Management Accounting: Principles, Reporting, Budgeting and Adoption

This report delves into management accounting, emphasizing its crucial role in organizational management through informed policies and strategies. It covers the principles of management accounting, including controlling costs at the source, management by exception, integration of relevant information, efficient resource utilization, and managing controllable costs. Various management accounting systems like cost accounting, job costing, inventory management, and price optimization are examined for their impact on profitability and operational efficiency. The report also discusses management accounting reporting techniques, such as cost reports, budget reports, inventory reports, and accounts receivable aging reports, alongside marginal and absorption costing methods. Furthermore, it analyzes budgetary tools like variance analysis, zero-base budgeting, and cost-volume-profit analysis, highlighting their advantages and disadvantages. The adoption of management systems like benchmarking, key performance indicators (KPIs), and balanced scorecards is explored in the context of addressing financial problems within organizations, citing examples like Unilever and Nestle. The report concludes that management accounting is vital for controlling, managing performance, and framing financial policies.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Principles of management accounting.........................................................................................3
Management accounting reporting..............................................................................................5
Budgetary tools............................................................................................................................6
Adoption of management accounting system..............................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting is one of the major aspect in the concern of the company’s
management (Abdusalomova, 2019). This is because with the aspect of management accounting
the organization would make adequate policies and strategies that would lead to enable in raising
of the performance. This report would discuss about the concept of management accounting, its
system, methods and techniques. It will also discuss the advantages and disadvantages of the
budgetary tools along with an explanation that how the management system would lead to
resolve the financial problems.
MAIN BODY
Principles of management accounting
Management accounting:
It refers to the preparation of report based on the financial performance of the company
that would enable the management in the taking of decision for the company. Management
accounting would enable the business to make an identification, analysis and interpretation of the
financial performance of the company so that it would assist the company in the accomplishment
of its goal and objectives (Kostyukova and et.al., 2018).
Its principle would include:Controlling at source:
This is the main principle that would enable the company to have a controlling over the
cost buy making a consideration at the source. This means as per this principle the cost would be
controlled at the source.Management by exception:
This principle is considered with the aspect of the presentation of information to the
management. It includes the budgetary control system and standard costing. this shows that the
actual cost would be made compared with the budgeted and then corrective actions would be
taken so that the cots would be reduced.Integration:
As per this principle all the relevant information related with the management perspective
would be integrated that would lead to have an effective decision making by the company.

Utilization of the resources:
As per this principle management accounting ensure that the resources would be make
utilized at a best possible manner (Sobirov, 2020). This is because with the efficient utilization of
the resources the cost would be reduced and the company would be ensured a high percentage of
the profit.Controllable and uncontrollable cost:
As per this costing system the management accounting techniques would lead to assist
the company in terms of taking of action towards the controlling of the controllable cost
(Zolotova and Klochkova, 2018).
Management accounting system:Cost accounting system:
As per this system the cost of the product would be determined by the company that would assist
the raising of the profitability aspect with respect with the company.Job costing system:
As per this system the cost associated with regard to every job related with the production
would be ascertained that would lead to assist the organization in terms of cost reduction and
profit maximization (Cristea, 2018).Inventory management system:
This system is related with the tracking of good across the whole supply chain of the
products. It will lead to make tracking of the stock so that the company would be assisted that the
situation of low stock and over stock would not be occurred. This would lead to ensure the
efficient flow of the supply chain.Price optimization system:
Price optimization system would enable the company to have an optimization of the price
that would lead to make fixation of the price as per the prevailing demand of the market. Since
demand in the market regarding the product would fluctuate that would lead to be easy to cope
and meet with the adoption of the price optimization method because it would enable the
company to make and fixation of the price as per the demand in the market which would further
assist the company in the gaining of high profitability.
It is highly important that the management accounting system would be integrated within
the structure of the company so that it would lead to have to have efficient operation of the

company. It would also enable the organization to have a raise in the profitability aspect in terms
of availing the high profitability with cost minimization.
Management accounting reporting
These are used for the planning, decision making, regulating and measuring the performance of
the company. It involves various kind of report:Cost report:
This report is related with the costing that shows that what would be the aspect of cost
that would be associated with the various activities. The cost report enables the details regarding
the cost element related with the company (Flayyih and et.al., 2020). It includes details of every
element of the cost in relation with the company.Budget report:
As per this report a budget would be prepared by the company that would enable the
company to have a measurement of its performance. As per this report a estimated budget in
relation with the expenses and the income would be prepared which would be used for the
measurement of its actual performance against the standard.Inventory report:
This report shows the details and summary of the inventory the company would have at
the given point of time (Rogošić, 2021). This would assist the business to have the knowledge
regarding the inventory and the situation of under and over stock would never arise.Accounts receivable ageing report:
This report bears the information about the accounts receivables. This report is mainly
considered with those business which is relied upon the credit aspects. This report would details
about the information that is related with the creditors which further assist the company to have a
recovery of the credit amount.
Techniques used in management accounting:
It is majorly of two types including the marginal and absorption costing. Under marginal
costing it is assumed that the variable cost is considered as the product cost while the fixed cost
is applied for the whole period. However as per the absorption costing all the cost including the
fixed and variable cost would be counted as the product cost. With the help of these costing
technique the income statement would be made prepared by the company.

Budgetary tools
These are the specialized tool that is used by the company in order to have a management
and focus over the budget of the company. It is of different types that may include:
Variance analysis:
It is one of the common and important budgetary control technique and tool. As per this
tool the budget would be made by the company based on the estimation. This would be further
made compared with the actual figures. This will enable the company to have a determination of
the variances (Schuster, Heinemann and Cleary, 2021). This tool would be counted as best
because it enables the company to make recognize the variance that would lead to assist the
taking of corrective action on timely manner that would further more safeguard the company
from the incurrence of the loss. However, on the other hand this tool bears certain limitation in
terms of wrong determination of the budget and it is a time consuming process.
Zero base budgeting:
This is also a common tool that is related with the budgeting. As per this technique the
budget would be made from the zero which means that the expenses and the income of the past
year would be counted as zero and make them nil (Ibrahim, 2019). This would be made with the
making of the equality between the profit and expenses and as per this technique the budget of
every year would be made begin with the zero. This is advantageous because it would lead to
have an actual estimation of the expenses and the income. This would also lead to enable the
company to have a clear set of budgeting and performance measurement. However, on the other
hand this is wrong approach because it would lead to have a negative impact towards the
company because it would lead to have an unpredictable income. Likewise, it would also require
a lot of time in the management of zero base.
Cost volume profit analysis:
As per this analysis the I would be determined that how the change in the variable and
fixed cost would lead to have an impact towards the profitability of the company. This is being
used by the company to determine the breakeven point that by selling how many of the unit of
product it would reach to the situation of no profit and no loss (Drury, 2018). This is a very
important technique because with the help of this technique the company would determine its
break even and this would also enable the company to make an analysis of the cost and its impact

towards the profit which would further assist the company in the reduction of cost and the
maximisation of the profit. Its disadvantage would include the determination of the fixed and
variable cost. Likewise, the unit selling price is also not constant and as the fixed cost.
Adoption of management accounting system
There are various management system that would assist the organization in dealing with
financial issues and the operation of the company. These may include:
Benchmarking:
It is the process of measuring the key business metrics that would be followed by the
comparison with the business areas and against the competitors. Under this benchmark would be
set against the company’s performance that would lead to enable the analysis of the company’s
performance against the competitors.
Key performance indicators:
As per this system the KPI are set by the business that would lead to enable the company
in measuring its performance. These are the standard which are set as per the past performance
and history. It will also lead to raise the performance of the company.
Balance scorecard:
It will enable the company to make identification and improvement in its internal
operation which would lead to raise the external outcome. it will lead to measure the past
performance of the data that would assist the organization in terms of feedbacks that how to
make improvisation in its process.
Financial problem:
There could be various financial problem that may occur in the business course of action.
These would include the unable to make repayment of the debt, occurrence of unexpected
expenses, overspending or the lack of budget, lack of saving and various other issues that the
companies including the Nestle and Unilever would meet. It is to be noted that with the adoption
of the adequate management system say benchmarking as adopted by the Unilever in terms of
managing the expenses. This is being followed up by the inventory management system which
would lead enable the Unilever to make an observation towards the stock so that the situation of
financial loss would be reduced in terms of non-fulfilment of the order with the situation of the
understocking.

Likewise, with the use of KPI as a management system in the organization of the Nestle the
financial problem in terms of loss or the over costing and expenses would be reduced. This is
because it would enable the company to have a measurement of its actual against the KPI which
would lead to determine the loopholes that would further assist the company in the taking of
corrective action and the overcoming of the situation of the financial loss and performance. This
management system would also enable the companies to have deal efficiently with the financial
problem of over costing and lack of budgeting. This is because through this system the
management of the concerned organization would lead to be assisted in making of suitable policy
with respect to the company which will further lead to enhance the financial performance of the
company.
CONCLUSION
From the above report it can be understood that management accounting is one of the
important aspect of the company that would assist the company in controlling and managing its
performance. It will also enable the company to frame suitable policies so that the financial
performance would be raised which is further based on the measurement and analysis of the
financial performance of the company. Likewise, it is further understood that how the
management accounting system and various techniques would assist the higher performance of
the company in terms of responding to financial problems and issues.

REFERENCES
Books and journals
Abdusalomova, N., 2019. PROBLEMS OF MANAGEMENT ACCOUNTING AND WAYS TO
SOLVE THEM.
International Finance and Accounting. 2019(3). p.2.
Cristea, V.G., 2018. Historical cost accounting or fair value accounting: a historical
perspective.
Challenges of the Knowledge Society, pp.842-845.
Drury, C., 2018.
Cost and management accounting. Cengage Learning.
Flayyih, and et.al., 2020. Integration of the system of Activity Based Costing and liability
accounting.
Integration. 1(2). pp.1-9.
Ibrahim, M.M., 2019. Designing zero-based budgeting for public organizations.
Problems and
Perspectives in Management. 17(2).
Kostyukova, and et.al., 2018. Improvement cost management system for management
accounting.
Research Journal of Pharmaceutical, Biological and Chemical
Sciences. 9(2). pp.775-779.
Rogošić, A., 2021. Public sector cost accounting and information usefulness in decision-
making.
Public Sector Economics. 45(2). pp.209-227.
Schuster, P., Heinemann, M. and Cleary, P., 2021. Variance Analysis and Control.
In
Management Accounting (pp. 173-214). Springer, Cham.
Sobirov, O.O., 2020. DIRECTIONS FOR IMPROVING MANAGEMENT ACCOUNTING IN
BUSINESS ENTITIES.
GWALIOR MANAGEMENT ACADEMY, p.5.
Zolotova, T.A. and Klochkova, N.V., 2018. THE ISSUES OF MANAGEMENT
ACCOUNTING IN THE MODERN REALITIES. In
СОВРЕМЕННЫЕ ВЫЗОВЫ
И РЕАЛИИ ЭКОНОМИЧЕСКОГО РАЗВИТИЯ РОССИИ (pp. 194-196).
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