Importance of Management Accounting in Business

This assignment highlights the importance of management accounting in businesses, focusing on its role in planning, controlling, and evaluating a company's operations. It uses the example of Jupiter PLC to illustrate the relevance of marginal and absorption costing, as well as benchmarking in setting targets and taking action for deviations. The report discusses the pros and cons of benchmarking, emphasizing its potential for complacency and arrogance if not managed properly.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Explaining management accounting with its essential requirements and types....................1
1.2 Explaining different methods of management accounting reporting.....................................2
1.3 Evaluating benefits of management accounting system with its application........................2
1.4 Critical evaluation of management accounting system and reporting is integrated with
process of organization................................................................................................................3
TASK 2............................................................................................................................................4
TASK 3............................................................................................................................................5
3.1 Explaining advantages and disadvantages of planning tools with application of Budgetary
control .........................................................................................................................................5
Analysing application of various planning tools for forecasting and preparing budget..............6
TASK 4............................................................................................................................................7
4.1 Comparing organization for purpose of adopting management accounting system to
respond to financial problems......................................................................................................7
4.2 Analysing context of financial problem that management accounting will lead to
sustainable success of organization ............................................................................................9
4.3 Evaluating planning tools of accounting for purpose of solving financial problems to lead
with sustainable success.............................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Accounting is replicated as process of identifying, measuring and communicating
economic data for allowing judgements and informed decision through users of data as per
American Accounting Association. The present report will discuss about essential requirements
of management accounting with its types. This report will reflect various types of management
accounting reports with its need as well. It will also show various planning tools with its
advantages and disadvantages and benefit to Jupiter PLC. In the similar aspect, it will articulate
planning tools for responding to solve financial problems to lead organization for attaining
sustainable success.
TASK 1
1.1 Explaining management accounting with its essential requirements and types
Management accounting system is replicated as process of identifying, measuring,
analysing, communicating and interpreting financial information for accomplishing objectives of
organization. It is also known as cost accounting. Financial and management accounting could
be differed by management accounting information with objective of assisting managers for
taking decisions but financial accounting has targeted of offering information to its external
parties. The process of preparing management reports and accounts offers accurate and timely
statistical financial information required through managers for establishing regular and decision
of short term. It consists of numerous reports which are formed for accomplishing management
requirements. There are various types of management accounting system such as job costing,
inventory management and cost accounting system (Nitzl, 2018).
 Job costing system: It is referred as system of allocation of cost of manufacturing to
specific individual item or might be product batched. It had engagement of practice of
accumulation of data on cost on basis of production job or particular service of Jupiter
PLC. The information is required for submitting cost data to a customer under contract
where cost id directly refunded. It has requirement of accumulating three types of direct
information about labour, overhead and direct material as well.
 Cost accounting system: It is a framework which is applied through Jupiter PLC for
approximate the cost of products for inventory valuation, cost control and profitability
analysis. With context of this system, cost allocation is performed on basis of traditional
or activity based costing system. The cost of actual product is important for effective
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roles. Cost accounting is type of accounting system whose objective is to capture Jupiter
PLC's cost of production via weighing its input cost of production.
 Inventory management: It is referred as method of overseeing and controlling the
ordering, application and storage of various components where Jupiter PLC's production
of sold goods. The efficient tracking of quantities across location of stock and managers
had gained insight and capability for taking decision about sufficient inventory.
1.2 Explaining different methods of management accounting reporting
Managerial accounting lays special emphasis on internal information gained through
financial accounting. Generally, it is applied for decision making, planning and controlling.
Management accountants has high dependency on various financial statements consist of income
statement, balance sheet and cash flow statement. The types of management account reports are:
 Cost reports: The cost has been calculated of manufactured items through management
accounting. It is performed via considering cost, raw product overhead, labour along with
consideration of extra cost. The aggregate is categorised in amount of goods which are
produced as all data is directly summarized in cost report. Generally, this report helps in
permitting managers with capability of reflecting cost value of products vs selling price.
The profit margin has been controlled and planned through managers.
 Budget: It is one of key element for preparing budget in management accounting.
Budgets are directly formed with applying budget of previous year and adjusted in
prediction of future. All revenue and expense sources are listed in budget of Jupiter PLC.
It had been attained for attaining its goals and objectives to stay in budgeted amount.
 Performance reports: The budgets are applied through management accountants for
comparing expenditures and revenue to budgeted amounts. The computed variations are
evaluated by shaping innovative budgets along with concerned information of amount
listed in this performance report of Jupiter PLC (Hiebl, 2018).
1.3 Evaluating benefits of management accounting system with its application
The benefits of specific management accounting system are evaluated as follows:
 Job Costing system: In this system, cost might be directly ascertained at stage of job
completion and it provides scope for purpose of controlling cost. The profit which had
been earned through each individual job is replicated as job costing. Management could
be able for estimating cost of job with context of previous records. However, there is
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absence of standardization of job along with requirement of close supervision. It is
expensive and no possibility of cost control as its controlling steps are considered after
incurring expenses in Jupiter PLC.
 Cost Accounting system: Cost accounting is directly based on kind, efficiency and
adequacy of installation of this system. It substitutes loss, waste and inefficiency through
fixing standards. It leads to innovative and improved production method which is
followed with this system and helps in cost reduction. However, previous performance is
availability in records of costing but decisions are taken by management for future
perspective of Jupiter PLC. Here the cost of previous year is not similar in succeeding
year as cost data is not useful. It fails for solving problems on basis of work study,
motion and time study along with operation research.
 Inventory management system: This system helps Jupiter PLC for lowering cost as if it
has huge amount of inventory then it will not tend for ability for running this organization
in smooth aspect. In the similar aspect, effective inventory systems products helps in
increasing operating performance along with productivity as well. On the contrary, this
system cost very high and price is replicated as an issue for firms like Jupiter PLC
(Lawson and White, 2018).
1.4 Critical evaluation of management accounting system and reporting is integrated with
process of organization
Integration of management accounting is known as software application which directly
standardises procedure of tracing numerous transaction and to disseminate the financial
information. In the similar aspect, it interlinks the activities of reporting of various functional
areas of Jupiter PLC like point of sales, front and back office along with stores. Simultaneously,
it streamlines output and input information of functions of financial reporting and management
accounting. The integrated financial system will be adopted and it would enhance accuracy,
efficiency and speed for processing financial information. It simplifies accounting process of
Jupiter PLC and decreases duplicate work (Ax and Greve, 2017). It substitutes reconcile among
different margin reflected by accounting methods.
Similarly, it is non integral system where financial accounting records are appropriately
maintained at strict accuracy level for acquiring needs of outsiders. It provides great accuracy but
on the contrary, it is combination of whole data as it runs risk by giving huge information on
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financial aspect. The financial reports are designed on frequent aspect as operation of Jupiter Plc
are understood through readers. It substitutes identical entries and adds additional level of
complexity for entering data which is undertaken in business's accounting side. Further integral
accounting has need of financial accounting team which is responsible for quarterly reports of
production and work on daily report cycle for accomplishing requirements of Jupiter's managers
with its operation.
TASK 2
Marginal costing: It is a costing technique where marginal cost such as variable cost is
directly charged to units of cost but fixed cost for specific duration is fully written off against the
contribution.
Absorption costing: It is a management accounting method where all expenses and
associated cost related to manufacturing of single product is required for external reporting of
GAAP. In simple words, cost of finished unit in inventory consist of direct labor, material and
both overhead of fixed and variable manufacturing (Granlund and Lukka, 2017).
Absorption costing
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Profitability statement
5

6

Marginal costing
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TASK 3
3.1 Explaining advantages and disadvantages of planning tools with application of Budgetary
control
Budgetary control is replicated as process where budgets are arranged for future
perspective and is directly controlled with actual outcome to extract variances. The variations of
actual and budgeted amount would be assisting management for locating its specific variances
and to make corrective actions on prompt aspect.
Operational budget
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Advantages
 It helps Jupiter PLC for allocation of money in short term and also for numerous quarters
of consecutive three years.
 It allows for forecasting cost and to manage spending of short term to accomplish
financial obligations of short term.
 The resources of Jupiter Plc is allocated in operational budget but it creates absence of
inflexibility when it describes about spending.
Disadvantages
 It might give negative impact on Jupiter PLC during payment of taxes. It will directly
lead toward federal tax complication.
 Financial information could be altered from every month as there is exceeded or failure
for meeting projecting about revenue.
 If projections are inaccurate then it will lead to shortfall of cash with inability for
accomplishing different financial obligations such as meeting payroll of employee and to
pay vendor accounts (Schaltegger, 2018).
Cash budget
Advantages
 Debt could be avoided.
 The management can concentrate on some important factors which has absence of
proceeding as per plan.
 Communication could be improved for purpose of better understanding and consonant
relationship with its employees.
 The activities of each department are coordinated in Jupiter PLC.
 Cost could be minimized along with profit maximisation.
Disadvantages
 The success of Jupiter PLCis highly dependent on staff's cooperation.
 For the purpose of operating budget, it is very expensive.
 It is fully built on estimate which is subjective.
 The morale and productive could be decreased with presence of realistic target.
 It might take high time for accomplishment.
Master budget
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Advantages
 It is referred as very important planning tool for Jupiter PLC as it discusses position of
asset and liability with its profitability.
 It helps in measuring performance of Jupiter PLC and motivates its staff.
 It is essential for inter divisional coordination in each division of Jupiter PLC and helps
in continuous improvement.
Disadvantages
 The divisional staff of Jupiter PLC is forced for attaining target with practical difficulties
due to pressure through top management.
 It is very difficult to update and modify as it comprises lengthy charts and description.
Analysing application of various planning tools for forecasting and preparing budget
The different types of budget like capital and operating. The alternative process of
budgeting with aggregate of behavioural inferences of budget and to help management for taking
prompt and sufficient decisions.
2018 2019 2020 2021 2022 2023
Receipts £ £ £ £ £ £
Cash sales 8000 8400 8736 9260 9445 9918
Credit sale
receipts
from
debtors 4000 4200 4368 4630 4723 4959
Other
income
received 4000 4200 4368 4630 4723 4959
Total
receipts (a) 16000 16800 17472 18520 18891 19835
Payments
Purchases 5000 5250 5460 5788 5903 6199
Wages-
Labour and
6000 6300 6552 6945 7084 7438
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overheads
Fixed costs 500 525 546 579 590 620
Capital
expenditure
- Plant 400 420 437 463 472 496
Advertising 2000 2100 2184 2315 2361 2479
Total
Payments
(b) 13900 14595 15179 16090 16411 17232
Surplus/
Deficit (a) –
(b) 2100 2205 2293 2431 2479 2603
Balance b/f 0 2100 4305 6598 9029 11508
Balance c/f 2100 4305 6598 9029 11508 14112
TASK 4
4.1 Comparing organization for purpose of adopting management accounting system to respond
to financial problems
Jupiter PLC and Harrod UK both are small sized manufacturing company. They can
adopt different management accounting system for giving response to financial problems such
as:
Parameters Jupiter PLC Harrod UK
Balance score card Jupiter PLC will be evaluating its
finance as it will directly deal with
profits which is main objective for
purpose of creating value of
shareholder (Saeidi and Othman,
2017). It would be equal to others but
on frequent aspect it will consider
Harrod UK would be thriving with
appropriate understanding of its
particular core competencies.
Balance scorecard would be
determining process of internal
business. It has huge involvement
about its understanding process for
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return on assets, equity and profit
margin. The perception of customer
will be allowed for this organization
which is directly perceived through
customers. This perception would be
evaluated through surveys from
customer with association of value.
succeeding and to evaluate the
organization's performance. The
efficiency has been measured as
most important operation. It
develops business on constant
aspect and risk has been evaluated
as obsolete. Here growth and
learning are considered in this
balance scorecard. It would be
measuring and capability for
developing innovative process and
knowledge. The growth and
development would be translated as
dynamic organization.
Benchmarking Jupiter PLC would be laying special
focus on different measure of
performances as it will strive for
quick fix and bandage. It is replicated
with consideration of spying
corporate. It would be facing
competitive advantage but with
proper attempt to other process or
company.
Harrod UK will be focusing on
various best practices. It will strive
for continuous improvement. In the
similar aspect, it will partner for
sharing information. There is huge
requirement of appropriate
maintenance of competitive
advantage. In the similar aspect, it
will adapt with requirements of
customer after examination.
Financial
governance
It is replicated as method through
which Jupiter PLC will be collecting,
managing and monitoring its
financial information. It will track
financial transactions for managing
performance and to control data,
Harrod UK will be considering
financial policies, internal control,
workflow, internal and external
audit along with various financial
policies. It will respond through
financial controls, data security
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operations, compliance along with
specific disclosure. It will use
software which will maintain
formatting and data structure and
system which will validate data on its
input. It will allow Jupiter PLC for
determining risk in faster aspect.
along with data tracking and
validation. This organization will be
viewed as single data hub for entire
information which houses real time
along with historical information. Its
outcome will reflect clear
accountability and ownership.
Key performance
indicator
Jupiter Plc will be using effective
KPI which will cascade through
strategic dashboards to operational
and tactical dashboards. It will be
trickling overall objectives of
business entity along with employee's
daily operation (Nitzl, 2018).
Harrod UK has approx 120
employees so performance would be
analysed. It has absence of
quantitative nature for being
measurable. It will be visible to
whole organization for
communicating with its employees
and how it is impacting overall
objective of organization.
4.2 Analysing context of financial problem that management accounting will lead to sustainable
success of organization
The financial problem could be determined with application of key performance
indicators, budgetary targets, benchmarking and financial governance. With use of setting
benchmarks, it determines issues and variances for purpose of addressing with absence of delays.
In the similar aspect, Jupiter PLC will be define financial governance and helps in understanding
method of application for preventing the financial problems. The business must use financial
governance for monitoring its continuous strategy. In the similar aspect, effective system and
strategy should be developed with requirement of effective and timely reporting as appropriate
disclosure of financial statements which are owned and governed through Jupiter Plc. The
management must be capable for guiding organization for attaining sustainable success such as:
 Determining environmental and social trends which will directly impact capability of
organization for building value over time.
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 Facing various sustainable corporate challenges to its strategy, business model,
performance outlook along with license to specific function.
 Establishment of Key performance indicator which will directly support strategic and
sustainable objectives.
 Producing report which consists of information related to sustainability impact for
informing decision about budgeting and pricing along with investment appraisals and
strategic planning (Ax and Greve, 2017).
4.3 Evaluating planning tools of accounting for purpose of solving financial problems to lead
with sustainable success
The planning tools with context of accounting for purpose of solving financial problems
to lead with sustainable success are:
 Balance score card: The application of BSC is considered as methodological and
systematic tool. It has ability for giving visual mean of accomplishing objective and
sustainable success. It has various other perspective where measurements are reflected in
individual aspect or it gives clear and visualize picture. The managers of Jupiter Plc will
be capable for monitoring employees performance with creation of action plan. On the
contrary, it is time and cost consuming as it give huge importance for thorough
understanding about work process. In the similar aspect, it has high requirement of data
mining as it does not provide assurance with derivation of right elements (Balance score
card, 2018).
 Key performance indicator: It helps in determining indicators of success of
organization for establishing appropriate performances targets. The success of
organization will measure with aid of analysing areas where business could be improved.
On the contrary, it could be con as progress is not followed where indicators are met
through employees (Plank, 2018).
 Benchmarking: It helps in improving performance as it sets foundation for enhancing
competitiveness. It forces business entity for determining best practices of key business
process but it is inadequate for measuring overall effectiveness of these specific metrics.
The most danger of benchmarking is complacency along with arrogance (Pros and Cons
of benchmarking, 2018).
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CONCLUSION
From the above study it had been concluded that management accounting plays very
important role whether it is large, medium or small sized firm. This report had shown importance
with reference to Jupiter PLC. There is representation of marginal and absorption costing along
with evaluation of planning tools such as benchmarking helps in setting target and to take action
for various deviations.
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REFERENCES
Books and Journals
Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational
culture compatibility and perceived outcomes. Management Accounting Research. 34.
pp.59-74.
Cooper, D. J., Ezzamel, M. and Qu, S. Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research. 34(2). pp.991-
1025.
Granlund, M. and Lukka, K., 2017. Investigating highly established research paradigms:
Reviving contextuality in contingency theory based management accounting
research. Critical Perspectives on Accounting. 45. pp.63-80.
Hiebl, M. R., 2018. Management accounting as a political resource for enabling embedded
agency. Management Accounting Research. 38. pp.22-38.
Lawson, R. and White, L. R., 2018. MAINTAINING RELEVANCE IN-THE DIGITAL AGE:
In the face of technological change, the management accounting profession needs to
refocus on providing actionable cost information to support internal decision making--or
risk becoming obsolete. Strategic Finance. 99(10). pp.26-32.
Nitzl, C., 2018. Management Accounting and Partial Least Squares-Structural Equation
Modelling (PLS-SEM): Some Illustrative Examples. In Partial Least Squares Structural
Equation Modeling (pp. 211-229). Springer, Cham.
Nitzl, C., 2018. Management Accounting and Partial Least Squares-Structural Equation
Modelling (PLS-SEM): Some Illustrative Examples. In Partial Least Squares Structural
Equation Modeling (pp. 211-229). Springer, Cham.
Plank, P., 2018. Introduction. In Price and Product-Mix Decisions Under Different Cost
Systems (pp. 1-5). Springer Gabler, Wiesbaden.
Saeidi, S .P. and Othman, M. S. H., 2017. The mediating role of process and product innovation
in the relationship between environmental management accounting and firm's financial
performance. International Journal of Business Innovation and Research. 14(4). pp.421-
438.
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Schaltegger, S., 2018. Linking Environmental Management Accounting: A Reflection on
(Missing) Links to Sustainability and Planetary Boundaries. Social and Environmental
Accountability Journal. 38(1). pp.19-29.
ONLINE
Balance score card. 2018. [Online]. Available through
<https://www.bernardmarr.com/default.asp?contentID=1478>
Pros and Cons of benchmarking. 2018. [Online]. Available through
<https://brandongaille.com/10-pros-and-cons-of-benchmarking/>
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