Management Accounting and its Role in Decision Making

This document provides an introduction to management accounting and its role in decision making. It discusses the requirements of a management accounting system and various methods for accounting management reports. It also explores the use of cash budget for financial forecasting and its application in preparing and forecasting the financial position. The document is focused on Lets Grow, a UK manufacturing firm.

Management Accounting

Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
LO 1............................................................................................................................................................3
(a) Management accounting system and its requirements........................................................................3
Various methods for accounting management reports.............................................................................5
(b) Management accounting system and its report support in making decision.......................................6
LO 3............................................................................................................................................................6
(C) Cash Budget of six months................................................................................................................6
(d) Use of cash budget and its application for preparing and forecasting the financial position..............7
LO 4..........................................................................................................................................................10
(e) Management accounting system deal with financial problem..........................................................10
(F) Critical evaluation of the financial position based on forecasted cash budget..................................12
CONCLUSION.........................................................................................................................................12
REFERENCES..........................................................................................................................................13

INTRODUCTION
Management Accounting relates to the use of tools and techniques and techniques for the
efficient use of which provide, information and data in order to attempt for the members of the
company to make the correct decision for the corporation (Dahlan, 2019). It can help a great deal
to increase the total efficiency, performance and effectiveness of an organization that leads to
even more income through increased sales. As a consequence, the amount of income can be
quickly increased and a competitive advantage can be gained on the competition on the sector. In
order to achieve so, it must be done correctly such that the full gain can be extracted from it.
Management Accountants are very useful to the firm. This report is focused on Lets Grow, a UK
manufacturing firm. Specific analysis of the knowledge of management accounting practices, the
variety of statistical kinds of methodologies and the use of various types of planning tools will be
carried out in this assignment. In fact, a summary of the forms in which businesses may use it to
address their financial challenges would be addressed as part of this initiative.
MAIN BODY
LO 1
(a) Management accounting system and its requirements
The information management system in all businesses is useful as it encourages business
to act effectively by providing financial data on domestic operations. In aims to discuss the
program manager, extensive data on established processes is needed in order to monitor the costs
and make sensible choices. Lets Grow Ltd uses the accounting software framework to make the
correct investment decisions. In fact, it effectively manages finance by implementing a
management accounting system that increases profitability. The essential requirements of the
financial management framework are set out below-
Inventory management system- This system is very applicable to all companies that are trying
to manage correct stock records and to track them properly (Swalih, 2019). It is mainly used for
tracking facilities and goods in the manufacturing field and throughout the supply chain. Lets

grow Ltd’s boss used this method to classify inventories with the assistance of engaging the
supply chain or commercial operations. From production to distribution, inventory storage,
refining and delivery, it has been used to mask improved productivity.
Essential requirement- The necessity of this system to obtain all data on stock management and
tracking with both the help of this system.
Benefits: The system is beneficial for operating teams to gain organizational productivity, which
produces optimum performance by reducing expenses and maximizing sales and earnings. For
starters, by introducing this approach, Lets grow limited gains from the accomplishment of the
inventory control goals and targets. In addition, by utilizing this method, the industry as a whole
can be optimized.
Price optimization system- In the growing industry, the pricing structure is the crucial factor
that influences which technique would be used to determine the cost of products and facilities. In
order to optimize efficiency, systematic analysis has been used to determine whether an
organization should adopt the price structure. In addition, this approach helps to provide
guidance for setting prices that are appropriate to both company and customers. Like Let's Grow
Ltd use this system and create up evaluation prices since raising compensation that target new
customer and increase profit margins by trying to set nonviolent operating rates.
Essential requirement- In order to attract buyers, this report includes the development of an
appropriate pricing structure for the company and, consequently, the selling on the market.
Benefits: This approach has numerous benefits as it allows the customer to be more competitive
in the industry, to maintain fair market rates and to understand the danger to a company. Like in
let’s grow limited, this program has been used to better assess buying trends and to assign
preference to price ranges.
Cost accounting system- It is a management accounting tool used to evaluate complete and
accurate costs across the entire activities of the institution (Jiasheng, 2019). It involves the
process of registering, evaluating, identifying, summarizing and distributing costs for the
monitoring of unnecessary costs. In fact, this can be used to discover the real cost of a wide
variety of facilities and products. Like Lets Grow Ltd, this technique has been used to compare

the profitability within each product activity and to evaluate whether or not the whole project is
successful. By adopting the cost accounting process, the corporation would cover the cost of its
corporate activities and maintain a profitable organization.
Essential requirement- The purpose of this system to determine the cost of growing commodity
in order to promote development and profitability in industry and to forecast potential activities.
Benefits: This is useful in every business, as it facilitates the recognition of fruitful and non-
profitable activities, recommendations for potential development strategies and requirements,
and controls the delivery of goods and materials. Let Grow Ltd collects data on successful and
non-competitive business transactions by applying this structure and discovers the exact purpose
of unsustainable business operations. Consequently, in order to identify prospective growth and
income, this method is applied.
Various methods for accounting management reports.
MA reports are beneficial for internally and externally policy making and include
thorough financial data, reports and documents for strategic action to meet shortened and longer-
term objectives. Among several many words, the financial management method aims to plan,
supervise and monitor client expenditures. Like Lets expand business head, he performs cash
management documentation with the aid of financial information and cash management.
Eventually, the company accounting system is discussed as follows:
Budget report- It is a crucial report used to determine the performance of the business and to
produce profits for micro, large and medium enterprises (Evans III, 2019). As a result, each
organization creates spending to reflect the demand of the consumers and the agreement that
definitely earns money. It is designed on the basis of previous experience and knowledge that
enables revenue and expenditure to be generated. Lets grow Ltd develop expenditure reports that
direct organizations to effectively protect workers and reliably estimate income and expenses.
Performance report: Such reports are generated in order to assess the outcome of the industry
and the output of employees at the end point. Such documents are used by managers to make
important business decisions on long-term objectives. The Company has praised successful
employees with their great work, which helps staff to feel motivated, and they are creating more
efforts. Performance results also are crucial for leaders to plan by detailing job performance and

behavior. Corporate leaders at Lets grow Ltd would use this research to feel better at bonuses
and other benefits. As a rule, they operate more effectively by the implementation of laws and
regulations.
Cost accounting report: It is used to define the prices of products or services that are produced.
The cost analysis shall include descriptions of all expenses involved and shall separate the
quantities of products produced. These records instruct the executives of Grow Ltd to review the
management accounting documentation in order to consider the expense levels for growing
undertaking. Profit margins is measured and reported as if by providing a comprehensive picture
of all expenses through this report. Thus, by trying to balance all assets across various agencies,
it significantly reduces material losses, hourly work and overhead expenses.
(b) Management accounting system and its report support in making decision
The accounting and reporting management areas are connected, since reports are both supported
by the record keeping management system. This stems from a financial accounting program that
guarantees that the company is profitable or not. Lets grow limited's manager enforces the
inventory control method and analyzes data that make product or service available effectively
(Thilina Anupama, 2019). With both the assistance of these findings and structures, the
management team gathers all the essential information that will help the decision-making
process. The inventory helps to know how much work is needed for further ordering and the
report endorses the reduction of waste. It also allows allowing better usage of capital properly.
By following the director of the managerial accounting system, the company could collect the
necessary cost information and plan it through cost reports. In reality, the quality control system
is also paired with the monitoring, since the organization may decide the prices to be charged in
order to attract the customer by monitoring. Information is also a formal statement which means
that the program will be used to preserve prices. So, via these structures and report Lets
Develop Ltd take a successful decision on company investment.
LO 3
(C) Cash Budget of six months
Particular March April May June July August

Balance at bank 20000 20000 49000 47000 13000 -9000
(A) Receipts
Collection from
credit sales 30000 156000 168000 124000 144000 162000
Amount received
from customers 96000
Total (A) 146000 176000 217000 171000 157000 153000
(B) Payments
Credit purchase 50000 70000 80000 90000 100000
Loan 20000
Wages 30000 30000 30000 30000 30000 30000
Rent 4000 4000
Depreciation on
fixed assets 2000 2000 2000 2000 2000 2000
Variable overhead 10000 15000 18000 12000 14000 16000
Fixed overhead 30000 30000 30000 30000 30000 30000
Suppliers for
purchase 50000
Total (b) 126000 127000 170000 158000 166000 178000
Total (a) - (b) 20000 49000 47000 13000 -9000 -25000
(d) Use of cash budget and its application for preparing and forecasting the financial position
Budget: Budgets are utilized to predict prospective income and expenditures for profit in
certain kinds of manufacturing. Budget is helpful to determine the objectives and expectations of
an organization and make an estimate. The administrator of Lets Grow Ltd prepares various
budget structures that help the allocation of resources and time to create profits and the number

of customers. In Lets Grow Ltd several other ways, funding for planning tools for running the
budget and operating it.
Cash budget- The cash budget is the estimate or schedule for the planned cash receipts and
disbursements throughout the time. Such monetary inflows and outflows comprise taxes
received, costs charged, and refunds and fees for loans (Rana, Hoque and Jacobs, 2019). In other
terms, the financial forecast is an approximate prediction of the financial condition of the
business in the future. The base budget of the company is written projections in which the cash
situation is assessed. In relation to cash sales from different sources, a company planned this
budget to determine any potential activity. It offers an annual, quarterly and monthly cash
position. A formal description with respect to a business entity of anticipated circular flow. By
creating a cash budget, where a company provides a description of predicted sales , operating
expenses, sale and purchase of property and acknowledgement or liability settlement, it is critical
to evaluate whether further money funds are needed and if money surpluses are required. For
example, lets Grow Ltd organize a cash budget to collect credit sales and purchase data. In
addition to the cumulative expenses and expenditures received by the client over the defined
span of time.
It differs from the statement of income, which portrays the transfer of funds, whereas the budget
period statement of revenue provides all the references of the transactions and categorizes all
sorts of spending in an effective way. In the course of a specific accounting year, it measures
how much money the company has produced effectively. This budget includes all linked cash
flow such as earnings and non - monetary source materials, such as invoices from the sale of
inventories and invoices from the disposal of fixed assets.
Importance of budget- Especially for smaller firms it is very essential to have a cash budget.
This tends to help a company to determine its funding against predecessor risks to its customers.
A strategic budget helps stop a revenue loss in periods where a corporation is spent substantially.
If the business can not cover livelihood expenses because of a huge cash deficit, this problem
needs to be resolved rapidly through increased sales, postponements or removal or the Bank's
authorization to issue a larger loan.

Application of cash budget- It provides for identification of short-and long-term resources
needs to enable stability in the department to take the required measures to avoid such problems
(Abdullah, 2020). It defines the potential eagerness of the corporation to exchange payments
quickly and other commitments to reap the benefits of the lease option. The cash expenditure
consists of two primary areas: the Resources and Capital Uses places. The Source of Money
section covers immediate financial place, as well as cash returns from payroll sales, accrued tax
compensation purchases, and equity buybacks. The utilization of the cash component shall
include all planned financial expenditures arising from the raw materials budgets, the capital
machinery budget, the output of depreciation costs, and the revenue and operational expenses
forecast. It can also contain allocation products for creditors' acquisitions of real assets and
dividends
Advantages: There are several drawbacks of the usage of cash financial preparation. This
method makes it possible to assess whether cash holdings are adequate to meet day-to-day
obligations or whether the minimum stability and money stance criteria set out in the company or
organization's corporate laws and regulations are maintained. That often allows a company to
determine if it retains too much capital that could otherwise be spent in productive operations.
Business owners that lend from lending institutions want to track their share of cash exposure
and plan cash spending will be the first step in evaluating that ratio.
Disadvantages
Lack of flexibility- The budgeting process involves the creation of statistics to meet the budget,
the recording of expense forecasts and the submission of such details to the management. These
figures do not change once they have been released. Cash forecasts offer details of the company's
planned pension liabilities. When the regime analyzes the cash budget, it makes choices based on
the anticipated funding needs. If the real budgetary conditions are higher than the forecast, the
government has already settled to a financial framework for the length of the estimation.
Manipulation- Ulterior-inspired managers use budget figures to focus on one. A director who
makes decisions that impact the cash budget that surpasses his or her spending for the length of
the program. Such plans envisaged relatively low overpayments of currency (Parker, Jacobs and
Schmitz, 2019). The management is welcomed with appreciation for her project job. However,

cash overpayments may cause a gap if the real expenses occur and the goal amounts are not met.
The boss may have a different task at the time and may not face the repercussions for their acts.
LO 4
(e) Management accounting system deal with financial problem
Each organizations face financial issues that affect both its operations and its day-to-day
activities. There are a variety of concerns that concern Letts Grow Ltd and thus impact
competitiveness and profitability. Some of them are as follows:
Low profit margin: Company is frequently confronted with problems related to the downward
trend in profit margin due to shortages for competitive goods (Dumalisile, 2019). Due to wrong
pricing strategy, the business is faced with the problems of quarter basis for the year.
Over expenses: In Letts Grow Ltd, it is noted that fixed costs are starting to increase, which is
becoming a matter for the company to retain respectable sales.
Management accounting techniques to resolve financial problems:
Key Performance Indicator: Companies typically use them to calculate both their
quantification and their award. Letts Grow Ltd use KPIs to address the issue of rising inflation as
a measure by using G.P. Ratio and N.P. Ratio will help to determine the variations of income
throughout the era.
Benchmarking: It refers to the establishment of appropriate standards and methodologies for
assessing the company's performance. Such requirements and methodologies may belong to
either the company itself or to the sector. Letts Grow Ltd can tackle the topic of high overhead
costs by using performance benchmarks, as it can determine the limitations that it will have in
place.
Balanced scorecard: It is a method that has always had to be used to assess individual
department’s average success within an institution (Yassin and Ali, 2020). It is therefore
essential to measure the performance of workers serving in such units in a detailed, objective and
reliable manner. This approach will also help to resolve both high spending and poor profit
margin problems, as this technique would provide for consistent accountability.

Financial governance: This is the manner in which financial factual knowledge; the scientific
details used by a corporation, is gathered, handled and tracked. Letts Grow Ltd may use risk
management to resolve both its over-expenditure issue and its low margin. This strategy must be
applied consistently in fact necessary to ensure that the company levels greater performance over
time, so that it can generate continued profit margins and leave behind the suppliers in the
market. It could help to achieve the long-term goal of maximizing benefits.
Comparison between organizations that how to resolve financial issues:
Basis Letts Grow Ltd Creams Ltd
Financial Issues The organization is
confronted with problems of
over-expenditures, which
further reduce productivity
due to large expenses relative
to income.
This organization has been unable
to manage its stock levels or to
track the stock availability in its
operations. It also generates
material waste issues that cause
high costs.
accounting system used In order to address financial
challenges, the corporation
will adopt the managerial
accounting method where it
analyses each operating
expense and determines
profitable or non- profit
operation that produces
income for the enterprise.
Creams Ltd must follow the stock
control system to manage their
stock levels. With the assistance of
it, supervisors can reduce the
amount of additional assistance in
minimizing their costs.
Technique Benchmarking is a method
that helps to identify issues
causing high overhead costs
(Leone, Minutti-Meza and
Creams Ltd should implement a
key performance metrics to
address inventory control issues.

Wasley, 2019).
(F) Critical evaluation of the financial position based on forecasted cash budget.
As per the predicted cash budget, it is evaluated that the business has a great position and
timely payment to all clients (Myers, 2019). The firm keeps its liquid assets in an appropriate
manner and therefore takes all investment choices for growth and success. This budget helps to
understand efficiently about sales and purchases of businesses and about payment and cash
activities. Let Develop Ltd realizes via the cash expenditure that they have sufficient to cover
debts over a shorter span of time.
CONCLUSION
As mentioned in the above report, management accounting has been concluded to be
necessary for each form of organization. The cash expenditure is used by the organization to
assess the situation and allows to consider the current financial condition and to make
appropriate decisions. Along with different studies and processes, company is assisted in the
decision-making process. Businesses are contrasted with other firms and various methods are
employed to successfully address these financial challenges.

REFERENCES
Books & Journals
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