Management Accounting Concepts and Techniques for Decision Makers

Management Accounting

INTRODUCTION
Management Accounting is the finance division that refers to the application of technical
qualifications, expertise, instruments and procedures to help compose statements that aid
management in measuring its results and promote the development of plans and tactics with both
the financial available information. It concentrates on the optimal use and protecting of limited
resources, operating excellence and efficiency, important and strategic choice processes,
resulting in high returns and trying to make investors happy and proud. The recipients of these
financial documents are merely the organization's central management team. These forms of
knowledge contain both financial and non-financial variables. This data has a huge effect on the
corporate processes that are overlooked in the other financial reports. It helps management to
define main issues of concern that support the management team in taking corrective action to
address these challenges and increase operating performance. Management accounting, in the
sense of the Institute of Cost Management Accounting, London, corresponds to the application
of accounting information in relation to professional expertise in a manner that permits the
management of the organization in strategy formulation, management and control as well as in
the formulation of policies (ICMA). In addition, according to the International Accounting
Standards board (AAA), it is the method and concept required for a successful development
process that helps the organization in selecting the best option after assessment, then trying to
control and interpreting its outcomes.
This study related to Link Catering Services' situation. Created in 1989 by John Herring, this is
one of the best labels in the UK and has its headquarters in Oxford shire. This article addresses
the principle of accounting for management, its aspects and numerous publications prepared in
conjunction with reporting for management. Cost estimation with multiple approaches, benefits
and drawbacks of financial instruments and the contrast between two organizations in terms of
the methodology they use to address financial problems.

TASK 1
P1 What is management accounting and state the essential requirements of various types of
management accounting system.
Management accounting is the plan of action for the development of a company's aims and
priorities by evaluating, assessing, explaining, and communicating the guide path for its
accomplishment to the manager. This is also often referred to as administrative organization's
financial administration. It helps administrators with the aid of working capital tools and
knowledge in the choice phase. It also allows the top management to control and track the
organization's activities and functions in carrying out its activities. These are got excellent for the
use of key customers and these findings are least or not of interest to external stakeholders. It
allows the management to plan and send the company's monetary reports to the customer needs.
Some types of reports ready underneath the management accounting include determine financial,
sales generating revenue, the position of accounts payroll and benefit and other similar reports.
S. No. Basis of Comparison Management Accounting Financial Accounting
1 Content It comprises of all types of
records, both financial and
non-financial.
It just applies to the relevant
information to support with it
that has a financial impact.
2 Motive and Uses The primary purpose of
writing these comments is to
use internal management to
promote choice and
performance assessment.
It is intended to provide all of
the organization's stakeholders
with financial information and
to support them with their
judgment.
3 Rules, Regulations and
laws to be followed
Its planning does not require
complying with certain
guidelines, legislation and laws
to be implemented, since it is
only designed for the purpose
of the organization's corporate
governing board.
All accounting principles,
along with all laws and
regulations applicable to the
company, as specified by the
respective authorities, are
expected to be followed.

4 Auditing of the
statements
It is the instrument that helps to
assess the business success,
recognise variances in
productivity according to the
expectations set and take
corrective steps for the same. It
has no outside stakeholder
interest, but it does not entail
any impartial inquiry to be
conducted and does not entail
external intervention.
This are primarily prepared for
multiple stakeholders and the
information provided should
be validated, so unbiased
checks should be carried out
and external intervention
should be included. It
guarantees the users'
compliance with all rules and
regulations and detailed
details. Corporate audit, tax
audit, etc.
Management accounting has different systems, few of them are explained below:
Cost Accounting System- In this phase, all costs (such as static, fixed and semi-variable)
associated with the product of the services generated and delivered by the company are
registered, investigated and recorded. It allows management to assess areas of progress and take
effective steps to overcome areas that are missing. This is often referred to as the commodity
pricing scheme's costing method. This framework smoothes the cost estimation of a good or
service, its ability to make sales, and the process of inventory valuation. The key aim of this
accounting method is to increase the organization's benefit generating potential.
Inventory Management Accounting System This is a comprehensive approach that corresponds
with the corporation's buying, storing and maintenance of stockpiles of raw material and finished
goods and other services. It focuses on the quality management of the finished goods and
guarantees that the right stock is available, in the right quantities, in the right location and at the
right moment, at the right rate. It decreases the risk of inventory scarcity, high inventory storage
costs for companies with difficult supply chain or production processes. The key purpose of this
management system is to minimize costs and excess inventory, resulting in the avoidance of
deficits and the conservation of stability in the organization.

Job Costing Accounting System- It is a characteristic mechanism that accumulates data relating
to all the costs involved with a single good or service, carried out in compliance with the
specifications of the consumer. The primary goal behind this scheme is to determine the benefit
or loss produced from each job or service. It encourages the corporation to quote the expense that
helps the business to make fair profits.
Price Optimization Accounting System- This is a statistical instrument used to consider the cost
of a given object. It helps to anticipate increases in quality and quantity and fix a desired price
where a consumer is prepared, ready and eager to pay for the commodity of the company to be
consumed or bought. This encourages the corporation to use the price as a strong profit
generator.
P2 Explain the different methods used under management accounting reporting.
Accounting records play an integral role in offering a full description of the results of the
company in relation to the sector's patterns. This helps to assess whether the company's actions
are in the context of meeting the priorities and targets of the enterprise. In order to make a
decision and devise plans and determine success by management, these documents should be
full, correct, specific and valid to depend on.
Budget Report- - This is a basic report that allows the owners to understand and manage the
organization's running costs. It is focused on previous interactions and offers advice to
management and staff to improve morale and provide employees with better compensation, to
negotiate prices with vendors and suppliers.
Job Cost Report- - This provides a simple view of the overall expenses paid on a single
commodity or work. Its aim is to determine the feasibility of a particular project or mission. It
helps to recognize the most productive business unit and offer the units receiving lower returns
the most emphasis and less concentration.
Inventory and Manufacturing Report- It is the subsequently measured of the company’s supply
chain kept at the time specified. The key goal of this analysis is to increase manufacturing
process productivity which covers elements such as labor costs, overheads generated in the
manufacture of a single commodity.

Order Information Report- It enables the measurement of productivity and performance in
market patterns. It consists of details about the different orders issued by the organization. It
allows the corporation to maintain cost leadership and combines numerous management
practices.
Accounts Receivable Aging Report- It is linked to shoppers' credit balances. It aligns the strategy
of the organization with its customers' paying ability. It is used by executives to recognize the
challenges associated with the credit policies of the company. This guarantees the reduction of
old loans that are actually poor debts.
Performance Report- A negative perception of the success of the company is given in this report.
It summarizes the final outcome of all the tasks or an individual's success in terms of the work
undertaken. It is the normal performance sets, the detection of anomalies and the proper steps to
resolve performance differences. This covers metrics such as milestones made, goals achieved,
projects completed, etc.
TASK 2
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs.
1 Preparation of income statements:
Cost per unit under absorption costing-
Activity April May
Variable Manufacturing cost per unit 4 4
Fixed Manufacturing Overhead per unit 6 5
Total 10 9
Income statement under absorption costing-
Particulars April May

Sales 16000 16000
Less: Cost of sales 20000 23000
Fixed Manufacturing Overhead 15000 15000
Variable Manufacturing cost 10000 12000
Closing stock 5000 9000
Opening stock 0 5000
Gross loss -4000 -7000
Less: Fixed Non Manufacturing Cost -4000 -4000
Net Loss -8000 -11000
Cost per unit under absorption costing-
Activity April May
Variable Manufacturing cost per unit 4 4
Particulars April May
Sales 16000 16000
Less: Marginal cost of sales 8000 10000
Variable Manufacturing cost 10000 12000
Closing stock 2000 4000
Opening stock 0 2000

Contribution 8000 6000
Less: Fixed Manufacturing Overhead 15000 15000
Less: Fixed Non Manufacturing Cost 4000 4000
Net Loss -11000 -13000
Reconciliation Statement:
Particulars April May
Net loss under absorption costing -8000 -11000
Less: Closing stock -3000 -2000
Net loss under marginal costing -11000 -13000
2 a.
1. Identify which costs are fixed and which costs are variable.
Fixed costs:
Activity Amount
Manager’s Salary 5000
Rent 5000
Insurance 500
Utilities 500
Advertising cost 1000

£ 12000
Variable cost:
Activity Amount
Direct material costs per Pizza 3.50
Direct labour costs per Pizza 1.50
Direct overhead costs per Pizza 0.50
£ 5.50
2. Show the Break-even point using a Break-even graph.
BEP (In units): Fixed cost / contribution per unit
Contribution per unit: Selling Price - Variable cost per unit
= 9.50 - 5.50
= 4.00
BEP: 12000 / 4
= 3000 Units
BEP (In revenues): Fixed cost / PV ratio
PV ratio: Contribution / selling price* 100
= 4/ 9.50*100
= 42.10 %

BEP (In revenues) = 12000 / 42.10 %
= £ 28503
3. What would be the Margin of Safety if the organization managed to sell 2500 Pizzas?
Margin of safety = Sales units - BEP in Units
= 2500 - 3000
= - 500 Units
4. If the manager’s salary is increased to £6,000, how will this affect the BEP in units and in
sales value?
If manager’s salary will increase than it will affect to fixed cost and revised fixed cost will be of
£13000.
New BEP (In units): 13000 / 4
= 3250 Units
New BEP (In revenues): 13000 / 42.10 %
= £ 30878
2 b. Preparation of graph:
Activity Amount
Total Costs (12000+55000) 67000
Revenues per Unit (95000-67000)/10000 2.8 Per unit
Total Fixed Cost 12000
BEP point 28503

T ot a l Cos ts
( 12 0 0 0 +5 5 0 00 ) R e ve nue s pe r
U ni t ( 9 50 0 0 -
6 70 0 0 ) / 1 00 0 0
T ot a l F i xe d Cos t B E P poi nt
0
10000
20000
30000
40000
50000
60000
70000
80000
3. Variance Analysis Report:
Actual units sold = 12000
Budgeted units sold = 10000
Budgeted price per unit = 9.50
Sales volume variance = (Actual units sold - Budgeted units sold) x Budgeted price per unit
= (12000 - 10000) * 9.50
= 2000 * 9.50
= 19000 Favorable
Flexible budget
Items Actual Budgeted Variance
Sales price 10 9.50 0.50 Fav.
Sales units 12000 10000 2000 Fav.
Revenues 120000 95000 25000 Fav.

Fixed cost 15000 12000 3000 Adv.
Variable cost 5 5.50 0.50 Fav.
TASK 3
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.
Budgetary control is the means of differentiating income and different uses and planned / paid or
organized usage figures to differentiate if processing activity is necessary and to obtain accepted
differences.
1. Sales budget
The Claims Budget is also related to the determination of the estimated normal income after the
predetermined period. Towards the start of the year, an organization carefully agrees on the
financial situation, conflict, creation limit, and costs while deciding on the business spending
plan. These variables play a vital role in the organization's future performance. A tender budget
is what the organization hopes to sell and grow.
Advantages
It serves as a guide for the association as it provides the goal that the administration hopes to
achieve in the near future and the whole focuses on encouraging representatives to achieve
agreed goals. With the number of spenders, employees know well in advance the spending time
limit, which can be done on specific exercises in a predetermined time, controlling the operating
cost and obtaining the excellent results set by the administration for the sector. It is seen as a
business metric that targets performance and progress, thereby examining areas where the
industry needs to develop and improve to expand supply capacity. It distributes the corporate
assets to various outputs and initiatives and deals extensively with sectors with the aim of
optimizing the use of funds for the non-partisan achievement of the company.
Disadvantages

The organization of the spending plan for agreements is a vicious circle that requires a lot of time
and effort from the board. It relies entirely on the judgments and evaluations of the
administration, so the valuable and correct indication of agreements and costs is largely
impractical in the current and sometimes difficult and difficult market situation. Different people
have different feelings, so the association's representatives do not have to be willing to accept the
financial plan set by the senior management. For the newly formed organization, it is difficult to
establish the corporate spending plan as past agreement levels and schemes are not accessible,
which is the basic basis for spending plan arrangements.
2. Production budget
A Production Budget is a financial planning identified by the units what the administration thinks
the company should deliver in the future to increase the volume of transactions estimated
coordinate, which is responsible for the judgment of the administration identified by the
opponents on the eye, financial situation, formation of boundaries, requests from the customer of
the commercial sector and past models.
The basis for preparing the production budget is the sales budget.. What an organization is able
to sell clearly depends on what they are doing. In addition, the initial inventory measure and the
inventory that the organization must maintain with it near the end of the creation cycle
determines the cost plan for creation.
Advantages
It helps maintain an adequate level of consistency between business, inventory positioning and
organizational training and contributes to the coordination of the strategies and plans identified
by them. It provides guidance or a plan to the company as it provides the goal of creation that the
organization's administration hopes to achieve in the future. With the goal set using the creative
spending plan, encourage the organization's representatives to push down to achieve goals as
planned and more efficiently. With the help of this financial plan, the facility and equipment, just
like his job, can be used to the fullest extent imaginable by the organization.
Disadvantages

The preparation of the production budget with the organization is one of the most difficult
rounds as it required a lot of time and effort in administering the organization. It simply depends
on the judgments and evaluations of the administration, so achieving success is just as the exact
measure of creation in the organization has advanced for the majority of the market. Everyone in
the company has different points of view and perspectives, so different people in the group may
have different decisions identified by the creative spending plan. All in all, the association's
representatives may not be willing to accept this spending plan, which is set by the organization's
top management. For the group that started work so late and has no prior knowledge and
experience, it is difficult to estimate the figures for a creative spending plan.
3. Purchase budget
A purchase spending plan is the amount of stock an organization should buy during each
spending period. The amount set out in the spending plan is the amount expected to ensure that
an appropriate inventory is available to fulfill customer orders for the items. At the less complex
stage, the purchase financial plan can coordinate the specific number of units expected to be sold
over the budgeted period. However, there are some additional considerations that may make your
purchasing plan much more likely.
Advantages
This cost always keeps the stock in line. There is no sudden shortage or wealth of raw materials.
No additional stock costs. This budget helps to monitor revenue in a positive way. This financial
plan shows the specific amount and timing of the normal income required thereafter. The direct
consumption plan provides regular or seasonal items. As a result, this suggests specific evidence
of any errors or discrepancies before the end of the financial year.
Disadvantages
The financial plan of purchases is based on a series of expectations that are largely unattainable
by the operating conditions in which it was described. If the industry climate changes to any
degree of urgency, then the organization's income or cost increase could change to such an extent
that real results will quickly retreat from the industry. This condition is particularly acute in the
event of a sudden financial slowdown, as the financial plan allows for a certain level of

unacceptable spending, at this level below the reduced income level. Unless the board shows up
quickly to get the financial plan back, executives will continue to spend under their special
budget permits, and thus blow any chance of profit. Different conditions that can produce results
vary abruptly from the assumptions designed; remember changes to loan fees, currency exchange
rates and item costs.
P5. Compare how organizations are adapting management accounting systems to respond to
financial problems
Today the affiliates deal with a number of issues related to money, which are seen differently,
the two associations chosen for the relationship are Unilever and Tesco; audited under:
Benchmarking: A criterion is a cycle of estimating the amount of materials, administrations or
bicycles of an organization as opposed to those of another industry that is considered to be the
best, also known as the best industry. high status. The rationale behind the model is to separate
the open internal pathways for progress. By thinking about high-performance associations,
separating what makes such an execution, and then going against those circles and the way your
business works, you can achieve changes that reach fundamental updates; width Creams ltd. set
up comparative analysis to reach 25% of the salary of the previous agreements. In fact, Starbucks
has set a benchmark based on variable costs and expenses. It aims to reduce waste and reduce
variable costs on a regular basis by 10%.
Unilever uses sales revenue to differentiate a mix as a money issue and uses a variety of design
and presentation tools to address this issue.
Tesco tends to plan costs because it sets a benchmark for evaluating its performance and accepts
types as money issues and finds strategies such as EOQs to address that issue.

KPI: also known as the primary execution indicator; Relationship studies are the major KPIs of
any alliance. It logically considers the successful bidder with a subject every two to two years of
budget reports and normal market expansion and provides an explanation for the good
performance of the link. For instance; Connect Catering Services is maintaining the current
measurement of 2: 1 as the optimal measurement; below shows the issue of the budget within the
association. Similarly the association has established a 25% revenue based lead. At this stage,
there are budget problems. But; Starbucks follows the value-added result, which is 9%
association-selected; below this value indicates the financial difficulty.
Unilever applies KPIs to overcome any issues from actual execution to policy. Meanwhile,
Tesco believes customer loyalty is a key factor in KPIs.
Cost A/c system: This is the basic link design for evaluating how an object chooses to keep a
collection for the company. There are two new ways to approach fundraising; Responsibility and
value. They both want to pay a small fee for the business; A combination of two costs known as
a weighted general use of capital.
Unilever uses the cost a/c system to better differentiate asset allocation; therefore, maximum
benefit should be possible at a limited cost. Tesco uses the Cost a / c framework to organize
exercises based on the value that is worth creating for the organization and zero in addition to
core exercises implements a cost accounting framework.
Application in Connect Catering Services:
Connect Catering Services can implement the above tools to address a diversified money
problem:
1. Benchmarking: Connect Catering Services could use a benchmark to define performance for
various practice areas in order to fulfill desired contracts in order to obtain a desired benefit.
2. KPI: The organization can engage in KPIs to identify the key characteristics that are
responsible for achieving the year's performance.

3. Cost accounting structure: This tool can help Connect Catering Services in the appropriate
allocation of its costs based on location and in supporting exercises to create without exchanging
quality for costs.
Conclusion
As a result of the analyzing of the whole report, it can be concluded that; there is no rule of
council accounts and never has been. Most organizations have the wrong organizations to meet a
real money performance - just in case, then they would have an early stage, instead of just being
suspicious, it is often disconnected. For example, a real estate agent with occupations in three
urban areas: when asked what the useful position was between the working environments, the
two owners had no information. They wanted to focus on the situation. At the right time, the
authentic and authoritative records were rejected outright, but they were nonetheless seen as
ruthless leaders.

References
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EDMONDS, T. and OLDS, P. (2013) Fundamental Managerial Accounting Concepts.
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BURGSTALHER, D. and SCHATZBERG, J. (2013) Introduction to Management
Accounting. Global Ed. Harlow: Pearson. (This text is available electronically and
is supported by access to an online course)
SEAL, W. et al (2014) Management Accounting. 5th Ed. Maidenhead: McGraw-Hill