Management Accounting and its Impact on Sales Performance

The provided case study highlights the importance of management accounting in driving business growth. The main factor impacting company progress is sales, which varies significantly between actual and budgeted figures, resulting in a decrease in profit. To address this issue, companies should focus on effective use of distribution channels to reach a maximum number of customers. Additionally, managing the quality of raw materials used can also impact sales quantity, leading to huge losses for the company. Furthermore, increasing worker participation can lead to better decision-making for the company.

Management
Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1.1 Classification of different types of Costs.........................................................................1
1.2 Calculation of unit cost and total job cost........................................................................2
1.3 Calculation of Cost of Exquisite.......................................................................................4
1.4 Analysis of Cost of Exquisite...........................................................................................6
TASK 2............................................................................................................................................6
2.1 Analysis of cost report......................................................................................................6
2.2 Performance indicators which used to identify areas for potential improvements..........8
2.3 Ways to reduce costs, enhance value and quality.............................................................9
TASK 3..........................................................................................................................................10
3.1 Nature and Purpose of Budgeting and Budgeting Process.............................................10
3.2 Selection of appropriate budgeting methods .................................................................11
3.3 Preparation of Production and Material Purchase budgets.............................................12
3.4 Preparation of Cash Budget............................................................................................13
TASK 4..........................................................................................................................................14
4.1 Calculation of variances, identification of possible cause and recommendations for
corrective actions..................................................................................................................14
4.2 Operating statement reconciling budgeted and actual results........................................17
4.3 Report the finding to management.................................................................................18
CONCLUSION..............................................................................................................................18
REFERENCES .............................................................................................................................19

INTRODUCTION
Management accounting is the process of developing management reports, accounts and
projects that help in gathering short and timely based statistical and financial information which
are required by management to make short term and day to day decision making (Ahrens and
Chapman, 2006). In production process, all the expenses that are incurred by the organization are
known as cost of production. The cost of production includes different types of cost like direct
material, direct labour and overheads that can be fixed or variable. The systematic and timely
planning is typical in the complex businesses (Ax and Bjørnenak, 2005). Management
Accounting is required in an organization to recognize the financial situation of it. It provides
data, modifies it, analyses and interprets the data as well as serves as a means of communication
to the organization. In this research report, all tasks are solved through keeping in mind the case
of Jeffrey and Son's, manufacturing company.
1.1 Classification of different types of Costs
Cost Accounting is the methodology which is helpful in measuring and analyzing costs
associated with the goods, production and projects so that the correct amounts can be reported in
the financial statements (Brown, Evans III and Moser 2009). There are various kinds of costs
such as fixed costs, variable costs, semi variable costs, marginal costs etc.
The Main elements of cost are Material, labor and expenses which are incurred during
production process. The non production costs are fixed cost, opportunity cost and avoidable cost.
Direct costs are those costs which are directly related to the production process whereas indirect
costs are those, which are not directly related to the production (Burns, Hopper and Yazdifar,
2004). Presenting here the brief description of the types of costs that are incurred by this
manufacturing company.l Fixed Costs : These are the costs that do not change with the change in the output. Fixed
costs remain same in totality and changes in per unit. Example of fixed costs are cost of
building, rent of premises or insurance bills etc.l Variable Costs : These are the costs that changes with the change in output. They remain
same in per unit and fluctuates in totality. Examples of variable costs are material, labor
and overheads.l Semi Variable Costs : These costs are neither completely fixed nor completely variable.
They contain elements of fixed costs and partially variable costs. For example labor
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which can be a semi variable cost . If a firm produces more units of vehicle, it needs more
workers, that is its variable cost. However, if it does not produce vehicles, it still may
need the workers for any other work in the factory, that is its fixed cost.
l Marginal Costs: Cost incurred for producing an extra unit of production. For example if
the total cost of 5 units is 5000, and the total cost of 6 units is 6500. The marginal cost of
the 6th unit is 1500.
Basis of
classification
Type of Costs
Elements On the basis of elements of costs, there are three types of costs such as
material, labour and overhead costs (Burritt and Saka, 2006). The
material and labour cost is variable in nature whereas the overhead cost
can variable or fixed.
Function All the costs of business is divided into production costs, administration
costs, finance costs, selling costs, distribution costs and research and
development costs. Production costs are also of two types direct
production costs and indirect production costs (Chapman, et.al., 2006).
Examples of direct production costs are direct manufacturing costs,
direct raw material and direct labour costs. Indirect production costs
include salaries of supervisors, production heads, technical and planning
staff etc.
Nature On the basis of nature, costs are classified into direct and indirect costs.
Direct costs include direct material, direct labour and other direct
expenses. Indirect costs are those costs that affect the production
indirectly such as selling expenses, distribution and advertisement
expenses etc.
Behaviour On the basis of behaviour, there are three types of costs that is variable,
semi-variable and fixed cost (Davila and Foster, 2005). Variable costs
changes with the change in production but fixed costs remain constant.
Semi variable costs has both elements of variable and fixed costs.
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1.2 Calculation of unit cost and total job cost
Presenting here a brief discussion about different types of costing methods.
Job Costing : When individual cost is allocated on individual job it is known as job costing. All
the jobs are given a number such as contract numbers and all relevant costs are attached with that
number and the total costs is accumulated.
Batch Costing : In batch costing products and items are produced in batches and each batch is
given a separate number to be easily identified. The batch costs are averaged over the number of
units produced.
Contract Costing : In contract costing, all costs whether certified or not certified are considered
while calculating profit from the contract. All the raw materials. Work in progress and finished
product costs are taken into calculation.
Service Costing : The costing in which all service sector costs are allocated to a particular
service is known as service costing. For example travelling costs are allocated on the basis of per
km per hour travelled, hospital costs allocated as per number of beds per patient etc.
Process Costing : In this type of costing completion of process is the basis of allocation of costs.
For example material costs are 100 % incurred then full material costs will be considered and
work in progress is 50 % completed then only half of work in progress will be considered.
Table 1: Calculation Of Unit Cost And Total Job Cost
PARTICULARS AMOUNT
D.M. 50kg @ £4 200
D.L. 30hrs. @ £9 270
Var. Prod. O/h 30hrs. @ £6 180
Fixed Prod. O/h (W. N. 1) 30hrs. @ £4 120
Total Unit cost 770
Total Job cost 200 units @ £770 £ 154000
Working note 1
Fixed Prod. O/H =Total Fixed Production overhead/ Total direct labour hours
=£80000/20000
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=£4
1. In the given case of Jeffrey & Son's Ltd. The cost data have been provided by the
company for Job 444, that are used above to calculate the unit and total job cost. Since
the fixed production overheads are given in totality and the unit cost is per unit so
manager have calculated the Fixed overhead per unit as per working note 1. After adding
all the elements of cost i.e. direct material, direct labour, variable overheads and fixed
overheads, unit cost is identified. And by multiplying the unit cost with no. of units, total
job cost was calculated.
1.3 Calculation of Cost of Exquisite
Calculation of cost of exquisite on the basis of Machine hours
Production Service
department
particular Basis of
allocation
Total in
(£)
Machine
X (£)
Machine
Y (£)
Assembly
1 (£)
Stores (£) Maintenan
ce (£)
Indirect
wages and
supervisio
n
362000.00 100000.00 99500.00 92500.00 10000 60000
Indirect
material
253000.00 100000.00 100000.00 40000.00 4000 9000
light and
heating
Area
Occupied
50000.00 10000 5000 15000 15000 5000
rent Area
occupied
100000.00 20000.00 10000.00 30000.00 30000.00 10000.00
insurance
and
machinery
Book
value of
machinery
15000.00 7947 4967 993 497 596
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depreciati
on
Book
value of
machinery
150000.00 79740 49669 9934 4967 5960
Insurance
of building
Area
occupied
25000.00 5000.00 2500.00 7500.00 7500.00 2500.00
salaries of
work
manageme
nt
No. of
employees
80000.00 24000.00 16000.00 24000.00 8000.00 8000.00
Total cost 1035000 346417 287636 219927 79964 10156
Particular Production
Basis of
allocation
Total in
(£) Machine X Machine Y (£) Assembly 1 (£)
Primary
distribution
(Earlier table)
103500
0.00 346417 287636 219927
Stores Direct material 39982 29987 9995
Maintenance Machine hours 48507 32338 20211
Total 434906 349961 250133
c) Overhead absorption rate for each of the production department X, Y and assembly
Overhead absorption rate = Fixed overhead/ machine hours
Overhead absorption rate for department X
= 434906/80000
= £5.44
Overhead absorption rate for department Y
= 349960/60000
= £5.83
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Overhead absorption rate for Assembly
= 250134/10000
= £25.01
d). Calculation of the overhead
Total overhead cost = 5.44*0.8+5.83*0.6+25.01*0.1= £ 10.35
Total cost of the product= Material+ labour + overhead
= 8+ 15+ 10.35 = £33.35
Interpretation: In the given question Machine hours are used to allocate the overheads to
production department. Individual absorption rates are calculated for machine shop X, Machine
shop Y and Assembly department. The store department expenses are also allocated to
production department. Depreciation is allocated on the basis of book value of machinery,
insurance of building is based on area occupied and salaries are based on number of employees
as given in the question.
1.4 Analysis of Cost of Exquisite
Calculation of cost per unit of the exquisite on the basis of direct labour hours
Particular Production
Basis of
allocation
Total in
(£) Machine X Machine Y (£) Assembly 1 (£)
Primary
distribution
(Earlier table)
103500
0.00 346417 287636 219927
Stores Direct material 39982 29987 9995
Maintenance Machine hours 48507 32338 20211
Total Cost 434906 349961 250133
Calculation of overhead absorption rates
Machine X = 434906/200000 Labour hours = 2.17£
Machine Y = 349961/150000 labour hours = 2.33 £
Assembly = 250133/100000 labour hours = 2.66£
d). Calculation of the overhead
Total overhead cost = 2.17*2+2.33*1.5+1.25*1= £ 9.09
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Total cost of the product= Material+ labour + overhead
= 8+ 15+ 9.09 = £32.09
TASK 2
2.1 Analysis of cost report
Following is the budgeted cost report for the month of September:
Budgeted cost Actual cost Variance
2000 units 1900 units
Material £24000 £22800 1200
Labour £18000 £19,000 -1000
Fixed overheads £15000
Electricity
Variable £8000 £7,125 875
£500
Maintenance £5000 £3,800 1200
Actual cost information In £
Material cost 12
Labour cost 10
1) 3.75
Total variable cost per unit 25.75
Working Notes -
1: Semi-variable cost for electricity
Electricity cost =
Variable element = Highest cost-Lowest cost / Highest units-Lowest units
= (8000-5000/2000-1200)
=3000/800
= 3.75
Total variable cost = variable cost * Total number of units
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= 3.75*2000
= 7500
Total fixed cost = Total cost – Variable cost
= 8000 – 7500
= 500
Working Note 2 : Maintenance cost
It is provided that cost increases by 1000 for each 500 units produced.
Actual units produced = 1900
Maintenance cost for 1900 units = 1000/500*1900
= 3800
2.2 Performance indicators which used to identify areas for potential improvements
Performance indicators are the parameters for measuring company's current performance.
These help in identify that how effectively the company is achieving its objectives
(Hirsch, 2000). These are the set of measures which are used by company for gauging its
performance in terms of meeting the organisational goals and objectives. These are varied in
different organisations, and depend on the work of company. These are also known as “key
success indicators” because it help in making decisions. There are various performance
indicators which can use to identify areas for the potential improvement. They are as follows:
Sales – Sales is an important performance indicator for company. Total number of unit sold by
company in specific time period could be taken as a measure. Measurement of sales could
be done on the basis of region wise sales, sales in a month or year, sales of individual
product, etc. Sales could be also measured on the basis of booking of products, number of
orders and sales qualified leads (Reid, 2002). These measurements help company in
identifying its objectives and goals. Further, it also helps in identifying organisation's current
position as compare to target.
Finance – This is another important indicator for company. Finance is related with every activity
of business in both ways directly and indirectly. There are many factors which show the
performance of company (Kastantin, 2005). These include revenue, expenses, profits and
operating margin. All above factors are interdependence on each other. If, expenses are
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increased then it directly impact on the profit of firm. Higher revenue and profit show about
the good performance of company.
Human resources – Human resources are the main part of company because they are the
operators of every activity of business. Good performance of human resources helps
company in improving its own performance as well. This performance can be measured by
identifying satisfaction level of employees as well as the level of employee turnover.
Positive result of such elements shows effective performance of the organisation.
Manufacturing – This is a combination of huge activity which is used to produce final product.
Manufacturing also helps in measuring the performance of business. For measuring the
manufacturing performance of company, some areas need to be focused such as number of
unit manufactured, number of defects and manufacturing times etc. (Shim, and et.al., 2008).
If, defects in product are increased then, this will show bad performance of the business.
2.3 Ways to reduce costs, enhance value and quality
Every organisation wants to reduce its extra cost and increases its product and service
quality (Vanderbeck, 2012). For reducing cost, company has to follow many aspects on the daily
basis. Company should also focus on the style of working in order to enhance quality of products
and services. Organisation should mainly focus on material, labour, sales, energy and expenses.
Cost reduction technique helps company in achieving its objective and goals. Many times, there
is unwanted cost that is incurred during manufacturing and selling activity of business.
Following are the ways to reduce cost and enhance quality of the product: Inventory management – It is an important aspect of reducing cost and enhancing the
quality of work. Inventory management concerns with the raw materials. It also deals
with the time that is required for the arrangement of material (Kaimenaki and Cohen,
2011). For reducing cost, company should store raw material in sufficient quantity so that
requirement can fulfil on time. Company should also arrange warehouse facility for the
storage and focus on delivery practices such as Just-in-time. Company can use various
methods for the inventory management such as LIFO and FIFO. These helps company in
enhancing its work and product quality. Uses of new technologies – Jeffrey and Son's can improve its value and quality by using
new technologies. At the production level, company can use new machinery for the
automation of process and tools in order to reduce cost and improve quality (Hansen,
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Mowen and Guan, 2007). Organisation can also use new technology in promotional
activity such as social media sites, emails and magazine.
 Reduction in variation – This can be applied at any production process. Variation in
planned and actual work can become heavy cost to the company. This could be reduced
through product analysis and identification of common components (Kate-Riin , 2012).
Variation can also reduce by redesigning product. This helps organisation in keep control
over process and reduce prices. Effective reduction in variation also helps company in
improving efficiency of work and reducing the time of production.
TASK 3
3.1 Nature and Purpose of Budgeting and Budgeting Process
A budget is a plan for the prospective future incomes and expenses that will be occurred
in business. As time passes, actual expenditures and incomes are compared with the budgeted
figures. In case of any difference between these two, that difference is known as variance.
Budgetary control is the procedure to control the financial position of organisation (Kont, 2013).
It is the prime responsibility of managers to control costs in their budgets and to take corrective
actions for removing adverse variances. Budgets are used for many purposes which are discussed
here.
1. To control the income and expenditure of company.
2. To establish preferences and set targets in figures as well as reports.
3. To convert business goals into practical reality that provides guidance and co-
ordination.
4. To allocate resources and assign jobs to the managers and budget-holders.
5. To inform employees about the targets to be achieved.
6. To promote and motivate the staff.
7. To improve and enhance the efficiency and effectiveness of targets.
8. To monitor and observe performance.
In the systematic budget, managerial responsibilities are always clear and predefined. The
plan of action needs to be taken with the help of individual budgets. In case of results being
different from those expected, the plan is needed to be changed and other corrective actions are
necessary to be taken by company. In case of departures, prior approval from senior management
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and staff is necessary (Tayles, Pike and Sofian, 2007). Middle and lower level are responsible for
dividing budget into lower level budgets for the research, advertisement and events. Cited
company uses various budgets like fixed budget, flexible budget, cash budget, sales budget etc.
Cash Budget: Cash budget is used to plan and control the flow of cash in company which
includes previous cash brought forward, cash received from sale of goods and services, other
incomes as well as expenditure made during the year in the purchase of material, direct expenses,
bad debts etc. With the help of cash budget, cash in hand can be identified immediately (Vaivio,
2008).
Budgeting process includes the following steps.
 Variance analysis between actual and estimated figures in previous plans.
 Recognizing and prioritising business requirements and goals for the upcoming period.
 Identifying and analysing future coming income forecasts.
A company prepares these levels of budget as appearing in the picture below.
Illustration 1: Levels of Company's Budget hierarchy
(Source: Business Encyclopedia 08/12/2015 )
3.2 Selection of appropriate budgeting methods
Selection of appropriate budgeting technique is very important to predict company's
performance and to satisfy itself with the correct resources such as money, people, equipment
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etc. Budgeting techniques are incremental budgeting, performance based budgeting and zero
based budgeting. Presenting here the detailed analysis of these budgeting methods. Incremental Budgeting: Incremental budgeting means the budgeting method in which
budget is prepared by considering the current year's figures as a base with incremental
amounts and adding them in the original figures in order to prepare new budget for the
coming year. These incremental figures include adjustments for inflation and increase in
sales prices as well as costs (Zimmerman and Yahya-Zadeh, 2011). It is simple and quick
to prepare and allocate to junior staff as well. It can be easily understood and costs are
also very less for its preparation. It is a consistent approach which avoids the conflicts
and disputes between departmental managers. In case of any changes being made in the
budget, they can be seen easily. It has some drawbacks as well. It is prepared on the
assumption that current events and costs are also neededwithout obtaining their
knowledge in depth.
 Zero Base Budgeting: Most of the budgets that are prepared by company are based on
previous year budgets and actual performance. But, with zero based budget, the case is
different. In this type of budgeting, managers prepare plan and study them in depth for
the next budgeting period without referring to previous year figures and budgets. There
are so many advantages of zero based budgeting. There is efficient and effective
distribution of resources on the basis of needs and benefits. It has capacity to detect the
inflated budgets. It is useful for the service departments because the output identification
is difficult there.
3.3 Preparation of Production and Material Purchase budgets
Table 1: Production Budget (In Units)
PARTICULARS
July August September
Opening Stock 11000 13500 15750
Add
Production during the year (Balancing
Figure) 107500 92250 105750
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Less Sold during the year 105000 90000 105000
Closing Stock (W.N 1) 13500 15750 16500
W.N.1
F.G. @ end of each month = 15% of
following month's budgeted sales
Table 2: Raw Material Purchase Budget (In Figures)
PARTICULARS
July August September
Opening Stock 52000 45000 52500
Add
Purchased during the year (Balancing
Figure) 208000 192000 214000
Less Consumed during the year 215000 184500 211500
Closing Stock (W.N 2) 45000 52500 55000
W.N.2 R.M. Stock = 25% of following month's production requirements
Since Raw Material is used to produce finished goods that is why raw material consumption will
be finished goods produced.
In October the production is 98500 unit, so the closing stock of raw material is calculated.
3.4 Preparation of Cash Budget
Table 3: Cash Budget (In Figures)
PARTICULARS July August September
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Opening Balance 16000 -3250 -22300
Add Income
Cash Sales
May 85500
June 247500 99000
July 567000 236250 94500
August 486000 202500
September 567000
October
November
Total Income 900000 821250 864000
Less Expenditure
Bad debt W/off in the month of
sale 47250 40500 47250
Credit Purchases 364000 336000 374500
Variable overhead 110500 99550 103270
Direct Wages 322500 276750 317250
Fixed overheads(Excluding
Depreciation) 75000 87500 87500
Total Expenditure 919250 840300 929770
Closing Balance -3250 -22300 -88070
TASK 4
4.1 Calculation of variances, identification of possible cause and recommendations for corrective
actions
As provided in case study:
Material variances
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Budgeted output 4000 units
standard quantity 0.4 kg
standard cost 2.4 per unit
Actual output 3500
Actual quantity 1425 kg
Actual cost 2.4 per unit
Actual output and standard output should be equal so,
For 4000 units 0.4 kg of direct material required for one units then for 3500 units, it need 1400
kg of direct material.
Variances -
Material cost variances = Standard quantity * standard cost – Actual quantity * actual cost
= 1400 * 2.4 – 1425 * 2.4
= 60 Adverse
Material price variance = (Standard price – Actual price) * Actual quantity
= (2.4 – 2.4) * 1425
= 0
Material usage variance = (Standard quantity – Actual quantity) * Standard price
= (1400 – 1425) * 2.4
= 60 Adverse
Labour variances
Standard hour of direct labour = 0.1 hour
Standard rate of direct labour = 8 per hour
Actual hours = 345 hours
Actual rate = 7.8 per hour
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Standard hours should be equal to Actual hours so,
Standard hours for actual output = standard Hours * actual output
= 0.1 * 3500
= 350 hours
Labour cost variance = Standard hours * Standard rates – Actual hours * Actual rate
= 350 * 8 – 345 * 7.8
= 109 Favourable
Labour rate variance = (Standard rate – Actual rate) * Actual hours
= 8 – 7.8 * 345
= 69 Favourable
Labour efficiency variance = (Std. Hours- Act. Hours)* Std. Rate
= (350 – 345) * 8
= 40 Favourable
Sales variances
Sales price = 4 per unit
Output = 4000 units
Actual sales price = 3.95 per unit
Actual output = 3500 units
Standard output should be equal to actual output so,
Sales cost variance =Act. Output * Act. Price – Budgeted output * Budgeted price
= 3500 * 3.95 – 4000 * 4
= 2175 Adverse
Sales price variance = (Act. Price – Budgeted price) * Actual Output
= (3.95 – 4) * 3500
= 175 Adverse
Sales quantity variance = (Act. Price
= (3500 – 4000) * 4
= 2000 Adverse
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Fixed Overhead Variances = Fixed over. - Actual fixed over.
= 4800 - 4900
= -100 Adverse
Following are the possible cause for variances:
1. Material cost variation – Material cost variance shows adverse condition. Main reason
for such condition is that there might be increased in actual output.
2. Labour rate variance – The main reason for favourable variance is that actual rate is
lower than standard rate. Actual hours taken for this activity are also less than standard
hours. Behind this situation, there might be reason such as higher availability of work
force and increase in the value of currency.
3. Material usage variances – This variance shows adverse result for the material usage.
This becomes favourable in case of right quality of material and effective utilization of
resources. Main reasons for such results are bad quality of raw material and lack of
proper allocation.
4. Labour cost variance – This variance shows favourable result. This is because of good
working quality. Actual labour cost is less than standard labour cost so this variance
shows favourable result.
5. Sales cost variance – This variance shows adverse result because actual output is less
than budgeted output. Reason for this situation can be lack of proper work allocation,
lack of team work and lack of good technology. This could be favourable if target given
to worker and need are to be fulfilled in fix time period.
Corrective actions for such situations
There are many drawbacks in some factors which are resulted to adverse variation
between actual and budgeted. For resolving such variation, company can take various actions.
For the improvement in total output, management should allocate work effectively and monitor
that work. Company should use target based work process so that every worker can have a clear
idea about work. This helps worker in identifying their task and time for the completion of task.
Company can also use some incentive schemes so that workers fill motivated and work
effectively. For identifying individual work, company should conduct research programme.
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Company should prepare variance analysis reports which can help in finding out actual
proportion of all elements.
4.2 Operating statement reconciling budgeted and actual results
Following is the budgeted profit calculation
Budgeted results
Particular Amount
Sales revenue 16000
Material -3360
Labour -2800
Fixed overheads -4800
Budgeted profit 5040
Following is the reconciliation statement for variances
Reconciliation statement
Particular Amount
Budgeted profit 5040
Material price variance 0
Material usage variance -60
Labour rate variance 69
labour efficiency variance 40
Sales price variance -175
Sales quantity variance -2000
Fixed overheads variances -100
Actual profit 2814
These statements show actual position of company in terms of figures. The above
statement is showing the comparison of budgeted and actual results. These statements show that
budgeted profit for company is higher than actual profit. These also shows that management has
lack of proper estimation, as well as lack of proper planning and forecasting. There are more
variances that are showing negative result and this could be a threat for the organisation. Material
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related variances show zero and negative figures which means that company is using raw
material of low quality. This could also result of lack of proper allocation of tasks. Labour
variances are showing positive result as compare to budget. These help in the growth of business.
Sales variances are showing adverse variance which means that company is not using proper
distribution channels and promotional channels.
4.3 Report the finding to management
It is summarised that company is getting profit but less than budgeted. Company should
fix some responsibilities centres so that worker can report their work. These also help company
to keep track on individual worker. Responsibilities centres should divided on the basis of work.
Sales is the main factor which impacts the progress of company. There is huge variance in sales
between actual and budgeted. This results to decrease in the profit of business. Company should
focus on effective use of distribution channels in order to reach maximum number of customers.
There is larger variation in quantity of sales. This is the result of quality of raw material used by
company. Further, this leads to huge loss for the company. Management should also focus on
increasing participation of worker which helps in making better decisions for the company.
CONCLUSION
From the given case study, it can be concluded that management accounting plays an
active role in the growth of business. This deals with different types of costs which are incurred
in the operation of business. These costs should be reduced in order to gain profit. Management
accounting suggests some basic cost reduction techniques which can help business in reducing
its operating cost and improving its quality. Management accounting provides guidelines to
company in the formation of budget so that accurate budget could plan. It helps in identifying
organisational future needs. These also help in finding variation in actual and planed figures.
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