Principles of Management Accounting and Role of Management Accounting Systems

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Principles of Management Accounting.......................................................................................3
Role of Management Accounting Systems..................................................................................5
Uses of methods and techniques of Management Accounting....................................................6
4. Evaluation of the way management accounting integrated with organisation........................8
5. Benefit of function to organisation..........................................................................................9
Conclusion and Reflection.........................................................................................................10
Planning tools used in management accounting........................................................................10
Comparison of three planning tools...........................................................................................10
Recommendation.......................................................................................................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Management Accounting (MA) is a part of company that is responsible for looking out
the financial status, actions and daily transaction of a business. For this every business need to
hire a well-qualified management accountant candidate that can perform as per the growth of the
business. So, this report will state the principles of management accounting which every business
has to follow. Basically, the report is based on the British Millerain Co. Ltd. which private
limited company covered under textile sector located in UK. This is a small and medium size
enterprise that manufacture waxed cottons. This report will also discuss the role of management
accounting system in this company and how the tools and techniques of MA helps the managers
of company in achieving business success and growth. The report will explain it via the
preparation of income statement under variable costing method. Further, the report will state the
integration and recommend the application of management accounting system within the British
Millerain co. ltd. Along with that the report will also describe the planning tools used in MA and
the effectiveness of management accounting.
MAIN BODY
Principles of Management Accounting
MA principles is work as a guideline for the company and state how the managers need to
follow it in order to make a perfect and suitable business decision. The MA is basically available
for the internal managers of the company to make a decision. Their various principles available
which the managers of British Millerain co. ltd. have to follow and that includes:

 Relevance and Valuable: The principles indicate that the management accounting looks
out for the best available information for preparing the report. The managers need to
make sure that the information is relevant and material which is going to include in the
reports. Generally, MA helps the organization process to link with its core business
model in which the managers review the business decisions via situational analysis. With
the help of situational model, the managers can easily identify and analyse the internal
and external factors which provide them either opportunity or challenge (Vailatti, Da
Rosa and Vicente, 2017).
 Credibility: In business, credibility is the most important which is provided by MA. With
the help of responsibility and scrutiny the managers can easily make decisions and also
improves the shareholders trust and reliability. It is done only when the management
accountant of the business knows organizational ideals and interpersonal commitments.
These principles also state that the managers need to adopt proactive and reactive strategy
for getting the feedback from the employees and shareholders in order to improve
organizational overall productivity.
 Personal contacts: In order to make an appropriate decision related to the fund’s
investment the managers of the different departments need to contact with each other’s.
The impact of which is that the conflicts between the managers and other employees will
minimize and their performance will improve. For preparing the reports the managers
have to increase the direct contacts with others in order to gain the accurate and relevant
information which further helps in improving the collaboration between departments
(Dahal, 2018).
 Management by exception: When the managers need to present the information to board
of directors of the company than this principle of management is followed by exception.
With the use of the tools such as budgetary control systems and standard costing the
management accountant can compared the actual performance with the predetermined
data. And in case if the unfavourable gap arises than they can also adopt proper strategy
to eliminate those gaps in order to achieve business objectives.
 Controllable and uncontrollable cost: As the uncontrollable cost is unable to get control
so taking steps to control this is of no use. But the MA principles states the management
accounting provides the technique to control and minimize the controllable cost.

 Utilization of Resources: By using and adopting MA techniques and tools the managers
of the British Millerain can easily utilize the physical, human and financial resources in
an effective manner and not only that they can also allocate this resource in best manner
possible. It is because there are many resources in the organization whose stock is quite
minimum that their proper allocation is very crucial to reduce wastage (van der Kolk,
2019).
Role of Management Accounting Systems
The MA system is the most important source of information for the company because it is
helps in providing and achieving organizational strategic and operational goals. The role of MA
system includes the following:
 Increasing efficiency: The role of the management accounting is in such a way that it
helps the British Millerain company in increasing their efficiency of the organization. It
also helps the managers in deciding the daily targets and objectives of the company
which involve both profit maximization and wealth maximization. Efficiency of the
workers improves only when they receive proper guidance from the top authority and
also recognition programs (Aureli, and et.al., 2019).
 Assignment of device: The role of MA systems helps the managers to assign the device
with the helps they can easily select and perform operational activity and also distribute
them throughout the organization so that task is completed in short period of time which
was impossible in case of manual work.
 Identifying poor performing area: The management accounting system play an
important and crucial role in identifying the area, process and department of the
organization which are performing poor because of the application of process and job
costing. It is also helpful for the proper evaluation of the data and information available
in the financial statement of the company. This also plays role in decision-making
planning, controlling and facilitation of functions (Wu and Wang, 2020).
 Effective use of Budgeting: It also plays significant role in creating and preparing the
cash budgets with the help of which the managers can identify and manage the minimum
cash balance within the company. In case, if emergency arises in the company such funds
play important role in meeting and overcoming the challenges and emergencies. Along

with that the budgets also act as a base for the companies next year actual expenses and
incomes.
 Ensuring sufficient wisdom and knowledge: With the helps of MA systems the
management accountant of the British Millerain company can easily ensure the
knowledge and wisdom within the workplace. The impact of which is that the managers
also allowable to make an accurate comparison of the responsibility attach with the
different managers and top authorities. The unbiased system of management accounting
helps the managers in performing the evaluation in which the personal desires and need
of the management removed and only focus on business objectives and performance
improvement (Amir and Chaudhry, 2019).
Uses of methods and techniques of Management Accounting
Particulars Details (€)
Sales 250000
Direct Material cost 60000
Direct Labour cost 24000
Variable production overheads 14000
Fixed production overheads 19000
Variable distribution and admin. expenses 8000
Fixed distribution and admin. expenses 4500
Income Statement using Variable costing method
Particulars Amounts (€)
Sales revenue 250000
Less Marginal cost of sales:
Direct material 60000
Direct labour 24000
Variable production O/Hs 14000
Variable distribution and
admin. O/Hs
8000 (106000)
Contribution 144000