Management Accounting: Cost Analysis, Reporting, and Budgetary Control

This article discusses the concept of management accounting and its various types of systems, methods for reporting, cost analysis techniques, and budgetary control tools. It also explores the advantages and disadvantages of planning tools like cash budget and master budget. A case study of ASDA is included to provide practical insights. The article is relevant for students studying management accounting, finance, and related courses.

Management Accounting
Table of Contents
INTRODUCTION...........................................................................................................................3

TASK 1............................................................................................................................................3
P1. Management accounting and requirements of various types of management accounting
system.....................................................................................................................................3
P2. Several methods which are used for management accounting reporting.........................5
TASK 2............................................................................................................................................6
P3. Calculation of cost by using accurate techniques of cost analysis and prepare income
statement with the help of absorption and marginal costs......................................................6
Absorption costing...........................................................................................................................7
TASK 3............................................................................................................................................8
P4. Advantages and disadvantages of various kinds of planning tools which is used for
budgetary control....................................................................................................................8
TASK 4..........................................................................................................................................11
P5. Comparison of organisations and how they are adopting accounting system of
management to respond financial problems.........................................................................11
CONCLUSION..............................................................................................................................14
REFERENCE.................................................................................................................................15
INTRODUCTION
Management accounting refers to the process of offering lots of resources and financial
information to the managers of an organisation by which they can take appropriate decisions in a
perfect way. It is also known as managerial accounting which can be only used by the internal

team of company. According to this process of management accounting financial reports like
financial balance statement, invoice shared through the team members of an organisation. Along
with this there are some management objectives which is used to make appropriate decision to
develop effective growth of business. For better understanding of this topic ASDA has been
chosen as an organisation. Further discussion will be based on cost analysis in relation to
marginal and absorption cost (Aldehayyat and Maan, 2013). Along with various kinds of
planning tools and difference will be explained for adopting management accounting system to
responding of financial issues.
TASK 1
P1. Management accounting and requirements of various types of management accounting
system.
Management accounting is the process of identifying, analysing appropriate cost of
operations in order to make records, internal financial reports for accomplishing business goals
and objectives. On the other side, it helps organisations to make accurate costing method to use
effective information tool for gaining higher advantages perfectly. In context with ASDA they
define their overall business performance by using different types of tools and techniques like
forecasting, comparisons, budgeting aspects and so on. On the basis of this they can easily make
proper data and records in order to develop effective managerial operations for improving
manufacturing process of clothes (Anandarajan, Anandarajan and Srinivasan, 2012).
Wherein, management system involves in the internal system of an organisation by which
they can examine the overall performance of their business operations to achieve targeted goals.
In regards with ASDA through using these system of management accounting they can make
their business functions in a systematic manner. With the help of different objectives manager of
this respective company able to make decision without any issues into the marketplace. That's
why this company using both non financial and financial accounting tools for getting better
information towards their improvements in the process of running business. Apart from this there
are large number of effective combinations between different sectors of management accounting
by which organization can increase their viability at marketplace. As per the ASDA they are
properly using management accounting system to make their management inventory in an

effective manner (Christ and Burritt, 2013). Additionally, by adopting effective pricing method
respective company can enhance their value of firm and make proper costing method within the
particular time frame. It shows that present organisation needs to adopt all these managerial
accounting functions to improve their overall business organisations.
Principles and Origin of management accounting
As per this analysis the management accounting concept was origin through the England
during the time revolution of industries. It involves several activities and their implementation on
financial issues by which companies can improvised. There are few principles of management
accounting that affects organisations and make proper trust in relation with orientations within
the companies.
Difference between financial and management Accounting:
Comparison Financial accounting Management accounting
Governing principles In this statements are
developed according to the
GAAP analysis named as
(Generally Accepted
Accounting Principles). This
concept so many features.
This accounting concept do
not have any exist standard
preparations of accounting
statement and accomplish
management teams goals.
Time Horizon They generally takes one year
to developed as accounting
year.
It is categorised on the behalf
of future, so they do not have
proper time horizon.
Aim Financial accounting has aim
to gathering and collecting
information for continue
improvements and involves
customers and investors.
They aims to established
proper decisions.
Reporting beneficiaries Financial accounting has been
formulated for external users
As per this reports are made
for CEO, directors, promoters

only, and they can be the
government, banks, suppliers
and so on.
and higher authorities of
management.
There are different types of accounting system, those are listed below:
Price optimisation system: It refers to the appropriate method by which organisation can
utilisation of different resources to optimise particular pricing strategies. It is the form of
accounting system so that it is liable for making effective cost and profits towards the
organisation. In regards with ASDA as they have huge number of customers so that by using
this accounting system they can delivered their product to customers in a specific time frame
(Cohen and Karatzimas, 2013).
Job costing system: On the basis this accounting system all information is based on the
cost method in relation with job and production is depends on job costing system. Therefore, this
type of information is needed for firms to give proper cost satisfaction to customers. In the case
of ASDA they are required to analyse their overall cost estimating system to make appropriate
profits. It is based on the various activities of this organisation properly. On the basis of this
company can get high profits towards manufacturing process.
P2. Several methods which are used for management accounting reporting.
The term of management accounting reporting refers to the appropriate guideline to
company's employees by which they can make effective decision towards the business. In
context with ASDA they effectively used management accounting reporting system to evaluate
performance of employees (Daoud and Triki, 2013). There are some report, those are mentioned
beneath:
Budget Report: In reference with ASDA they are always ready to implements on these
kind of reports for betterment of future. On the basis of these sort of operation and
implementations on business can make different activities for these business performance. As per
the explanation of appropriate details like bonus and incentives which is given for the employees
so that they can make proper standard of firm. Therefore, it assist different kinds of operations in
firms for achieving overall business profits.

Inventory management report: It is one of the best activity which is generally
associated with the management accounting and applied on reports to get complete information
in relation with inventory. In the context of ASDA they identifies their overall aspects in
relation with so many things like storage cost, stocks and many more. Together with inventory
management always collect good information from the unique methods which is necessary for
closing stocks. Therefore, the overall balance of firm can be stored by the proper process of
inventories effectively(Dillard and Yuthas, 2013).
TASK 2
P3. Calculation of cost by using accurate techniques of cost analysis and prepare income
statement with the help of absorption and marginal costs.
Cost: It is the form of amount that is based on paid or unpaid in order get something
unique sin business. It involves in material, resources, effort and time utilised that can be
consumed in the process of goods and services. In context of ASDA they are following diverse
cost marketing strategy in which direct cost can take place. For example this can be said that
labour laws, suppliers, ventures and so on, mainly identifies the individually cost by which each
and every activity can be analysed in a different ways.
Flexible budgeting: It is also known as budgeting techniques in which all sort of
business values associated with the budgets and can be changes in to the sales and volumes of
business. In reference with ASDA company they can easily apply this method on their clothing
sales business operations appropriately.
Cost variance: It is the method of defining the overall changes in order to meet
appropriate cost in which cost can be exist. According to the respective firm they most clarify
their variation towards the existing cost that is related with production process(Hall, 2012).
Cost volume profit analysis: It is an effective technique which is associated with the
analysation of variations in between profits and cost that is fulfilled by the firm. These are the
main objectives of this analysis by firms can improve their financial issues in relation with those
kind of factors.
Marginal and Absorption costing:

Absorption costing
Profit as Per absorption costing £s £s
Turnover 3200000
Less Full cost of sales 2920000
Direct Material cost 1600000
Direct Labour cost 800000
Fixed manufacturing overhead 200000
Variable manufacturing overhead 320000
Gross profit 280000
Less Non-production cost 500000
Variable selling expenses 400000
Fixed admin and distribution cost 100000
Budgeted Profit -220000
Marginal costing
Profit as Per Marginal costing £s £s
Turnover 3200000
Less variable cost of sales 3120000
Direct Material cost 1600000
Direct Labour cost 800000
Variable manufacturing overhead 320000
Variable selling expenses 400000
Contribution 80000

Less Fixed cost 300000
Fixed manufacturing overhead 200000
Fixed admin and distribution cost 100000
Budgeted Profit -220000
Marginal costing: It always reduce and increase the overall production cost in order to
develop proper additional unit of appropriate product that is known as marginal cost. In this cost
is depends upon the units cost but herein, fixed cost is not applicable for contribution.
Absorption costing: This analysis consist overall cost during the manufacturing products
and that is required GAAP for reporting properly. It mainly includes in the different kind of
variable cost and services in which products are provided by the firms such as ASDA.
TASK 3
P4. Advantages and disadvantages of various kinds of planning tools which is used for budgetary
control.
Budgetary control refers to the method which is used to manage and control the financial
operations. It is also used to measure the actual outcomes with the standard in order to asses the
variance so that corrective measures can be taken to reduce them. The main aim is to improve the
performance for achieving the objectives. In the context to ASDA., with the use of budgetary
control, the management may monitor and control in a better way for a particular financial year
(Lavia López and Hiebl, 2014). It comprises of variety of planning tools which have direct
relation with budgetary control which may be opted by ASDA. The same are as follows:
Cash budget- In this, a company prepare an estimation about the cash inflows and
outflows for a point of time. It helps in assessing the amount of cash which is required for

carrying the operations smoothly. ASDA. Prepares cash budget every year to have an idea about
the availability of the cash within the organization for completing the operations. The main
reason behind this is to record all the transactions which are responsible for generation of the
revenue. Its advantages and disadvantages are as follows:
Advantages-
1. This can help the entity to make its employees more efficiently by mitigating the costs
and spend the budget according to the requirement.
2. This can assist ASDA. In making timely payments as well as to meet the contingent
needs by making a budget.
3. The availability of cash can be maintained throughout the year and this can be used a tool
for the measurement of the amount that is being used within the organization.
Disadvantages-
 The scope of cash budget is restricted to the limited deals or transactions. This increases
the time and efforts.
 There is always a possibility of theft, embezzlement, etc. which proves it to be a
ineffective tool (Namakonzi and Inanga, 2014). Furthermore, it can be create a doubt in
the minds of the customers which will limited their disposition power.
Master Budget- It is a record in which all the details about the budgets related to
production capacity, future sales, expenses incurred, purchases etc. are included in an integrated
form. The management of the ASDA. Can use this for making strategic management plans. The
items which are included in this are budgeted income statements and balance sheets. Strategic
decisions are made on the basis of master budget. In the context of ASDA. Which is engaged in
making clothes as per the fashion trend hence, it can work as efficient tool for managing the
finances of the company (Difference between Financial and Management accounting, 2019). It is
prepared in respect to sales, production etc. The merits and demerits of the same has been
provided below:
Advantages-
 Stitchland can use this to have the combined view of the budget and make changes
accordingly. It is prepared by showing income and expenditure of the company.

 It can be used to examine the issues which are there in the organization. It can give a
wholesome view of the expenditure made by the departments. This ensures the amount
that has been spent and compare it with the standard.
 This can also act as providing directions as well as motivation to the staff working at
ASDA. In order to help them assess the problems for getting quick solution.
Disadvantages-
 The employees in the ASDA. Were directed to accomplish the targets even after going
through number of problems. This added to more difficulties. Since, the entity is large, it is not possible for it to make changes in the budget. It is a
time consuming process which requires number of steps for making alterations in the
whole budget (Ross, 2017).
Some of the other methods of budgetary control
Activity Based Budgeting- This method comprises of number of activities such as
recording, extraction of data followed by analysis of them. This is results in costs fr the
organization. In this budgeting method, the cost of every activity related to variety of units
working in organization are considered. With regard to ASDA., it can develop activity based
budgeting by different activities which are connected with manufacturing, production etc. The
advantages and disadvantages of this budgeting are mentioned below:
Advantages-
 By using this method, ASDA. Can asses the competitiveness of it which will help it avoid
the activities which are unnecessary and not at all required.
 This involves a detail research and analysis of the data in order to remove all the
difficulties which will enable in carrying the business efficiently.
Disadvantages-
 It can provide assistance in developing objectives for short term by not considering the
long-term objectives.
 The budget is prepared only after obtaining in-depth knowledge by having the
understanding of different areas.

TASK 4
P5. Comparison of organisations and how they are adopting accounting system of management
to respond financial problems.
In the present scenario there are different types of accounting systems into the
management accounting which identifies the better solutions and financial aspects
(Wickramasinghe and Alawattage, 2012). Additionally, in relation with diverse kinds of
techniques there are numerous factors which influence the firms. In context with ASDA they are
having better solution in order to overcome negative factors. By using this scenario they are
capable to face any kind of issues in relation with finance. There are some key elements, those
are listed below:
Key Performance Indicator: According to this elements beach and every business are
using different types of quantifiable data with the help of this firms can make appropriate
standard and examine the performance within the specified time frame(Van Deventer, Imai and
Mesler, 2013). In context with ASDA this sort of element help organisation to maximise their
growth and able to attain appropriate goals by having different kinds of employees performance
towards attaining goals.
Benchmarking: It is the process of evaluating the overall performance of organisation's
goods and services and process as well. The term of benchmarking mainly analyse the internal
opportunities in order to make improvements on business entities. In this firms are having
different kinds of performance by which they can make best business process in order to
formulate new ideas. In relation with ASDA they are applying this particular aspect to evaluate
their overall cost and pricing method at marketplace. Along with this manager of this respective
organisation tries to enhance productivity of firm by giving proper and better services and goods
to customers.
Difference between firms in relation to accounting systems
Basis Stitchfield limited Sewport company
Financial Problem In the current working
structure this respective
company faces few problems
According to this financial
term they are facing low
capitalisation in market by

in relation with financing
terms in order to gain
competitive market perfectly.
Therefore, this firm generally
decline the price on sales.
applying different changes and
modifications within the
supply and demand of services.
Therefore, it overcome the
financial issues in this
industry.
Accounting System In order to make better
accounting system they are
making effective pricing
policies and gain better results
(Ward, 2012).
To make better system of
accounting they are using of
various inventories though
which they can manage their
resources and able to make
better alteration for particular
problem in the firm. Therefore,
it will enhance the firm
productivity and maintained
the balance between stocks and
demand.
Dimensions of efficacious management accounting:
 If present company will have lots of knowledge in relation with accounting terms they
have different ways to implements them on financial data by which they can manage their
work and book keeping system in an appropriate manner.
 Managers of respective company should have sufficient knowledge by which they can
analyse their overall factors in terms of accounts and always balanced business operations
in an effective manner (Willcocks, 2013).
 By having effective management accounting system this respective organisation can get
higher positive results within the market place and able to influence employees towards
the work.

 With the help of better accounting systems company is able to understand overall
scenario of market and apply different kinds of supporting system to gain appropriate
benefits within the firm.
CONCLUSION
According to the above representative report it has been analysed that the concept of
management accounting is very wide which is suitable for all companies by which managers can
make better decision and essential aspects within the firm in order to fulfil company
requirements in an effective manner. In this respective assignment there are different kinds of

accounting system by which organisation can make their appropriate cost and price on the
specific product. By having these sort of strategies respective company can get appropriate
feedback from the marketplace. Along with this marginal cost have different guidelines to
employees in the firms so that they can formulates new strategies in order to make organisation
better. Together with PEST analysis also very helpful for identifying overall business functions
and process in a proper way. At last comparison has been explained properly with the help of this
company can make appropriate decision in a perfect way for gaining their targeted goals.
REFERENCE
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