Management Accounting: Methods and Applications

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
PART 1............................................................................................................................................3
Section 1.................................................................................................................................3
1.1 Managerial Accounting including necessity of various management accounting forms 3
1.2 Application of various methods of management accounting reporting ...........................4
1.3 Benefits and application of management accounting systems in an organisation............5
1.4 Analysis of how management accounting system and Management accounting are
integrated as well as significance of various methods of reporting for organisational success . 6
Section 2.................................................................................................................................7
2.1 Preparation of income statements using absorption costing and marginal costing..........7
2.2 Application of various management accounting techniques and financial reporting
documents...............................................................................................................................8
2.3 Financial reporting which apply and evaluate data for business activities....................10
2.4 Formulation of Marginal costing techniques..................................................................12
PART 2..........................................................................................................................................13
3.1 Purpose of a Budget........................................................................................................13
Budget preparation...............................................................................................................13
3.2 Preparation of Flexible budget.......................................................................................16
4.1 Comparison of organisations in respond to financial problems by adapting to management
accounting ............................................................................................................................16
4.2 Analysis of financial performance of respective companies in regard to management
accounting.............................................................................................................................18
4.3 Evaluation of planning used in Management accounting to reduce financial issues.....19
4.4 Importance of variance analysis and its various types...................................................19
CONCLUSION .............................................................................................................................21
REFERENCES..............................................................................................................................22

INTRODUCTION
Management accounting is a wide concept which covers preparation of different forms of
statements in relevance to managerial decision-making. It is usually utilised by internal staff in
order to evaluate financial information for preparation of reports which will ultimately help in
decision making. In this report, several factors of management accounting will be used in order
to evaluate financial position of company. These factors will include inventory management
system, marginal costing, absorption costing, fixed and variable costs, etc. Such statements will
ultimately help manager in decision-making which is significant for organisational growth and
success in the long term.
PART 1
Section 1
1.1 Managerial Accounting including necessity of various management accounting forms
Management accounting is defined as procedure where financial data is being provided to
the managers so that optimum decision-making can be made for respective organisation. It is
ultimate determination, measurement, aggregation, analysis, formulation and communication of
financial data which will assist in satisfaction of organisational objectives. Managerial
accounting has various aspects of finance which intent to improve quality of data which is being
delivered to management in regard to business operations (Kyriakopoulos and et. al., 2020). This
is mainly centralized at internal management reporting in context to produce decisions by
managers.
Managerial management mostly concerned with budgeting of weekly or monthly data in
order to analyse actual efficiency and effectiveness of company's respective operations which
will aid managers in decision-making. In case of high competitive environment, usually business
entity is required to cope with its competitors in order to sustain in the market for long period.
Therefore it emphasises over future aspects of a business which needs to be pre-determined
through preparation of strategic plans so that company's position and finances stays unaffected in
the market.

1.2 Application of various methods of management accounting reporting
Management accounting is an effective branch of finance which include flow of decisions
on basis identification, evaluation and communication of produced financial information by
management (Ardiansah and Anisykurlillah, 2020). This financial data is being prepared through
implementation of various management accounting techniques which can be stated as follows:
Inventory management system: It is considered as significant part of management
accounting which is used to keep track of inventory in entire supply chain system. It starts from
purchases of raw material, manufacturing, production of finished goods and ultimately sale of
feasible products. It is convenient approach which helps in overall management of goods from
initial stage till its ultimate sale. This system is helpful for business organisation in order to
achieve its pre-determined profitability in a systematic manner. In this approach various sub
factors are included such as First in first out(FIFO), Last in first out(LIFO) and average cost
method. These methods can be described as follows:
 FIFO: This is relevant flow of inventory from initial stage till its final delivery. In this
process, product which is produced first will be first one to be delivered or sold out.
 LIFO: This system is connected with the current rate of particular product. It considers
current purchase unit to be sold first which is vice versa of LIFO method.
 AVCO: This is unique system of inventory management where average of all inventories
are being calculated in order to reach average cost of per unit of inventory.
Job costing System: This is unit of management accounting where costing method is
used to ascertain cost of specific job or unit in an organisation which is being performed for
ultimate satisfaction of consumers. Through this procedure, value of each individual unit is being
measured so that their respective profits and losses are identified in order to modify effectiveness
and efficiency of operations as per the requirement. It is used to record individual cost to its
particular head in order to reveal relevant profitability so that it could be compared with
budgeted estimates. This way accuracy of jobs can be maintained and necessary modification
could be made in regard to future requirements. Timely records, internal controls, detection of
frauds and errors are also its relevant outcomes which plays significant role in organisational
growth (Schaltegger, 2020). Several documents being in job order costing are manufacturing
order, cost sheet, payrolls, etc. Also it provides detailed structure of material, labour and
overheads costs for each individual job.

Though it has various advantages, it is expensive approach which mandate elaborated
clerical job which may reflect certain errors due to increased and detailed work. This system
required effective operating structure without which its formulation is of no use. Also it uses
historical approach of cost determination which may not reflect actual costs.
Price optimization System: It refers to a mathematical tool which is used to identify
customer's response in regard to differing prices for receptive goods and services by various
channels (Tirkolaee and et. al., 2020). By analysing market trends, it becomes easier for a
company to conclude best suitable price for their respective products and services that will
enhance their profitability and to meet organisational objectives in the long term. Useful data in
such system is collected through market surveys, related inventories, sales, operating costs and
so on. Such data is used to analyse behaviour of customer base in regard to various goods &
services. Price-optimization technique is helpful in the long term for increasing company's
overall profitability. It includes various data such as raw data, leveraged data, etc. It signifies
relevant variables which actually affect price of a particular product and service which could lead
to affected sales, production and profitability.
1.3 Benefits and application of management accounting systems in an organisation
Inventory management System: This process is helpful by reducing inaccuracies in its
relevant operations which will result in enhanced productivity. Through adoption of such
approach, more emphasis is given over the cost of a product in order to promote cost effective
procedures (Alam and et. al., 2019). By reduction of inaccuracies and cost, company will be able
to earn maximum profits in the long term.
Such system is being adopted by production, retail, warehouses based companies in order
to maintain their respective goods in more effective manner. This procedure helps organisations
to implement systematic approach towards management of their inventories in order to avoid any
deviations, errors and frauds which could result in intense losses.
Job costing System: This system assists in producing adequate level of profits through
allotment of respective cost to their jobs. This way performance could be modified as per the
requirement of company. It is also considered as flexible approach and accuracy if maintained
through screening each task appropriately (Chamberlin and et. al., 2018).

This system is used by various organisations in order to know that respective profits and
losses being reflected by different heads so that required modifications could be made in such
respect by the company.
Price optimization System: This is a beneficial system which helps to understand
customer's behaviour in reference to various products and services in the marketplace (Pagel and
Westerfelhaus, 2019). It helps in price regulation and controlling price based decisions in regard
to each product category. In sort of approach, company's are required to conduct market survey
in order to understand customer's needs and preferences in order to deliver potential results.
This approach is adopted by each company being operating in market in order to identify
impact of prices over consumer behaviour. Companies needs to formulate such policies
effectively in order to generate maximum profits and sustainability in the market (Muller, 2019).
1.4 Analysis of how management accounting system and Management accounting are integrated
as well as significance of various methods of reporting for organisational success
Management accounting comprises of significant systems which is a base of effective
managerial decision-making (Bakhodirovna, 2019). Such techniques are used in various
operations of an organisation in order to produce effective outcomes. Management accounting
systems is an integral part of management accounting which provides detailed structure of
manner in which operations of a company is being carried away in order to produce effective
decisions. Manager of an organisation plays key role decision-making by evaluating respective
various reports in this concern. These reports can be discussed as follows:
Budget report: Budget is an intrinsic report which is used by management in order to
compare estimated projections with actual performance of a company. It is significant practice
being formulated by companies in order to measure company's overall financial and non-
financial performance (Selvakumar and et. al., 2019). Its is key element in managerial decisions
which are being guided through budgets in regard to cost- effectiveness, optimum incentives,
cope with contingencies, modification in policies related to supply and purchase and so on.
Various forms of budgets such as production budget, master budget, operating budget are used
considering company's relevant activities in this regard. This reflects summary of each
department related costing to make better evaluation of individual performance in order to
produce optimum profits.