Management Accounting Concepts and Applications

This assignment delves into the core concepts of management accounting, exploring its definition, key functions, scope, and practical applications. It examines various management accounting techniques and their role in supporting effective decision-making within organizations.

Management
Accounting

Table of Contents
INTRODUCTION........................................................................................................................................3
TASK 1.........................................................................................................................................................3
P1 Definition of management accounting and its essential requirement of different types of
management accounting system .............................................................................................................3
P2 Different methods of management accounting reporting...................................................................4
TASK 2.........................................................................................................................................................5
P3 Calculation of costs by using absorption method and marginal costing method...............................5
TASK 3.........................................................................................................................................................8
P4 Advantage and disadvantage of various planning tools which are used for budgetary control.........8
TASK 4.......................................................................................................................................................11
P5 Comparing organisation's management accounting system to solve the financial problems...........11
CONCLUSION..........................................................................................................................................12
REFERENCES...........................................................................................................................................13

INTRODUCTION
Management accounting is an managerial tool, which can be understand by diving them into two
parts: Management and Accounting. Here management refers to proper adjustment and scheduling of
managerial function inn an organisation and on the other hand, accounting refers to appropriate
recording , analysing and interpretation of each and every transactions which are related to the business.
In this way, management accounting include preparing a report of all the informations, so that manager
can estimate the resources and funds and ensure that such resources can be effectively utilised in an
organisation. In this report, RL Maynard is taken as a company whose turnover is below 500000 pound.
In this report, management accounting and there essential requirements of different types of management
accounting systems are explain and it also describes methods of management accounting reports. It also
ascertained the cost per unit by calculating the cost by absorption and marginal costing method. It also
explain the budgetary control by using different budgetary control tools in an organisation. At last it also
describes the management accounting system, which are used in to resolve the financial issue and
problems in an organisation.
TASK 1
P1 Definition of management accounting and its essential requirement of different types of management
accounting system
Management accounting is an essential managerial tool in an organisation. It include collection
of all the resources, information and facts in a proper reporting documents and so that as per such
collected information they can estimate the availability of resources and funds, which influence the
company's growth. It also help to determining the actual position of the company and also help to make
effective decision-making process, so that it will increases the profitability of a company
(Wajeetongratana, 2016). In this way management accounting involves preparing a report which are
prepare by the managers so that buy using report they can make effective decision-making process and
ensure the company's growth. Here, management accounting are used by the manager and it is prepare as
per the need of the business.
Essential requirement of different types of management accounting system
Lean Accounting- Lean accounting is suitable for lean enterprises so that they can pre-
determined an effective strategies for the business. It is basically focuses in traditional accounting
method, in which transactions are collected, recorded and interpreted by the accountant. All those
activity are done, so that it will motivate the employees so that they can perform well. In the given case,
RL Maynard company is focuses on lean accounting to perform in management accounting system. In

this way, company eliminate the traditional budgeting techniques and also added value in pricing so that
company can manage there prices of products appropriately by using lean accounting. So that such
accounting techniques gives accurate information as per time so that manager can taker effective course
of action to motivate there employees in a right way.
Transfer pricing- Transfer price is a process in which one company, division etc. sell there
products and services to another section, division, so that price can be transfer from one division to
another easily. Transfer price includes all the transferring things such as labour, parts, components and
equipments etc. so that it can be used in production activities effectively. By transferring the price also
make impact on business operational activities such as, it are used in determining the cost and revenues
which is related to the organisation and it also make impact on incentives which are given to the
employees, so that they will be motivated and work more effectively.
Transfer price also make impact on tax liabilities and it is also determined by various factors such
as market and cost-based factors. By considering the market-based factors, it include all the impact such
as market position and analysis, the condition of competitors and there pricing strategies etc. which is
totally based on market efficiency. On the other hand, cost-based factors include the cost of products,
price of each unit etc. which is determined by the total sale in an organisation.
Throughput Accounting- Throughout accounting is typically based on improving organisation's
capabilities. Managers who adopt such accounting techniques able to increases the efficiency by
identifying the resource which are available in an organisation. So that to maximising the profit og a
company and increases the profitability, manager of RL Maynard cut it down the wastage and minimizes
the cost. Throughput accounting techniques are used by making effective decision-making process which
is related to the investment, expenditure etc. This is a techniques which are used in both non-profit
making and profit making company, in this way managers should develop a plan and plays an effective
role in each activity of an organisation. Throughput accounting will be determined by calculating the
throughput, after that throughput accounting ratio will be calculated. The formulas are as follows:
Throughput= Sales Revenue- Total Variable Cost-based
Throughput accounting ratio= Return per factory hour/ Cost per factory hour
Traditional Cost Accounting- Traditional cost accounting is used to make balance between
manufacturing overheads, labour hour and production machine hours. In this way, by the help of
traditional cost accounting it helps the manager to determine the factory labour and there working,
indirect expenses and machine working hour in an organisation. Traditional costing method also includes
that the various techniques such as marginal costing and absorption costing. In marginal costing only

variable expenses is considered but on other hand absorption costing include both the fixed and variable
expenses for assessing the cost per unit (Vosselman, 2014).
P2 Different methods of management accounting reporting
RL Maynard company choose various management accounting reporting methods, which are as
follows:
Budget Report- In management accounting preparing budget is an important tool which every
business can used. By making budget report, it will help the managers of RL Maynard company's
managers to make correct estimation of resources and funds availability in a company. In this way, they
can determine and allocate the right resources in a right place. They also make effective budgeting so
that company can minimize the cost by adopting various innovative ideas and maximizer there
profitability. Budget report also help to estimate the actual position of the company as per the past,
present events. In this way, manger can forecast the risk by using correct report of budgeting (Vakalfotis,
Ballantine and Wall, 2013).
Accounts Receivable Ageing Report- Account receivable ageing report is prepared so that
manager of RL Maynard company can determine the actual cash flow, so that as per the report manager
can decided and ensure the credit availability to there client. In this way, manager will make proper
recording of each and every cash related transaction like how much cash received by the company and
how much cash are invested from a company etc. In this way, RL Maynard company used accounts
receivable ageing report son that they can determine the cash problems and also check the customer
satisfaction level related to the company's operations.
Job Cost Report- Job costing report are prepared so that organisation can determine and represent
the expenses which is related to the specific project. In this way, company will divide the task into
different projects and ensure that all the expenses are spend to completion of task will make positive
impact of company's growth or not. RL Maynard company will focus to such areas which earns high
profits so that by focusing more on such areas activities, they will help to achieving the profitability and
efficiency of the company. In this way, company make there effort so that they can reduce the wastage
and ensure the optimum use of resources in there operational activities.
Inventory and manufacturing Report- RL Maynard also make inventories and manufacturing
reports, so that by preparing such report it helps the managers to check the wastage of stock and per unit
cost etc. In this way, managers prepare each and every record related to the stock so that stock can be
used effectively in an organisation (Tappura, Sievänen, Heikkilä, Jussila and Nenonen, 2015). Company
also focus in manufacturing activities such as production, services etc. and make innovative ideas so that

they can increases the quality of the products and satisfied the consumer's need, demand, taste and
preferences etc.
Hence, all the methods are used for management accounting reporting so that as per the above
managerial methods, manager will make effective plan and organising each task from different
departments. In this way, manager can use effective staffing techniques so that funds are allocated as per
the need of the organisation and make proper decision-making process so that they can monitor each and
every activities which help to utilize optimum resources for accomplishing there pre-determined goals.
TASK 2
P3 Calculation of costs by using absorption method and marginal costing method
Income statements is a financial statements of a company, which helps the managers to estimate
profit or loss situation of a company. By which statements, it provide sufficient information that during
the accounting period company is suffering from loss or gaining the profit. In this way to make income
statements many organisation used different methods, here two methods are used to estimate the income
position of a cited company, which are as follows:
Marginal costing method
In marginal costing method, the total cost of production is estimate while preparing the income
statements (Simons, 2013). As per the given question the calculation are:
Income Statement For
Marginal Costing
Particulars Amount Amount
Sales 21000
Less: Variable Costs
Stock at Beginning Nil
Production 9100
Closing Stock -1300
COGS -7800
Contribution 13200
Less: Fixed Cost 10800
Manufacturing
Expenses 2000
Administrative Cost 700

Selling Cost 600
Overheads in Sales 600 -3900
Net Profit or Loss 9300
Absorption costing method
In absorption costing method, in which cost and there cost centre are estimated to prepare the
income statements of a company (Schaltegger, Gibassier and Zvezdov, 2013). Here the calculation of
estimating cost by using marginal costing techniques are:
Income Statement For
Absorption Costing
Particulars Amount Amount
Sales 21000
Less: Cost Of Sales
Opening Stock Nil
Production 11200
Closing Stock -1600 -9600
Less: Fixed Production
Overhead 100
COGS 9500
GP 11500
Less: Other Expenses
Administrative Cost 700
Selling Cost 600
Fixed Selling Cost 600 1900
Net Profit or Loss 9600
Interpretation- In this way, by determining the above two table, company can calculated and prepare
the income statements by using absorption costing and marginal costing techniques. As per above table
1, income statement is prepared by using marginal costing, so that at this time the total cost is £9300 in
an accounting period. In table 2, company received the net profit of £9600.

Difference between absorption costing and marginal costing techniques
Basis of Comparison Absorption Costing Marginal Costing
Ascertainment of cost In absorption costing method
both fixed and variable expenses
are considered to ascertaining the
cost.
But in variable costing method
only variable expenses are
considered (Renz, 2016).
Unit Cost In absorption costing, different
cost are used in different level of
output, but here fixed are always
remaining same.
In marginal costing, marginal
cost per unit are remaining same
and variable expenses are used is
same portion.
Relationship In this method, it make
relationship of costs, volume and
profit into fixed and variable
cost.
Here cost, volume and profit are
the integral part of marginal cost
techniques.
Objectives Absorption costing generate more
profit as compare to marginal;
costing techniques, because
during the period finished goods
and work-in-progress in increases
(Otley and Emmanuel, 2013).
But marginal costing generate
less income because stock is
decreases during the accounting
period.
Efficiency of managerial
decision-making
It is not very helpful to taking
managerial decision-making
process effectively.
But marginal costing method are
more useful, as compare to
absorption costing method.
Cost Classification Here cost are classified on the
base of functional activity such as
production cost, office cost etc.
But in marginal costing, cost are
classified as per the cost
behaviour like fixed cost,
variable cost etc.
Relationship In this method, it make
relationship of costs, volume and
profit into fixed and variable
cost.
Here cost, volume and profit are
the integral part of marginal cost
techniques.

TASK 3
P4 Advantage and disadvantage of various planning tools which are used for budgetary control
Budgetary control is a process of preparing budgets so that managers can take effective decision
related to make effective control in budget (Morales and Lambert, 2013). It is a process of controlling
cost and make coordination with various departments by using budget. As per the budgetary control
process is also help to make comparison between standard result and actual results. There are various
advantages and disadvantage of budgetary control:
Advantages
 It helps to make effective coordination between various department in an organisation (Lavia
López and Hiebl, 2014).
 Helps to make effective strategic planning by the mangers, so that future goals will be fulfil.
 It provide correct records of all the information such as cash inflow/ outflow, investments,
expenses etc.
Disadvantage
 It reduces the innovative ideas because in budgetary control same strategies are repeating again
and again in an organisation.
 In budgetary control, there are lack of participation of employees, so that it make disadvantage
of an organisation.
Planning tools of budgetary control
Variance analysis- It is a techniques are classified into four parts: material, labour, variable
overheads and fixed overhead variance. It is an analytical tool which are used to make comparison actual
operations to budgeted estimates (Hiebl, 2014). For example: To recorded actual quantity and cost of our
raw material, after this, it is compared with budgeted value of raw material quantity and cost. Result of
this will be material cost variance. It will find the variance of labour cost and overhead cost. This
technique of budgetary control is helpful for reducing the cost of business. In RL Maynard company,
variance analysis can be done by selecting best alternative which appropriate for the company. Such
alternative are used to make comparison between actual results and standard results. In this way, while
comparing the results deviation will be find out by the company through variance analysis.
Advantages
 Variance analysis help to find out the deviation so that company can take immediate decision,
which are beneficial for the company's growth.
 It also help to increase the efficiency and also help to increase the profitability.
 By variance analysis it help to make effective control ion cost.

 Eliminate the inefficiency in performance which are done by the workers.
Disadvantage
 It is very time consuming process.
 Calculation of variance can be done by highly expertise person, so that organisation need to
spend more for hiring right person.
 Sometimes variance analysis shows the negative result so that it make negative impact on
company's performance.
Responsibility Accounting- It is an important tool of making control in budget. By which, company
make effective plan so that they will allot the right responsibilities by using responsibility centre. In this
way, in each responsibilities centre managers make effective plan so that they can ascertained there
monthly budget or annual budget (Fullerton, Kennedy and Widener, 2014). In this method, managers are
able to receive feedback monthly from there employees which are related to the performance and there
management. There are various advantage and disadvantage of responsibilities accounting, which are as
follows:
Advantages
 It helps to make effective control in cost.
 It increases the staff interest in an organisation.
 It help to find out the variation between budgeted figure and actual performance of a firm.
 It also help to improve the capabilities of a company by getting the feedback annually/ monthly.
Disadvantage
 It is a time consuming process for making calculation in a business.
 It also make negative impact on company's performance.
Zero-based Budgeting- It is starts from zero basic, in which all expenditure are focused for each new
periods. It is investigation to find out the company's value and there demand. It is allowed by top-level
administrator so that it will apply in the budget process (Fullerton, Kennedy and Widener, 2013). There
are some advantages and disadvantage of zero based budgeting are:
Cash Budget For Rl Maynard
Company
For the period ending January 31 Amount
Beginning Cash Balance 100000
Cash Collection
From Current Sales 30000

From Accounts Receivables 15000
Cash Payments
Material 10000
Payroll 15000
Rent 3500
Utilities 1250
Suppliers 700
Administrative Cost 2100
Taxes 1750
Cash in or out in Financial activity
Interest Received 200
Loan Repayments
Principal 7500
Interest Received 143
Ending Cash Balance 118543
As per the above cash Budget of RL Maynard Company, it is clear that company make effective
budgets and adopt various tools such as zero based budgeting so that it can manage all the resources
effectively.
Advantages
 It represent the accurate results in a cash flow statements.
 It also increases the capabilities of a company.
 It is a cost effective techniques.
 It helps to reduce and eliminate the risk by forecasting in future.
Disadvantage
 It require numbers of human resources to make zero-based budgeting (DRURY, 2013).
 It is a time consuming process.
 It is essential to hire a trainers so that they can budget fast for there organisation.
Adjustment of Funds- Adjustment of fund is essential to making budgetary control in an organisation.
In this, fund are adjusted in such a manner where it really need to adjustment of fund in a particular
departments. Funds are adjusted because it secure the effective and optimum use of resources in an
organisation. There are various advantages and disadvantage of adjustment of funds which are as
follows:
Advantages

 It helps to reduces the error by rectifying it.
 Effective tool of making control in budget.
 Helps to manage the funds and resources effectively in an organisation (Cullen, Tsamenyi,
Bernon and Gorst, 2013).
Disadvantage
 It consume lots of time, so that it is very time consuming process.
 Require large amount of cash to completing the task.
TASK 4
P5 Comparing organisation's management accounting system to solve the financial problems
Financial problems which are faced by the RL Maynard are:
 Wastage of raw material which make negative impact on the requirement of cash.
 Company also face the problems of accurate and fair presentation of pricing. Lack of
transparency make great impact on the financial problems of a company.
 Control on cash and its requirement also make a great impact on the operations of a cited firm.
 Proper Cost management is a also main task which is essential for a company to complete them.
Management accounting system is an important for RL Maynard company, so that they can resolve the
financial problems, which are as follows:
Lean Accounting- Lean accounting is very essential for management accounting system. By use
lean accounting manager can remove or eliminate the wastage and determine the important factor which
make both the positive and negative impact of organisation's capabilities. In this way, by the use of lean
accounting manager can identify the financial problems of a company (Cooper, Ezzamel and Qu, 2017).
It helps that manager that collect the information and check that such information is based on time or
not. Lean accounting also make the decision of manager faster and accurate, so that it is beneficial for
the company. In this way, lean accounting help to identify the financial problems like availability of fund
in an organisation and help to improve the efficiency of an organisation.
Transfer pricing- By transfer the prices among different department also make to identify the
financial problem in an organisation. Transfer of prices make the fairness and accuracy of information,
sop that it can represent the positive situation of a company. To transferring then price, it required the
complete documentation process, so that all the data which recorded related to the transferring of price is
reliable and based on recurrent position of a company. So that transfer pricing plays an important role to
identify the financial problem in an organisation.
Throughput Accounting- Throughput accounting is mainly focus on credit requirement in a
company. So that the main advantages of throughput accounting is that it is concern on cash activity

such as net cash inflow and outflow. In this way, it help the organisation and there mangers by which
they can estimate the real requirement of cash in a particular department. It also make full control by
monitoring the activity that how much funds or cash are expenses as indirect expenses, so that it make
full control in cash and credit activity in an organisation (Brandau, Endenich, Trapp and Hoffjan, 2013).
Cost Accounting- Cost accounting is an importance part or element of an organisation to find out
the financial problems. In RL Maynard company, many mangers can use the cost accounting to estimate
the cost of unit of each products. To preparing the income statements manager need various costing
methods such as marginal costing techniques. absorption costing methods. So that they can assess the
cost of product and after that they prepare a budget which are beneficial for the organisation's growth.
Cost accounting also help to proper utilizing the resources so that there are no chances of wastage of
cost. In this way, to solving the financial problem by using costing method, managers need to make
proper plan and setting the appropriate procedure and rules, after that by following right decision-
making process manager can estimate the cost of each unit in an organisation. In this way, costing
techniques plays an important to resolve the financial issues in an organisation (Bodie, 2013).
Hence, all above the management accounting system essential for RL Maynard company because
by which company can identify there financial issues by identifying the cash, inventories, labours etc.
and overcome there financial problems by following all those management accounting system tools.
CONCLUSION
As per the above report, it have been concluded that management accounting is an important tool
for making effective decision, so that it will increases the company's growth in future. As per the above
detailed report, it is discovered that lean accounting, transfer pricing, throughput accounting and
traditional cost accounting are essential for making effective management accounting system. It is also
discovered that to prepare a management accounting report RL Maynard can use different methods such
as budget report, accounts receivable ageing reports, job costing report and inventories/ manufacturing
reports. By calculating the cost per unit by using absorption method and marginal costing method
company can find out there cost and as per such calculation company also prepare the income
statements, so that they can make relationship between marginal and absorption costing method. It is
also discovered the budgetary control and there tools with make positiver and negative impact on
company's performance. At last in this report, organisation compare all the management accounting
system, so that they can resolve there financial issues and achieve there goals (Armstrong, 2014).

REFERENCES
Journals and Books
Armstrong, P., 2014. Limits and possibilities for HRM in an age of management accountancy. New
Perspectives On Human Resource Management op. cit. at, pp.154-166.
Bodie, Z., 2013. Investments. McGraw-Hill.
Brandau, M., Endenich, C., Trapp, R. and Hoffjan, A., 2013. Institutional drivers of conformity–
Evidence for management accounting from Brazil and Germany. International Business Review.
22(2). pp.466-479.
Cooper, D. J., Ezzamel, M. and Qu, S. Q., 2017. Popularizing a management accounting idea: The case
of the balanced scorecard. Contemporary Accounting Research.
Cullen, J., Tsamenyi, M., Bernon, M. and Gorst, J., 2013. Reverse logistics in the UK retail sector: A
case study of the role of management accounting in driving organisational change. Management
Accounting Research. 24(3). pp.212-227.
DRURY, C. M., 2013. Management and cost accounting. Springer.
Fullerton, R. R., Kennedy, F. A. and Widener, S. K., 2013. Management accounting and control practices
in a lean manufacturing environment. Accounting, Organizations and Society. 38(1). pp.50-71.
Fullerton, R. R., Kennedy, F. A. and Widener, S. K., 2014. Lean manufacturing and firm performance:
The incremental contribution of lean management accounting practices. Journal of Operations
Management. 32(7). pp.414-428.
Hiebl, M. R., 2014. Upper echelons theory in management accounting and control research. Journal of
Management Control. 24(3). pp.223-240.
Lavia López, O. and Hiebl, M. R., 2014. Management accounting in small and medium-sized enterprises:
current knowledge and avenues for further research. Journal of Management Accounting
Research. 27(1). pp.81-119.
Morales, J. and Lambert, C., 2013. Dirty work and the construction of identity. An ethnographic study of
management accounting practices. Accounting, Organizations and Society. 38(3). pp.228-244.
Otley, D. and Emmanuel, K. M. C., 2013. Readings in accounting for management control. Springer.
Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John Wiley &
Sons.
Schaltegger, S., Gibassier, D. and Zvezdov, D., 2013. Is environmental management accounting a
discipline? A bibliometric literature review. Meditari Accountancy Research. 21(1). pp.4-31.
Simons, R., 2013. Performance Measurement and Control Systems for Implementing Strategy Text and
Cases: Pearson New International Edition. Pearson Higher Ed.

Suomala, P., Lyly-Yrjänäinen, J. and Lukka, K., 2014. Battlefield around interventions: A reflective
analysis of conducting interventionist research in management accounting. Management
Accounting Research. 25(4). pp.304-314.
Tappura, S., Sievänen, M., Heikkilä, J., Jussila, A. and Nenonen, N., 2015. A management accounting
perspective on safety. Safety science. 71. pp.151-159.
Vakalfotis, N., Ballantine, J. and Wall, A. P., 2013. A literature review on the impact of Enterprise
Systems on management accounting.
Vosselman, E., 2014. The ‘performativity thesis’ and its critics: Towards a relational ontology of
management accounting. Accounting and Business Research. 44(2). pp.181-203.
Wajeetongratana, P., 2016. Management Accounting Techniques of Companies Listed on the Stock
Exchange in Thailand. Management Accounting, 1, p.43943.
Online
Management Accounting: Concept, Functions and Scope. [2017]. Available through:
<http://www.yourarticlelibrary.com/accounting/management-accounting/management-accounting-
concept-functions-and-scope/61276/> [ Accessed on 2 June 2017].