Management Accounting Techniques

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO1..................................................................................................................................................1
P1 Explaining management accounting system and its elements................................................1
M1 Evaluating the benefits of different types of management accounting systems...................2
P2 Explaining different methods that can be used for management accounting report..............4
LO2..................................................................................................................................................6
P3 Applying management accounting techniques.......................................................................6
.....................................................................................................................................................7
M2 Accurately applying MA techniques for producing financial reporting documents.............8
LO3..................................................................................................................................................9
P4 Usage of different planning tools and its application for preparation and forecast of
budgets.........................................................................................................................................9
M3 Analysing the usage and application of different planning tools........................................10
LO4................................................................................................................................................11
P5 Analysing how responding to financial problems and management accounting will lead
organisation to success..............................................................................................................11
M4. Analysing how MA techniques can lead to sustainable success by responding financial
problems....................................................................................................................................15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................17

INTRODUCTION
In management accounting or managerial accounting, managers use the provisions of
accounting information in order to better inform themselves before they decide matters within
their organizations, which aids their management and performance of control functions.
Management accounting helps the organization in managing the financial aspects accurately and
efficiently. Management accounting is one of the most reliable concept which can be used by
firm and organization. It aids managers to perform better the financial task. It helps managers in
decision making process and achieving goals and objectives (Ax and Greve, 2017). Report will
highlight basic concepts of management accounting. It will also lay emphasis on methods of
budgeting.
LO1
P1 Explaining management accounting system and its elements
Management accounting in an organisation is for supporting the competitive decisions
making through collection, processing and communication of information that will help
management in planning controlling and elevating business processes & company strategies. For
surviving in competitive market, related to technological advancement, are required to use
advance methods for working over continuous improvement of quality control and reducing cost
of products. In these circumstances organisations are shifting towards modern information
system avoiding traditional system with long term move towards management accounting. Tools
of management accounting are following growing trend over recent years. For meeting the
economic advancement of companies management accounting has emerged with new techniques
and systems helping the Unilever to manage its business. Management is helping company to
meet the needs of modern time’s business. New systems and techniques has helped companies to
manage its accounting needs and requirements (Bobryshev and et.al., 2015). Business cannot run
effectively without management accounting it includes various costing method that companies
adopt as per their businesses.
Cost accounting system
Cost accounting systems refers to framework which is used by companies for estimating costs of
its products for analysing profitability , cost control and inventory valuation. It is critical to
estimate products correct costs in profitable operations. Company must have knowledge about
each product that is prepared by company which product is making profits and which are costing
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much to company. This can be achieved when accurate cost of each product has been estimated
by company. Unilever is estimating cost of it closing inventory using cost accounting method.
Cost accounting system helps management of company to make business decisions. Corporate
accounting does not have to follow set standards that are flexible in meeting the management
needs unlike financial accounting that is required to provide financial information to external
users. Cost accounting helps Unilever in considering input costs of production that are both fixed
and variable.
Job costing system
Job costing system refers to system that assigns and accumulates manufacturing cost of
individual output unit. It is method to record cost of manufacturing job than of process. Job
costing system is useful when different items that are produced by company are different from
one another and are having significant costing. Job costing requires separate cost records for
items that are significantly varying from each other. Job records of Unilever are required to
report about the about direct material and labour costs which are actually used & assigned cost in
manufacturing overhead. With job costing Unilever is able to keep track over cost of every job,
to maintain data that are relevant to operations of business (Chenhall and Moers, 2015). It is a
specific accounting method that helps Unilever in tracking the expense for creating unique
product. There are advantages and disadvantages of using job costing system.
Price optimisation system
Price optimization method refers to using mathematical analysis for determining the
customer responses over different prices of product and services over different channels. Price
optimization is widely used by organisations to describe prices of applications. Price
optimization issued by companies for enhancing its prices for effectively meeting the
organisations objectives. Price optimisation helps company to meet objective of company like
maximisation of operating profit. Price optimisation for calculating the variations in demand at
various price levels and combining data with details on inventory and costs levels for
recommending prices which will be improving profits (Chiarini and Vagnoni, 2015).
Inventory management system
In the context of Tesco, inventory management system is highly prominent which helps
company in managing records about cost, stock level etc. By applying methods such as LIFO,
FIFO etc business unit can do appropriate valuation of stock.
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M1 Evaluating the benefits of different types of management accounting systems
Cost accounting system
Advantages
 Cost accounting system help managers of Unilever to eliminate losses, wastes and
inefficiencies through standards. Standards set by company helps to reduce cost of
product.
 Unilever is able to identify reason for increase or decrease in in profit. It help managers
to take remedial actions for maintaining the profitability of company.
 When information of cost is available management is able to make decisions about
whether to purchase or not products from open market. Record of every product is
available with company in costing records (Bromwich and Scapens, 2016).
 Cost accounting is appreciated by managers of Unilever as it is adaptable, can be tinkered
and implemented as per changing requirements of business. Cost accounting is used only
for accounting for internal purposes. Cost accounting is three dimensional which are accounting, calculations and reporting
that could be manipulated by different angles. It helps Unilever by guiding in price
determination, resource allocations and raising capital for meeting the production
requirement.
Disadvantages
 Cost accounting department are available with only cost records where management is
making decisions for future that could be different as costs in previous yaear may not be
same as in succeeding year.
 Accurate cost can be ascertained when only when full capacity is utlized it is not useful
for Unilever when there is partial utilization of capacity.
 Financial costs are not included when calculating the cost product therefore the correct
costs may not be calculated always.
Job costing system
Advantages
 Cost of products can be ascertained on completion of job giving scope for controlling the
cost of products taking suitable steps by Unilever. It helps in recognising profits
separately from each job.
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 On job completion every component of cost, profit and selling price are comparable with
estimates for controlling and reducing the costs for maximising the profits on every job in
job Costing of Unilever. Unilever is able to identify defects and spoilages arising in each job hence it helps
company to control it.
Disadvantages
 Unilever is required to have effective supervision over job costing as there is no
standardization.
 Company is required to maintain detailed information about job costing which involves
ample amount of clerical work.
 Costs cannot be controlled in job costing by the company as preventive steps are taken
after expenses are incurred in job costing.
Price optimisation system
Advantages
 It helps Unilever to focus and analyse key areas like margin of sale & conversion
numbers. It helps in generating revenues that are noticeable & helps in expansion and
growth of business.
 Requirement of manual work is reduced is reduced under-price optimisation systems
because of which human errors are also reduced in company (Hall, 2016).
 It helps Unilever to regularize its prices over channels in alignment with changing trends
of market, without redundancy. It also helps company to analyse the purchasing pattern of customer and their pricing
preferences, and it assists company in making better decisions.
Disadvantages
 Price optimisation is costly processes that increases cost of company. It increases the
costing of product which is being manufactured by company.
 It is time consuming process and involves technical experts, if the data is not accurately
prices of product will be mispriced.
Inventory management system
Benefits:
 Facilitates uninterrupted production
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