Management Accounting: Concepts, Methods, and Applications

This comprehensive guide explores the fundamentals of management accounting, delving into its role in strategic planning, decision-making, and performance evaluation. We examine key management accounting systems, including inventory management, cost accounting, and price optimization, and discuss their practical applications within organizations. The document also explores various management accounting reporting methods, highlighting their importance in providing timely and relevant information to decision-makers. Finally, we analyze the benefits of integrating management accounting and reporting processes, emphasizing their contribution to organizational efficiency, cost control, and strategic success.

Management accounting

P1: Explain management accounting and give requirements different management systems
Management accounting system
A group of tools and procedures implemented in the strategic planning and execution by the
policymakers of an organisation to provide the support to decision-making process so that
corporate can attain its objectives. Management accounting has wide meant and not limited to
only accounting and costing practices (Guinea, 2016). The management system is like a
profession which makes managers capable to take that decision which is must to earn assured
continuous success. Three main components of management system activities are:
Figure 1: components of management system activities
(By Author, 2018)
Management accounting is the term used to delineate the accounting structures, structures and
methods which, with tremendous learning and limit, assist the agency in its errand of extending
advantage or restricting disasters (Alahdal t, et. al., 2016). It joins the strategies and thoughts
essential for convincing preparing for choosing among non-compulsory business physical
activities and for control through the evaluation and comprehension of shows.
Planning of
strategy
Controlling the
execution
Monitoring the
performance

Functions of management accounting
There are various management tools and techniques that are beneficial for businesses and some
techniques in assistance with their basic requirements are explained below:
Inventory management system: a system of some methods, to manage the most important
current asset ‘inventory’, known as inventory management system. It can be stated that Inventory
management system is more than stock record keeping because it provides help to manage the
stock at that level where the opportunity cost and fund cost is lowest for business (Hart, et. al.,
2014). Inventory is one of the most important assets of a company because it is related to many
business activities. It is related to the sales department, purchase department and funding
department also because the appropriate level of inventory not only ensures barrier-free
production but also reduces the capital employed. To measure the inventory more than few
methods like First in first out (FIFO), Last in Last out (LIFO) and weighted average are available
and the user can select as per needs.
Some essential needs of this system:
 Control on stock inflow and outflow is a must for effective IMS.
 Proper and controlled physical valuation should be made timely to find variance (Shen t,
et. al., 2016)
 Internal control and monitoring system of the purchase process.

Cost management system: Cost accounting system is a group of some frameworks put into use
by the policy and decision-making authorities to estimate the cost of products for the purpose of
analysis of profitability, pricing, cost control, appraisal and valuation (Oluwagbemiga, et. al.,
2014). There are two types of cost accounting system
Figure 2: Cost Accounting System Components
First, Job costing which is utilised by manufacturing companies especially to measure the cost of
separate batches or jobs and second is, process costing which is put to use to ascertain the cost of
each process when a product is made by different departments in a different process.
Some simple requirements of this system:
 Harmonization and information sharing in between different subdivisions of the
company.
 Accurate use of cost determination practices to reckon precise cost (Watts, et. al., 2014).
 Hybrid costing system also can be used by the company which is a mixture of all costing
systems.
Price optimization method:

The method that is finished inner courting to bear in mind the purchaser reaction for special
esteem degrees, known as esteem streamlining shape. A genuine esteem upgrade structure is
required for inner businesses because of substantial rivalry and availability of substitutes. Price
optimisation system analyses the nature of product and market situation of that product and gives
an opposite base to set the appropriate price for the product (Alahdal, et. al., 2016). For example,
if a company sells soap then price optimisation system will give that price which will be apt to
stay in the market and to be competitive in the market.
Some essentials of this system:
 Historical data in relation to pricing policies, data to the elaborate effect of previous
pricing policy and sales.
 Customer related information to analyse customer reaction and buying the power of the
customer.
 Regular monitoring of fixed prices.

P2: Explain different methods used for management accounting reporting
Management reporting is linked to the delivery of required information to the managing
authorities so that they will take aim-oriented decisions for the welfare of entity’ business. Under
the management system, some additional kinds of reports are made with the help of authorities of
business to provide support in policy assembly and decision-making course. Some managerial
reports are as follows;
Demand report: demand report is linked with supply system and utilised by the management to
estimate the future demands on the foundation of previous sales records so they can ensure
proper supply as per needs in order to sales maximisation. Some On-demand reports are also
made by the many division managers to give information to top management on call (Sullivan,
2018).
Cost Reports:
Management accounting chooses the value of factors. This is performed through captivating the
entire new issue expenses, overhead, paintings, and someone of kind fees into thought. The
entire prices are divided via totals of things made. In the cost report, the entire records are
transitory and the concluding cost documents engage managers the capacity to look the fees of
gadgets rather than providing charges. It furthermore empowers the executive to outline and
supervises pay limits.
Report of execution:
Organization clerks make use of burning via expects to separate true blue usages and pay costs
with orchestrated aggregates. In the wake of choosing new spending designs, the moves arranged
are penniless down and the complete statistics about these holes are recorded on the report of
execution. Consistently Performance reviews are figured; anyways, numerous affiliations lead
them quarterly or monthly (Gartenstein, 2018). These reviews engage officers to get equipped
for pleasant in class destiny demand in progress and besides value expansions.

M1 Benefits of management accounting and application for organisational.
System and techniques of management accounting have various benefits in the context of
business entities and a business can avail those benefits by applying practices of management
accounting in a germane manner. Some benefits of management system are as below:
In planning: Management system applications cover numerous ways to support the top
authorities in planning and strategy designing (Alahdal, 2016). Useful and analysed information
given by the management practices can be used by the entity’s decision authorities to make a
terrific strategy.
In cost controlling: management system skills work as a subsidiary hand in the determination of
cost associated with each business task and on the basis of this determination, germane level of
every cost can be defined and action can be taken for adverse results.
Division coordination: every business has different divisions and each division runs a different
process to assist the main object of business. It ensures two-side information sharing between
sub-divisions of an entity which reduces the time of the process and improves the productivity.
Reduced cost of capital: management system works on two points; one is resource allocation
and second is proper allocation. For example, if a company allocates its funds inappropriately,
the capital will not available for the right process at right time and to remove this situation, the
company will borrow extra funds which will generate the extra cost of capital. By guaranteeing
proper resource allocation, management system reduces the cost of capital.

D1: How management accounting and reporting is integrated processes.
Execution evaluation:
Management tackles like variance analysis and standard costing help to make a study of the
efficiency of strategy implementation to identify the level of productivity of strategy and staff. If
the strategy is not appropriately working for the business it can be changed by the top
management (Guinea, 2016). In another hand, if staff performance is lacking, management can
take suitable action after detecting right reasons.
Preplanning for uncertainty:
As future is uncertain, management practices include best estimation and analysis techniques and
try to provide security from future uncertainty. On the basis of best estimations, it helps to
estimate best-budgeted figures and assures security from future changes (Gichaaga, 2014).
The base for the project and price evaluation:
When an entity thinks to introduce new products or start a new project, the profitability of
particular project or product is measured to take the decision of section or rejection. Management
tools reliefs the management to make a proper estimation of the possible costs and returns and
they can take profitable accord.

References:
1. Guinea, F.A., 2016. THE NEED FOR MANAGERIAL ACCOUNTING SYSTEMS.
SEA: Practical Application of Science, 4(3).
2. Alahdal, W.M., Alsamhi, M.H. and Prusty, T., 2016. The Role of Cost Accounting
System in the Pricing Decision-Making in Industrial Companies of Taiz City, Yemen.
Management, 3(7), pp.70-78.
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strategic choices and management control systems on organizational performance.
Revista Contabilidade & Finanças, 27(72), pp.334-348.
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a Manufacturing Company in China. Nang Yan Business Journal, 5(1), pp.20-40.
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company the methodics to design. Research in Logistics & Production, 4(4), pp.293-305.
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practices and firm’s performance of manufacturing organizations. International Journal of
Economics and Finance, 6(6), p.234.
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modern management accounting system in a multinational manufacturing company.
Australasian Accounting Business & Finance Journal, 8(2), p.121.
8. Sullivan, D., 2018. Types of Managerial Accounting Reports. [online]
Smallbusiness.chron.com. Available at: http://smallbusiness.chron.com/types-
managerial-accounting-reports-58384.html [Accessed 31 May 2018].
9. Gichaaga, P.M., 2014. Effects of management accounting practices on financial
performance of manufacturing companies in Kenya. Research project for the master of
science in finance degree.
10. Gartenstein, D., 2018. [online] Bizfluent.com. Available at: https://bizfluent.com/list-
7609485-types-managerial-accounting-reports.html [Accessed 31 May 2018].