Management Accounting: Theory & Practice

This assignment explores the complex relationship between management accounting theory and practice. It examines how theoretical concepts are applied in real-world scenarios, highlighting the evolution of management accounting systems and their integration with management control. The paper also discusses the influence of innovation on the field and delves into specific applications like environmental management accounting and supply chain management. Finally, it considers the practical relevance of management accounting research and the role of qualitative methods.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Explain Management Accounting and give the essential requirement of different types
.....................................................................................................................................................3
of management accounting systems............................................................................................3
P2 Explain the different methods used for management accounting
reporting.....................................................................................................................................6
TASK 2............................................................................................................................................9
P3 Calculate costs per unit under both absorption costing and marginal
costing and explain why do they differ . Explain how they are used to
prepare an Income Statement under Marginal Costing and Absorption
Costing.......................................................................................................................................9
Income Statement as per absorption costing : ............................................................................9
TASK 3..........................................................................................................................................12
P4 Explain the advantages and disadvantages of different types of planning
tools used for budgetary control.
...................................................................................................................................................12
A. Compute the standard cost of PVC sheets required to
manufacture 4,000 keyboards. Also compute the difference
between actual cost incurred and standard cost.......................................................................12
B. Compute materials price and quantity variance...................................................................12
Task 4.............................................................................................................................................13
P5 Compare Dell with one of the two Lenovo or HP in order to
establish how organisations are adapting management
accounting systems to respond to financial problems such
as lack of view of what deals had been sold from a
budgetary perspective as given in the case scenario................................................................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting contains the data of organisation which is related to the finance,
which is generally used for the development of organisation. It is a process that can define,
identify, measure, analyse and interpret information which is necessary to achieve the
organisational goals. It also helps in decision making process and also provide relevant
information to the outsiders also. Dell is an multinational company which is based on
technologies. It develops and repairs computers and also related products (Baldvinsdottir,
Mitchell and Nørreklit, 2010). The purpose of this repost is to explain the management
accounting methods which is useful for Dell. It also calculate the cost of absorption and
marginal. At the end of the year it is also necessary to interpret and evaluate the financial data to
see the performance of the company.
TASK 1
P1 Explain Management Accounting and give the essential requirement of different types
of management accounting systems.
Management accounting helps management to carry out the functions that is more
effective and efficient. It provides necessary information to the people who is is related to the
organisation. It also helps to provide financial information to the stakeholders, creditors, banks
etc. For accounting proper knowledge and skills are required and it is essential to follow all the
rules and regulations which is related to accounting. Some techniques and process also need to
follow by the manager (Bodie, 2013).
There are various functions which is related to the management accounting that is
mentioned as below:
Analysis and Interpretation of data: When management prepares the books or
accounts, it is necessary to analyse and interpret the data. Data which is available must be
quantitative and comparable in nature. For comparison Dell company use some statements such
as comparative financial system, trend percentage, analysis with the help of ratios etc..
Facilitating Management Control: Accounting is related to the management of the
company and it needs proper control of management. It helps to control all the operations of the

company with more effective and efficient manner. With the help of management accounting,
Dell company also analyse their performance and control over the budgets (Burritt and et. al.,
2011).
Use of Qualitative Information: Data which is available for the accounting must have
quality, unnecessary data will eliminate from the accounting. Qualitative data or information
helps in decision – making. This type of information can get from the meetings minutes, case
studies etc.
Modification of Data: It is very necessary to modify data and it is also necessary to
forecasting. Modification can be done by rearrange the data with the help of classification. It
helps to eliminate the irrelevant data from the accounting (Garrison and et. al., 2010).
For company it is very essential to maintain the records of the business. There are several
objectives of the management accounting which is mentioned as below:
Helps to motivate employees: Management accounting set the goals which company
needs to achieve. For better performance of the employees it is necessary to motivate them so
that they can do their work with more effectively and efficiently.
Helps to coordinating operations: it also helps to co – ordinate all the activities which
is related to the business. If co – ordination is proper then it will helps to control the budget and
reduce unnecessary expenses.
Helps in evaluating the efficiency and effectiveness of policies: For an organisation
management accounting is very necessary and to know the effectiveness and efficiency of the
accounting Dell company depends on the management audit (Herzig and et. al., 2012). It also
helps to improve the performance of the employees to achieve the desired goals.
There are various types of management accounting and there requirements are very
essential for the company that are mentioned as below:
Traditional accounting Technique: This technique is used by companies or
organisation in the past years. Transactions which is related to the commercial business are very
useful for the people of organisation. About 500 years back, there was double entry system that
helps to calculate the results and also determine the assets and liabilities of the company. The
process which is related to the sells or production, everything is done by the large companies.
Only they decide price of their products. In an internal process every transaction is go through
with the every process and then the output is ready for sell.

When company calculate the product cost they include all the cost such as labour cost, material
cost etc. They also do forecasting for all the expenses which is related to their business ( Li and
et. al., 2012).
Traditional management accounting: It is the method which is used by company to
measure the better performance. These management accounting sometimes fails to apply on the
current situations and cannot give immediate response to any problem. As now there is high
competition in the market so that to compete the external environment traditional methods are
not useful. They provide very limited information to the business which is not sufficient for the
long term success. Traditional methods also typical to understand and they focus more on the
products only. Traditional techniques also follows by many accounting principles that makes it
more typical.
Lean accounting: It is mainly introduced for the strategy which is related to Lean. It also
helps to motivate the employees who is related with the lean enterprise. It helps to reduce the
unnecessary process which exist in the organisation (Lukka and Modell, 2010). Lean strategy is
also helpful for decision – making and control over the company or organisation. It is introduced
to eliminate the unnecessary impact of the traditional accounting. If there is lean accounting in
Illustration 1: Traditional accounting

the organisation then it helps to provide or give more value to their customers. It also helps to
reduce the work and also eliminate waste from the system of accounting. The main purpose of
the Lean accounting is to motivate the employees, make accounting simple and understandable
to employees and it also controls financial activities.
P2 Explain the different methods used for management accounting
reporting
Management accounting reports usually helps to the small enterprises and also helps to
monitor the performance of company. If manager wants report of the company then they will get
it daily, weekly or monthly basis (Macintosh and Quattrone, 2010). There are various methods of
the management accounting reporting which are mentioned as below:
Financial Planning: The main purpose or objective of the Dell is to achieve maximum
profits. If they want to maximise their profits then it is very necessary for them to make proper or
effective financial planning. It plays an effective role in the activities of the business. There are
various importance of the financial planning which is mentioned as below:
 Financial planning helps organisation to manage the outflow and inflow funds.
 It also helps to company for the growth and expansion.
 It also helps to compete the competitors in the marketplace.
 If company want to survive for long term then adequate financial planning is also
necessary.
 It also helps in decision making (Otley and Emmanuel, 2013).
Cost Accounting: It helps to manage the cost which is related to the products and
services of the company. It is very necessary to manage the cost because it helps to control all
the data which is related to cost. It helps to record all the income and expenditure of the company
that impact the business. It is very wide concept and includes standard costing, marginal costing
etc. There are various objectives of the cost accounting which is mentioned as below:
 It is very necessary to calculate the cost of every product which is produced by the
organisation.
 Implement an effective process for products and services, it helps to reduce or manage
the cost of the product.
 It helps to control the raw materials. Labour, overhead cost etc. so that company can
manage the cost of the product.

 It is very necessary for an organisation or company to control or evaluate the
implemented plan to control the cost (Renz, 2016).
 Make proper decisions when company introduce new products to the customers or for
any alteration and replacement of equipment because it can affect the cost.
Cash flow Analysis: It is very necessary for the Dell to analyse the cash flow within and
outside the organisation. When analysis is start, it starts with the opening balance and end up
with the balance of cash receipts and expenses which is related to the period. It helps to generate
cash for the activities of the company. It represents the cash movement and made periodically by
the employer. There are several objectives which is related to the cash flow analysis, these are
mentioned as below:
 It helps to identify or calculate the capacity of earning of the Dell.
 It also helps to manage and control the activities which is related to cash (Simons, 2013).
 It helps to determine the deviation of income and cash receipts or payments.
 It also help to determine the capacity of the company to repayment of their loans.
 It helps to determine or calculate the cash flow which is related to the operating, investing
and financing activities.
Budgetary Control: It is necessary to work under the given budget. Budget gives
direction or a way to how to do the task or work. When work is done then it is essential to
compare the actual result with the budget because by comparing company can determine the cost
or profit. If workers or employees do their work with proper co – ordination then it will also
helps to manage the given budget. Budgetary control is very important for company and
organisation. There are several important objectives of budgetary control, which are mentioned
as below:
 Budgetary control is helps to control or reduce the waste within the organisation and also
helps to increase the profit of the company (ter Bogt and van Helden, 2012).
 If there is any deviation in the establish standards then employer also can make alteration
in it.
 It helps to control on the unnecessary expenses.
Ratio Analysis: It helps in planning, forecasting, communication and control. It is very
effective for company and also provide comparative analysis. It is very useful for investors and
creditors. If company is liquid and reliable then it earns more profits.

There are various objectives of Ratio analysis which are mentioned as below:
 It helps in decision making and provide proper guidance to management, creditors,
employees, government, investors or shareholders etc.
 it also helps to analyse the effectiveness of the company if company is not effective then
management people need to improve the effectiveness of the company.
 It helps to determine the financial position of the company (Ward, 2012).
Illustration 2: ratio analysis

TASK 2
P3 Calculate costs per unit under both absorption costing and marginal
costing and explain why do they differ . Explain how they are used to
prepare an Income Statement under Marginal Costing and Absorption
Costing
Income Statement as per absorption costing :
Selling price £67.50
Unit costs
Direct materials £20
Direct Labour £8
Variable Production overhead £4
Variable sales overhead £6
Actual production for the is 50000 units
Fixed costs for the year are given below
Actual cost
Production overhead £500000
Administration cost £600000
Working 1: apportioned of fix cost per unit
£500000/50000=£10 per unit
Working 2: Calculate full production cost
Direct material £20
Direct labour £8
Variable cost £4
Prime cost £32
Fixed cost £10
Total £42

Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 50000*42 = £21,00,000 10000*42 = £4,20,000
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £500000
Fixed overhead: £500000
Total nil
Net profit using absorption costing £
Sales £2,70,000(40000*67.5)
(-) Cost of Sales:
Opening inventory 0
Production £2,100,000
Closing inventory ( £420000)
Total cost 2,520,000
Net Profit £2,25,000
Marginal Costing: Marginal costing is the system in which the variable cost is charged
against the goods in order to write off the fixed cost a particular time period. This costing helps
in the decision making process by the mangers(Garrison and et. al.2010) . It is directly related to
the marginal which is effected by change in the total output. Marginal cost is the change in the
total cost due to a unit increase in the total output. With the help of marginal costing the change
in the total profit due to change in output is also calculated.
Marginal costing = Change in consumption/ Change in quantity of the product.
With the help of this formula or method the marginal costing can be analyse through
which the proper estimation in which the additional consumption of each and every unit and the
release of every unit is get calculated. It helps the manager to take into consideration all the
changes which are associated with the project. The basic purpose for calculating the marginal
costing is just to examine the changes which are taking place due to additional consumption.
Hence, it is considered as the key principle in decision making because it enables the managers
to take determination on taking marginal costing as a base. If the marginal costing of any product

is high then it is a beneficial situation for n merchandiser to produce more and more quantity. It
includes every additional cost which is used to produce the another unit.
It also be termed as the contribution concept due to sacrifice of each and every unit that's
why it is called as the heart of marginal costing. The formula for calculating the contribution is
as follow:
contribution= sales price- variable cost
Absorption costing: It is helpful in calculating the cost of the product and service
because it includes all the cost which are related with the product in which the labour cost,
overhead and direct expenses. Absorption costing means the absorption of all cost which
signifies that it includes all the production cost which is related with their manufacturing. The
another name of this approach from which it is introduced in the market is the full costing
method. As per the discussion it signifies that the overall cost of the product is involve in this
scenario.
Closing and opening inventory are valued at the full production cost at the absorption
costing. It helps an organisation ton prepare their external reports of finance through which they
can easily take all the decision of their organisation. Cited organisation can make their statement
with the help of this costing method because it helps them in finding out the manufacturing
facility for employer, rent and production volume. Hence, this method can be used by the cited
organisation so that their tax report can be managed according to that. It also helps them for
making and taking the decision which are helpful for the long term purpose.
Hence, both the methods are use by the Dell for making their cost in a effective manner.
It enables them in taking decision which are for the organisation growth purpose.
Calculate variable production cost £
Direct material 20
Direct labour 8
Variable production o/h 4
Variable production cost 32
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory

0 50000*32 = 1,600,000 10000*32 = 320000
TASK 3
P4 Explain the advantages and disadvantages of different types of planning
tools used for budgetary control.
A. Compute the standard cost of PVC sheets required to
manufacture 4,000 keyboards. Also compute the difference
between actual cost incurred and standard cost.
B. Compute materials price and quantity variance.
Budgetary control is very useful for the company. In this actual performance is compared
with the budgeted performance to know the deviation. It also helps to eliminate the waste and
also co ordinate with other activities in the company (Zimmerman and Yahya-Zadeh, 2011).
There are various advantages of the budgetary control which are described as below:
 It helps to explain the goals and objectives of the company because if there is no set
objectives then all the efforts made by the employees are totally waste.
 If there is control on the budget then it helps to fix the targets of the company. Employees
work with more effectively and efficiently to achieve the target of the company.
 It helps to maintain the co – ordination between all the departments which is available in
the company.
 If work in not done properly or not going on according to expectations then the budgetary
control of the company is not effective so that company has to make alterations in it.
 It also helps to centralized all the activities which is related to the business.
 It also helps to make decision making and if budget is under control then there is no
unnecessary delay (Chenhalland Moers, 2015).
There are also various disadvantages of the budgetary control which are described as
below:
 Preparing a budget is not an easy task because there are many conditions which must be
apply by the company.

 It is very expensive in nature this is the main reason that small organisation can not make
budget for their organisation.
 Budget is like a forecasting because it is related to the future and every one knows that
future is uncertain.
 Budget is made by top level of management so that it is tool of management.
 To implement the budget there is a need of control of top level management but if there is
no support of top level people then budgetary control can be fail (Tessier and Otley,
2012).
 It is not necessary that perception is always right.
Difference between actual cost and standard cost:
There are various difference between actual cost and standard cost which is described as
below:
Actual Cost Standard Cost
Actual cost means those expenses which are
incurred actually and it is not based on
estimations.
Standard costing includes all the cost which is
related to material, labour or overheads that
incurred during the time of production.
Task 4
P5 Compare Dell with one of the two Lenovo or HP in order to
establish how organisations are adapting management
accounting systems to respond to financial problems such
as lack of view of what deals had been sold from a
budgetary perspective as given in the case scenario
Dell is a multinational company and creates computers and products which are related to
computer. Dell deals in PCs, software, printers, data storage devices etc. They use modern
techniques for their products and services. They continuously improve their supply chain
management by use of innovation techniques. They provide their services worldwide and gives
proper satisfaction to their customers (HammadJusoh and Ghozali, 2013).

HP stands for the Hewlett – Packard Company, it develops or creates software and
hardware for their customers. They also provide their services to small and medium enterprises
also. HP provide their computers to eduction sector and government too. It is continuously
developing in the world and also design some new software for their customers or buyers.
They both deal in laptops, software, PCs etc. The main difference between them is price
which they offer to their customers. The quality of their production is also different and quality is
high then production and profit both get increased. There is a compare analysis between both
Dell and HP are described below:
DELL HP
It is a multinational company that provide
goods and services to their customer. They use
modern types of techniques for their products
and services ( AlMaryani and Sadik, 2012).
They use modern techniques for production so
that they can use this as an advantage, there are
various advantages as below:
- They can compete their competitors and win
at the marketplace.
- New techniques also attract more customers
towards the products.
- They provide development to their employees
by giving them proper training sessions.
- It also helps to improve their communication
within the organisation.
- Modern techniques also helpful to improve
their standard of living.
- It also provides better entertainment to their
customers.
Modern techniques provide many advantages
to the company but there are some
It is a growing company and it also provide
goods and services to their customers at
national level. But they do not use modern type
of techniques, they believe to use traditional
techniques for production.
They do not use modern techniques for
production, that also give them some
advantages which are mentioned as below:
- They use traditional methods for the
production so that they can control the cost.
- There is no need to provide training to the
employees because there is no innovation take
place.
- They always use traditional methods for their
marketing.
- It helps to do their task more fastly.
Traditional techniques can provide advantages
to the company but there are some limitations
or advantages also, which are mentioned as
below:
- It does not provide growth and development

disadvantages also that company can face,
which is described as below:
- It increases the cost of production.
- it takes more time to understand.
- It is more expensive compare to traditional
techniques.
- If employee do not learn or accept the new
methods of process then they can loose their
jobs.
to the company.
- The company can not get the advantage of
competition (Baldvinsdottir, Mitchell and
Nørreklit, 2010).
- Employees development is not possible in
this company because there is creativity and
innovation take place in the organisation.
- Company can also loose their reputation in
the marketplace.
In every companies, there are some financial issues that can arise at any time. It is see
that how they can compete with this problem (Bodie, 2013). Dell can easily compete with any
financial issues because they use modern techniques for their products so that they can earn more
profits. HP use traditional techniques for their products so that for them it is difficult to respond
to the financial problems that arise.
Dell use new or modern techniques, they produce their products with more creativity and
innovating manner. So that they provide more customer satisfaction and it also helps to increase
their productivity. If any financial problem arise in the company then they can easily recover
from that. They can reduce their unnecessary expenses or cut – off the irrelevant expenses. They
also can diversify their risk by invest in more than two projects or plans. If there is any problem
arise within the company then they can also solve them with proper co – ordination. To recover
from any financial problem, company has to make plan for this and save money to compete this.
If they work with proper planning and made budget then they will also get to know about the
expenses of the company (Burritt and et. al., 2011). Bills of the company is also manage very
carefully by the manager or leader. Company also can look various ways or methods by which
they can earn more to compete the financial problems.
CONCLUSION
As per the above mentioned report it is concluded that management accounting is very
important part for a company. It is related to the development of company and represents the

books of accounts. It is described in the report that there is an essential requirement of various
types of management accounting system. There are also various types of accounting systems
which is described in this report. In this report there are various types of cost is described such as
absorption cost, marginal cost etc. There are various advantages and disadvantages of the
budgetary control. And also there is a difference between actual cost and standard cost which is
also described in this report.

REFERENCES
Books and Journals:
A. Hammad, S., Jusoh, R. and Ghozali, I., 2013. Decentralization, perceived environmental
uncertainty, managerial performance and management accounting system information
in Egyptian hospitals. International Journal of Accounting and Information
Management. 21(4). pp.314-330.
AlMaryani, M.A.H. and Sadik, H.H., 2012. Strategic management accounting techniques in
Romanian Companies: some survey evidence. Procedia Economics and Finance. 3.
pp.387-396.
Baldvinsdottir, G., Mitchell, F and Nørreklit, H., 2010. Issues in the relationship between theory
and practice in management accounting. Management Accounting Research. 21(2).
pp.79-82.
Bodie, Z., 2013. Investments. McGraw-Hill.
Burritt, R.L., and et. al., 2011. Environmental management accounting and supply chain
management (Vol. 27). Springer Science & Business Media.
Chenhall, R.H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, Organizations and
Society. 47. pp.1-13.
Garrison, R.H., and et. al., 2010. Managerial accounting. Issues in Accounting Education. 25(4).
pp.792-793.
Herzig, C., and et. al., 2012. Environmental management accounting: case studies of South-East
Asian Companies. Routledge.
Li, X., and et. al., 2012. A comparative analysis of management accounting systems’ impact on
lean implementation. International Journal of Technology Management. 57(1/2/3).
pp.33-48.
Lukka, K and Modell, S., 2010. Validation in interpretive management accounting research.
Accounting, Organizations and Society. 35(4). pp.462-477.
Macintosh, N.B and Quattrone, P., 2010. Management accounting and control systems: An
organizational and sociological approach. John Wiley & Sons.
Otley, D and Emmanuel, K.M.C., 2013. Readings in accounting for management control.
Springer.
Renz, D.O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Simons, R., 2013. Performance Measurement and Control Systems for Implementing Strategy
Text and Cases: Pearson New International Edition. Pearson Higher Ed.
ter Bogt, H and van Helden, J., 2012. The practical relevance of management accounting
research and the role of qualitative methods therein: the debate continues. Qualitative
Research in Accounting & Management. 9(3). pp.265-273.
Tessier, S. and Otley, D., 2012. A conceptual development of Simons’ Levers of Control
framework. Management Accounting Research. 23(3). pp.171-185.
Ward, K., 2012. Strategic management accounting. Routledge.
Zimmerman, J.L and Yahya-Zadeh, M., 2011. Accounting for decision making and control.
Issues in Accounting Education. 26(1). pp.258-259.