what
fixed-resource investments it will allow and reduce (Weetman, 2019). Capital budgeting has
been used to create a practical framework to determine the potential investments of fixed assets
and to establish a strategic perspective. Through handling Creams LTd it helps in evaluating
future big deals or ventures.
Advantages:
The key advantage of this strategy is to support Creams Ltd in determining the most
desirable return on expenditure within a defined time period. This added assistance to make wise
investment choices that will continue to develop resources which could be used to fund the
activity of the business according to the structure needed. It helps internal team to take rational
financial choices, keeping the potential options present on the markets into account.
Disadvantage
The key downside of this expenditure plan is that it is focused on speculation and does
not show any investments decision-related risks so more time contributes to a greater disaster of
Creams Ltd money. Bad investment appraisal forecasts may have an influence on Creams Ltd's
long-term survival and several times have an effect on actual market performance because
managers are waiting to make the correct decision (Wagenhofer, 2016).
M3 Importance of planning tools for budgeting and forecasting process
The forecasting strategy mentioned above helps business managers to provide an
knowledge of the organization's costs over different operational operations. As a consequence, it
also facilitates the creation of successful strategies for the duration because administrators may
effectively assign funds to the tasks that they feel can bring in better returns in the future.
Therefore, various preparation methods provide a similar potential of managing funds correctly
or allowing good use of existing capital in order to better discuss annual budgets. Such methods
also support useful modelling of required resources use in a way that allows the expected results

to be accomplished in real time. Cost budget as well as ZBB is a creative financial forecasting
resource that facilitates improved collaboration and cooperation between organisations and
fosters workplace accountability.
TASK 4
P5 Comparison of organisations on the basis of use of management accounting to respond
financial issues
Companies are facing numerous growing financial challenges and issues overall economy
owing to a dynamic global climate. There are many reasons why these situations happen inside
the company, like missed payments from customers, increased debt, unclearance of inventory,
etc. Some of the huge problems that big companies like Tesla as well as General Motors are
facing while functioning is discussed below:
Basis Tesla General Motors
Problems and tool
used to detect.
Tesla confronts the main financial
problem linked to cash flow transfer.
Thus managers use KPI to identify
the cause for the inadequate cash
flow across multiple activities.
Reviews are compared to their
forecasts with the aid of this method
result stated by Tesla, implying the
expectations of the business are not at
least relevant to its performance, but
instead to its own missed or
surpassed projection in the past. The
performances of Tesla are tailored to
their own expectations.
The organization faces problems
relating to inadequate stock
utilization due to which
profitability is rising. General
Motors would then take into
account revenue innovation and
market role as the important
indicators of achievement in the
balance sheet’s economic
measures department. Such
initiatives will serve to determine
how well the business proceeds
to achieve higher profits, as its
primary goal.
Implementation of
MAS
By incorporating cost accounting
method administrators can effectively
monitor and calculate the overall
costs involved with different
To address the above-mentioned
financial problem manager use to
conduct stock accounting
program such that correct stock

operations and properly distribute
cash capital to address the above-
mentioned issue (Tucker and
Schaltegger, 2016).
records can be preserved at each
point of manufacturing stage
because the product accessible is
completely managed (Hall,
2016).
MA Technique Using the Financial
Governance respective firm can make
it is possible to effectively document
total inflows and outflows of cash
and also to correlate with the original
estimate to determine overall
profitability.
By utilizing the Financial
Governance Management
method, it is simple to figure out
the least amount of efficiency
intervention and avoid this
process that contributes to these
big financial problems.
From the above discussion it can be determined that Creams ltd can make use of various
tools and techniques of Management accounting to determine the financial issues and easily
removed the reasons. Some of these are discussed underneath:
Benchmarking: It is the process by which the performance of organizations is calculated
at a certain level. With this method, Creams Ltd would use it to assess the causes for poor stock
use and reduced performance. Furthermore, this MA resource planner contrasts stock usage with
other competition companies by establishing a target standard.
KPI's Metrics: This seems to be a valuable method that is used throughout a period to
quantify the company's current achievement. In utilizing this method, the Creams Ltd utilizes
various forms of indicators to assess how effectively they achieve their expectations and targets.
By enforcing this tool manager of Creams Ltd are easily able to detect the major issue in
working capital by setting metrics at various operational activities.
Financial governance: This is how the organization conducts accounts documents and
compiles them in accurate statement. The company does that to include useful information on the
company's monetary situation. The financial problem may be resolved in a certain manner by
introducing this task manager of Creams Ltd can explicitly reflects the rise in total efficiency.
Ratio analysis: Within Creams Ltd, ratio analysis may be used to determine the financial
problem for accounting year. That is because correct measurement of various rations facilitates

determining the overall adjustments that occur in specific market aspects. As opposed to the
previous year, like net income ratio tends to include the percentage shift in profit figures. Then
any drop in the ratio helps enterprise to identify the cause for this drop and careful consideration
of such reasons encourages management to take drastic action to minimize the financial problem.
Cash budget: Creams ltd should use this kind of strategy to tackle the current financial
issue because it helps to manage the necessary cash capital efficiently and to achieve the precise
amount within the target period. Moreover, this proposal further encourages the implementation
of strategies for the usage of cash only for operations that produce immense profits and the
creation of new ones to minimize the financial problem.
M4 Respond to financial problems, MA lead to sustainable development
Cream Ltd internal management team use benchmarking for inventory poor management,
will help encourage workers to increase sales and efficiency, obtain additional incentives and
enforce financial regulatory laws to work effectively and track illegal offences and can often
utilize KPI approaches for cash flow problems, in which they must raise funds within a specified
period to reinstate capital. In comparison, the implementation of MA structures was also
analysed for a significantly shortened timeframe to accomplish economic growth. In addition, the
issues mentioned here may be addressed through the cost management and accounting method.
The Creams ltd seeks numerous approaches, such as resource management, organized schedules
etc. It is important for them to analyse differences within solving problems each of these goals.

REFERENCES
Books and Journals
Malmi, T., 2016. Managerialist studies in management accounting: 1990–2014. Management
Accounting Research. 31. pp.31-44.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice. Management Accounting Research. 31. pp.103-111.
Nitzl, C., 2016. The use of partial least squares structural equation modelling (PLS-SEM) in
management accounting research: Directions for future theory development. Journal of
Accounting Literature. 37. pp.19-35.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
Ricks, M., 2016. The money problem: rethinking financial regulation. University of Chicago
Press.
Šiška, L., 2016. The contingency factors affecting management accounting in Czech
companies. Acta Universitatis Agriculturae et Silviculturae Mendelianae
Brunensis, 64(4), pp.1383-1392.
van Helden, J. and Uddin, S., 2016. Public sector management accounting in emerging
economies: A literature review. Critical Perspectives on Accounting. 41. pp.34-62.
Wagenhofer, A., 2016. Exploiting regulatory changes for research in management
accounting. Management Accounting Research, 31, pp.112-117.