Management Accounting: Functions, Differences, and Importance

This article provides an overview of management accounting, including its functions, differences from financial accounting, and its importance in decision-making. It explores different types of management accounting systems, reports, and budgeting systems, highlighting their pros and cons. The article also emphasizes the need for reliable and accurate data in organizations and discusses various measuring tools and their benefits.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Different function of management accounting............................................................................3
Difference between Financial and management Accounting......................................................4
Requirement of Management Accounting...................................................................................5
Importance of having reliable and accurate data in organization................................................6
Way through which MA system and reports can be integrate in the organization......................9
Different type of Budgeting system and its pros and cons of using the same in the
organization…………………………………………………………………………………... 10
Different type of measuring tool................................................................................................12
Different characteristic need to show by Management accountant.......................................... 13
Way different organization adopt different MA system in organization...................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is the process in the organization which looks at improving the
performance of the business in by making different management decision with the help of
different information. Katie walker furniture is retail furniture selling company. This report
highlights the definition of management accounting and requirement of same. After that the
report highlights the different type of management accounting tool in the organization and also
looks at different type of the report which is used by the organization to collect information.
After that report highlight budgetary report in the organization and also different type of
measuring tool used by the organization. In the end the report highlights how different
organization uses the accounting system in the organization.
MAIN BODY
As per Institute of Management accounting (IMA): Management accounting is defining as a
profession which used to partner the manager in the organization to take different management
decision in the organization (Malina ed., 2018). This decision is generally regarding planning,
performance management and providing expertise in financial reporting.
As per ICAI, management accounting is defining as Management accounting relates to the
provision of appropriate information for decision-making, planning, cost control and
performance evaluation (Maskell and et.al., 2016) .
Different function of management accounting
Margin Analysis: Management accounting used to perform the activity of margin analysis in an
organization. As Management accounting helps organization in ascertaining cash flow from
a specific product and region.
Inventory Valuation: Management accounting used to perform activity of Inventory valuation
in an organization as it helps the organization in forecasting future and amount of inventory
require in the organization.
Planning: Management accounting performs a supportive function in the planning
activity of the organization. As it used to provide good information about the different strategy
and policy of the business.
Supervising: Management accounting also perform the function of supervising in the
organization, as with the help of management accounting manager in the organization used to

control many different activities (Messner, 2016). As it helps manager in finding out the variance
in the organization.
Organizing: Management accounting also perform the function of organizing in the
organization. As with the help of the management accounting manager used to coordinate and
regulate different activity in an organization.
Price setting: Management accounting also help the organization in setting different
prices in the organization. As management accounting help the organization in forecasting the
future and ascertaining different cost that may be there in the future.
Difference between Financial and management Accounting
Basis Management Accounting Financial Accounting
Accumulation Management Accounting in
general used to have a in depth
impact as they look at to
enhancing different
performance i.e. profit,
product line, customer and
geographic region.
Financial Accounting at the
same time looks at the end
goal of enhancing the overall
business performance.
Compliance Management accounting is the
internal report so they do not
have to compile with any of
the standard.
Financial report at the same
time has to compile with many
different standard in real
before showing the final result.
Time Span Management accounting used
to be prepare in the
organization on short span of
time or can be said as on
frequent basis (Otley, 2016).
Financial accounting at the
same time is generally prepare
on annual basis or twice the
year.
Requirement of Management Accounting

Strategy Development: Management accounting is required in the organization for the purpose
of making and implementing variety of the different strategy in an organization. As management
accounting help the organization in providing the different option which can be selected by the
organization.
Decisions making: Management accounting is also requiring in the organization to
improve the level of the decision making. As management accounting provides a very good basis
for different manager to make different decision.
Future Forecasting: Management accounting also help the organization in forecasting
the different future cash flow of the company beforehand itself. This eventually help the
organization in building good information regarding the different resources require in the
organization (Cooper, Ezzamel and Qu, 2017).
Integration: Management accounting is also requiring in the organization for the
purpose of integrating different activity of an organization. As management accounting used to
consider variety of different information to make decision in the organization.
Different type of Management Accounting system and benefit of MA System
Cost accounting system: It is the management accounting system of the organization
which used to consider variety of the different aspect of different cost of the company.
Generally, this system in adopted in the organization for the purpose of ascertaining inventory
cost, product cost and provide different activity to control the same.
Benefit
 This system used to help organization in optimum utilization of different resources in the
organization. As this cost system used determine variety of different fixed and variable
cost of the company.
 Cost system also help the organization in offering the product at good price to maximize
the profit of the business, as cost accounting system help the organization in reducing
cost of the company by eliminating different unnecessary item.
Inventory management System: Inventory management in the organization used to
tracking and managing different inventory of an organization.
Benefit

 This generally help the organization in reducing the amount of wastage of product in the
organization and also help organization in satisfying consumer need more statistically in
the nation. As inventory management system help the organization in ascertaining the
future need of the product and also help them in planning the same in the organization.
 Inventory management also help organization in organization warehouse of organization.
Job costing system: Job costing system is the system in the organization which looks at
ascertaining the different cost which is paid by the organization for the specific job and product
in the organization.
Benefit
 This system helps the organization in understanding the different type of the job which
can be performed in the organization in coming future (Maas, Schaltegger and Crutzen,
2016).
 This is also performed in the organization to identify different pros and cons of different
job in the organization.
Importance of having reliable and accurate data in organization
It is very important for different authority in the Katie walker furniture to provide the accurate
and reliable data to the manager in the organization. Reason behind the same is identified that
with the help of relevant and accurate data manager can make an effective decision in the
organization. Otherwise it may impact the decision making of the organization in long run of the
business.

Interpretation: After going through the different data collected it has been interpreted that
absorption costing sytem is better option for the organization as compare to the marginal costing
system. As absorption costing has given the net profit for three year are 82335, 71500 and
87695. Wheras profit derived with the help of marginal costing shows that organization will have
a profit of 60200, 85150 and 85300, which is slightly lesser as compare to absorption costing for
an organization.

Different type of inventory report and its benefit
Inventory report: Inventory report is the report in the Katie walker furniture which used to note
down and track all type of the inventory in the organization. Organization generally used to
record the inventory on periodic basic. This helps the organization in maintaining good amount
of the inventory in the organization to carry out different operation of the business (Hopper and
Bui, 2016).
Account Receivable Aging report: Account Aging report is the report in the organization
which used to highlight the different debtor of the organization with the amount of the due from
them and the date on which organization is liable to ask for the money. This help the
organization in managing the different debt of the company very efficiently. This eventually help
the organization in building good financial position of the business.
Budget report: Budget report is the report which used to shown the estimated cash flow and
expenditure of the business. This report used to help the organization in estimating the future
condition of the company and on the basis of the same organization used to plan different
activity of the future. Generally, all the organization used to estimate different expenses and
revenue in the organization with regards to set goal and objective in the organization.
Cost report: Cost report is the report which used to demonstrate different element of the cost in
the organization. Organization generally used to take different decision in the organization to
element different unexpected cost in the organization. This help the organization in improving
the efficiency of the business in long run of the business (Ax and Greve, 2017).
Way through which MA system and reports can be integrate in the organization
It is very important for all the organization to integrate management accounting system and
report in the organization. As for all the manager requires a qualitative and quantitative
information in the organization. Management accounting system help organization in providing
variety of the qualitative information to the manager, at the same time management report used
to provide variety of different quantitative report to the manager. Generally, manager used to
integrate both quantitative and qualitative information to make different decision in the
organization.

Different type of Budgeting system and its pros and cons of using the same in the organization
Zero based budgeting is the type of the budgeting system in which organization used to consider
every element and expenses as a zero for every new period. This budget used to start from zero
and every other function in the organization are performed to analyzed its needs and costs.
Advantage
 This used to enhance the efficiency of the business. As in this budget all the decision is
taken on the basis of the current situation of the business rather than looking at the
previous year performance of the business.
 Zero based budgeting also help the organization on focusing on the cost benefit in the
organization, as this budgeting system in the organization does not focuses on the
changes in the expenses or preparing variance analysis in the organization (Malmi, 2016).
 This also help the organization in overcoming the different obsolete process of an
organization. As ZBB used to identify different scraped process of previous year and on
the basis of the same used to make different decision to discontinue with different
unprofitable process.
Disadvantage
 This type of budget in the organization used to consume good amount of time for the
organization to prepare budget in the organization. As organization has to invest good
amount of human resource and efforts to carry out this budget in the organization.
 This has also seen that this type of the budget in the organization used to make the
organization rigid to follow the same budget in the organization. This sometime used to
create the issue at the time of decision making.
Purchase budget is the type of the budget in the Katie walker furniture which used to contain the
amount of inventory that a company must purchase during each budget period. The amount
shown in the budget used to shown the amount of the money which will be require by the
organization to satisfy the need of customer in the market.
Advantage
 This eventually help the organization in optimum utilization of the different resources in
the organization, as after going through the purchase budget in the organization used to
allocate that amount of resources only which can able to produce the amount of

production require. Hence it helps organization in optimum utilization of resources in the
organization.
 Production budget help organization in satisfying the need of the consumer in the market
efficiently, as organization is ready with the amount of the inventory which can satisfy
the need of the customer in the market.
 Production budget also used to bring good amount of clarity in the organization, as
different department are clear about the goal of the business.
Disadvantage
 Production budget does not grantee success for the organization as this budget generally
depends heavily on various assumption in the organization. This sometime impact the
productivity of the business in negative way as well (Malmi, 2016).
 Production budget also used to consume a good amount of time for the organization to
prepare production budget in the organization. As, they have to collect information from
many different source in the organization.
Incremental budget: Incremental budget is the type of the budget in the organization which is
formed on the basis of the previous year budget in the organization. Generally, organization used
to make different changes in the budget of the organization by analyzing current situation, trends
and some future assumption of the market.
Advantages
 Incremental budgeting is easy to calculate as it does not have any complicated calculation
as it is based on some assumption and it also help in saving of time of company.
 This budget maintain consistency as it is depending on figure of previous year.
 In this method funding become easy as expense can be predictable earlier and help in
maintaining stability of funding.
Disadvantages
 Incremental budget can lead to unnecessary wastage of fund of the firm because the
budget which has allocated in current year might be sufficient for the department but in
this method every year budget will be increase and then only allocated which will result
in wastage of fund.

 It discourages innovation in company as is based on figures of previous year which is not
enough for financing any new project. This eventually reduce the chances of innovation
in company.
Different type of measuring tool
Benchmarking is the process of checking the performance of firm or industry with other
firm on basis of quality, cost and time. Benchmarking has some standard indicator on basis of
whom performance can be evaluated like cost of per unit products produce, number of damaged
product, operating cycle of the product etc. After this actual performance of the company is
compared with the performance of companies which are best at all this aspect and find deviation
between the performance. Now new and improved plan had made so to improve the performance
of the company (Tucker and Schaltegger, 2016). This is also known as 'process benchmarking' as
this process used to followed by the company for comparing their performance with that of other
who are successful in this field and try to focus on finding the reason behind the success which
help them to improve their performance. It may believe that it is one-time process but in reality it
is a Continuous process as company evaluate each aspect of the company to improve their
performance. It can also act as a motivational aspect for firm as they have the target to compete
with the best company and become more successful than them.
Key performance indicator it is measurable value which determine how company
achieving the key objective of the firm. It focusses on how effectively company is achieving his
goal. KPI id implement in organization by using five step process. In first step organisation
establish goals and objective to be achieve by firm. After that organisation establish critical
success factors (CSF) from the goals and objective. After that they establish key performance
indicator(KPI) from CSF. In fourth step they collect different types of measures. In last step they
calculate metrics from different measures which are useful for organisation in overcome
financial barrier (Ax and Greve, 2017).
Budget variance is the process in which firm set the standard budget for each department
of the organisation. On this basis actual performance of the firm will be compared. On
comparing if they find any deviation, corrective measures will take. For this company will make
new plan and policy for the organisation which will lead to improvement in the performance of
the firm and achieving firm objective efficiently.

Different characteristic need to show by Management accountant
Decision maker: Management accountant need to make different decision in the organization by
going through variety of different information in the organization.
Communication: Management Accountant also need to be good communicator as they have to
communicate different result which has been made in management accounting.
Team leader: Management accountant also need to be good team leader in the organization, as
they have to lead the team in the organization to collect information and make different decision
in the organization.
Honest: As management Accountant can impact the performance of the business. So they need to
show honesty characteristic in them.
Way different organization adopt different MA system in organization
Ikea Starbuck
Ikea generally uses cost accounting system in
the organization. In this system organization
used to measure the different cost of the
company by benchmarking different target of
other organization. On the basis of the same
organization used to look at the element of the
cost which is scraped and used to take different
decision to overcome the same in the
organization.
At the same time Starbucks in the organization
used to adopt inventory management system in
the organization in which they used to manage
the different inventory in the organization by
tracking different inventory of the
organization. Result of the same in the
organization is measure with the help of KPI in
the organization In which organization used to
set different key performance indicator in the
organization (Messner, 2016).
CONCLUSION
After going through report it has been concluded that there are many different type of
management accounting system in real such as inventory management system and cost system.
After that the report highlights that there are many different type of report which are integrated
with the management system. After that the report concluded that there are many different type
of budgetary system. In the end the report concluded that different organization used tto adopt
different management accounting system in different ways in the organization.

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Cost Accounting Systems. 2019. [Online]. Available through:
<Lhttps://xplaind.com/360325/cost-systems>.