Management Accounting and Its Importance

This assignment discusses the role of management accounting in evidence-based decision-making, summarizing financial transactions, and investigating organizational issues. It highlights the use of planning tools like scenario and contingency planning to develop effective budgets and resolve financial problems. The assignment concludes that management accounting is an essential method for managers to make informed decisions, control costs, and measure performance.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.Explanation of management accounting and the essential requirements of different types of
management accounting systems.................................................................................................3
Price-optimizing systems: ...............................................................................................................4
2.Benefits of management accounting systems and their application within an organizational
context..........................................................................................................................................5
3. Different methods used for management accounting reporting:..............................................5
TASK 2............................................................................................................................................6
1.Costing Method:........................................................................................................................6
TASK 3............................................................................................................................................8
1. Different planning tool used for budgetary control with their advantages and disadvantages 8
2.Different planning tools and their application for preparing and forecasting budgets:............9
TASK 4............................................................................................................................................9
1. Comparison of organisation adapting management accounting systems to respond to
financial problems:.......................................................................................................................9
2. Evaluation of planning tools to respond financial problems................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is a systematic and organised process that includes activities
such as identification, analysis, recording, and presentation of financial information and such
information is internally used by managerial personnels for decision making, planning and
operational control. It assists management in an organisation to effectively perform and
implement all necessary process and activities like formation of plan, managing activities and
functions, staffing, administering and controlling. Management accounting refers to set of
activities related to evaluation of business expenditure and functions or activities to formulate
internal financial report and account to provide assistance to managers in decision making
activities in order to attain business objectives (Lavia López and Hiebl, 2014). It helps
managerial personnel to track significant business events that happens in organisation or nearby
the organisation while analysing needs of organisation. Appropriate and effective decision are
taken for steady improvement in business organisation's performance. This report describes
management accounting and its various aspects in the context of British Telecom (BT). This
report also covers advantages and disadvantages of different types of planning tools used for
budgetary control, use of different planning tools and their application for preparing and
forecasting budgets and a brief explanation about extent to which management accounting
systems helps to respond financial problems.
TASK 1
1.Explanation of management accounting and the essential requirements of different types of
management accounting systems.
Management accounting system is applied in the BT for collecting, processing and
communicating various managerial information that helps in management plan and in
formulating company strategy.
Essential requirement:As should be clear by now, the various processes of management
accounting system is the process of creating and using cost, quality, and time-based information
to make effective decisions within the organization. Many people in the organization play a role
in this process. The internal audit department has the responsibility of ensuring that controls are
followed and operations are efficient. So the application of system of management accounting in

organization is very significant as it ensures achievement of targeted performance. Different
types of management accounting system are as follows:
Cost accounting:
It is a framework used to calculate the company's products profitability evaluation of
inventory and estimation of their cost. The cost of producing a product and availability of
products is determined for preparation of financial reports. For example ABC costing system is
based on activity costing and Hybrid costing system is based on combination of features. With
the help of these accounting methods British telecom company is able to control the cost of
company and became the largest telecom company in united kingdom.
Inventory accounting:
Inventory accounting is the type of accounting that deals with evaluating and accounting
of company's assets. Stock of company typically involves goods like unprocessed goods, in-
progress goods and finished goods that are ready for sale. It involves determining the changes in
the value of goods. Depreciation obsolescence and changes in the demand and supply are
estimated. BT controls number of big subsidiaries. It provides fixed line, mobile, broadband and
digital television Wi-Fi services to it's consumers. Recently company has removed the usage of
huawei equipment in order to continue with it's policy (Leitner, 2013).
Price-optimizing systems:
Price optimization is system is a systematic mathematical analysis used by business
organisations to define how customers respond to prices for its services and products through
different channels. It helps to choose prices that will help management to achieve its objectives.
This system aims to provide customer satisfaction while optimising price of product and
services. In BT, minimum data tariff is charged by company to increase their customer using this
system.
Job Costing System:
A job costing system combines process of collecting information about various cost
related with a specific job or task. Output of this system used to report cost data and information
to customer under an agreement where costs are incurred. In BT this information is also used to r
determine correctness of an organisation's forecasting system, that helps to determine prices that
ensures profitability of company. The information can also be used to assign invariable costs to
manufactured goods.

2.Benefits of management accounting systems and their application within an organizational
context
All the management accounting systems includes both budgeting and planning activities
which are very beneficial for the BT because it helps it in managing the business activities in
better way. These system maximize the results for BT because these systems follows an
systematic way to analyze financial and non financial items. There are various management
accounting system which support the accounting of qualitative aspects of business as well. Such
as cost accounting system is used to control cost
3. Different methods used for management accounting reporting:
Performance report: these reports are mainly generated to assess performance of whole
business and the employees who are working in the company. In British Telecom such type of
reports are generated by the managers to analyse that business is performing well or not. It helps
them to make appropriate strategies for the betterment of the organisation. Main role of them is
to guide the management to assess that employees are giving their full efforts to accomplish the
tasks successfully or not. While planning for incentives these reports guides executives to
distribute it in all the works according to their performance and potential.
Job cost report: Costs that are related to each job which is performed by companies are
recorded in such type of reports. All the tasks that are performed according to the specification of
clients of British Telecom are recorded in this report by the managers of the company. It is very
beneficial for management because it helps them to analyse the overall cost of the jobs and
activities that are operated by the company. It is very important for the service sector companies
to generated such type of reports so that expenses that are made while performing jobs can be
analysed for them separately (Modell, 2014).
Inventory management report: It is a summary of items that belongs to business,
industry or organisation. It provides comprehensive accounts of the stocks or supply of various
items that are served by British telecom to its consumers. It defines full information regarding
goods that is held as stock and future requirement of goods. This acts as a tool that provides an
analysis for better decision making. It reduces complexity in supply chain management and helps
in anticipating correct demand in future that will help to enhance profitability.
Accounts receivable report: It is a report that co9nsist information regarding unpaid
consumers and unpaid creditors by range in date. The report is the primary tool used by

collection department of British telecom organisation to determines payments due date. Having a
accounts receivable report brings collecting of payments on time and reduces chances of bed
debts in future. This will help in developing best and cost effective method for collection of
funds and reduces cost and makes organisation profitable.
Management Accounting reporting is integrated within organizational processes:
Reporting under management accounting system cover all aspects of organization and
integrates all activities and significant process to achieve overall performance of organization.
All processes of a business organization are interlinked with each other to optimize its different
activity costs.
TASK 2
1.Costing Method:
Absorption costing: According to this method net profit is calculated by considering the
fixed manufacturing overhead that are absorbed by cost of product which are manufacture by
Conway Ltd. All the fixed industry or business costs that is involve in production process are
considered as product cost so net profit for a year is determined easily.
Marginal costing: This is also one of the effective costing technique that help to evaluate
net profit that includes marginal cost or variable cost of units for making an additional unit of
output. The main reason of using this method is that fixed cost for the period of production are
completely written off against the contribution. The basis for ascertaining cost in marginal
costing is the nature of cost, which gives an idea of the cost behaviour, that has a great impact on
the profitability of the firm (Nielsen, Mitchell and Nørreklit, 2015).
Calculation of Net profit through marginal costing:
Marginal Costing Method
Particular £
40000
Sales 15 600000
Less: Cost of Goods sold
Opening Inventory -
Direct Labour 4 160000
Direct Material 4 160000

Variable Expenses 2 80000
Total cost of goods sold 400000
Gross Profit 200000
Fixed production overheads 50000
Fixed Overheads 100000
Net Profit 50000
Marginal Cost
Direct Labour 4
Direct Material 4
Variable Expenses 2
Total Marginal Cost 10
Calculation of Net profit through Absorption costing:
Absorption Costing Method
Particular £
40000
Sales 15 600000
Less: Cost of Goods sold
Direct Labour 4 160000
Direct Material 4 160000
Variable Expenses 2 80000
Fixed indirect production cost 50000
Total cost of goods sold 450000
Gross Profit 150000
Other fixed overheads 100000
Net Profit 50000

Absorption Cost
Direct Labour 4
Direct Material 4
Variable Expenses 2
Fixed indirect production cost 1.25
Total Absorption Cost 11.25
TASK 3
1. Different planning tool used for budgetary control with their advantages and disadvantages
Budget: Budget refers to estimation of cash inflow and out flow or receipts or
expenditures over a particular period of time. It is simply used by business organisations to
reserve or allocate funds for different-different functions or processes after a short comparative
analysis of expenses, incomes and profits of previous years.
Budgetary control: It is a type of management control under which a systematic
comparison of actual expenditures and incomes is conducted with predetermined expenditures
and incomes to asses the appropriateness of such planned figures of income and expenses.
Budgetary control process helps to track and administer budgets determined for activities and
processes. This is simply done by analysing difference between actual and expected results to
decide how effectively budget is followed in organisation. In BT it is used by top managers to
recognise variances in budgets and interlinked these variances with performance to formulate
best policies and strategies to reduce these variances.
BT need to manage and control budgeted figures and standards of various process and
activities to achieve sustainability in growth and to enhance profitability. Company should
prepare a systematic plan to control budget that is required be to ensure that functions and
activities are carried out efficiently. Following are the major tools used by business organisation
to establish budgetary control, as follows:
Contingency tools: This budgetary helps to recognise and allocate sensitive and risky factors
that can affect an organisation's performance, growth, results and functions in near future. In BT
this tool provide assistance in evaluating and analysing financial position in terms of net and
gross profitability conditions and performance of various activities and functions of company,

BT is required to evaluate and analyse such factors and to formulate appropriate and effective
strategies in order to solve them as soon as possible (Senftlechner and Hiebl, 2015).
 Advantage: Contingency tools helps to identify potential and additional resources in case
any complexity or difficulty arise in functions or process concerned with existing or
already identified resources .
 Disadvantage: Use of this tool is time consuming and costly.
Forecasting tools: This tools is used by business organisation to develop a framework for future
events and happenings with the help of present and past changes in sceneries and trends. For
effective results of forecasting tools, reliable and relevant data should be used by organisation
from internal and external sources. In BT management or other relevant personnels can use this
tool for amassment of future trends which can affect the company in future in negative manner.
 Advantage: It helps identify any future uncertainty or opportunity which can affect
business decisions.
 Disadvantage: Practically it is hard to predict future events so reliable estimate can not be
made.
Scenario planning: This tool establishes a structured and organised path to frame or formulate
framework for strategic planning of a business organisation. It helps to develop a base for
assuming potential impacts of business environment in an organisation. BT should use this tool
to identify or recognise potential happening which can affect the functions or business segments
of company in near future.
 Advantage: It is very flexible tool because it can be modified as per the aroused
circumstances.
 Disadvantage: Practical implication of this tool is very time consuming.
2.Different planning tools and their application for preparing and forecasting budgets:
From above discussion it is clear that different planning tools helps management in BT to
manage process related to planning and preparation of budget. These tools provide a framework
for preparation of blueprint for company to manage all activities that are directly or indirectly
helps to determine company's performance and growth. Management can apply these tools to
identify opportunities and possible threats. For smoothness of planning process these budgetary
control play a vital role (Wickramasinghe and Alawattage, 2012).

TASK 4
1. Comparison of organisation adapting management accounting systems to respond to financial
problems:
For comparison purpose two organisations Ever Joy Enterprise and Parkwood is selected
to evaluate hoe management accounting system responds to financial problems:
EVER JOY ENTERPRISE PARKWOOD
In EVER JOY ENTERPRISE, managerial
personnels was facing problem regarding
working capital requirement and, cash inflow
and inflow. Decreasing cash inflow and
inadequate working capital affecting its
performance. Company has adopted cost
control system to minimise their expenses to
optimise cash outflow. This method not only
helps to reduce expenses but also to increase
profits.
PARKWOOD find issues and complexity
related to inventory which leads to
unfavourable inventory turnover ratio.
Company in order to manage inventory and
reduce wastage in production process,
implement inventory management system and
make a team for observing and managing
inventory process and specific instruction are
given to keep their proper insights on
inventory, so that company can set a
benchmark for quantity of order to reduce
carrying cost and abnormal waste.
To establish a proper management system various management accounting tools are used
by business organisation (Soin and Collier, 2013). These tools ensures organisation to achieve its
objectives and sustainable success. Following are the major management accounting tools used
by organisations, as follows:
Ratio analysis: It is most popular accounting tool which incudes a systematic evaluation
of organisation's financial information and it helps to analyse different factors which determines
company's financial and operational performance. Ratio analysis describes company's liquidity,
efficiency, solvency and profitability conditions through different metamathematical formulas
called as ratios, this ratio interlinks different factors to measure performance. This analysis is
generally used by management and accountants to compare results of different processes of
company. With the help of ratio analysis BT asses their current performance to formulate
strategy.

Benchmarking: Benchmarking refers to collection of activities to develop standards or
criteria to compare organisation's performance. Basis of these standards can be time, quality and
cost invested by the company on any product. Main goal of the organisation is asses its actual
performance to take significant decisions. Adoption of appropriate practice is required to
improve performance of organisation. This tool helps manageable in selection, planning and
overall completion of various project. BT by setting benchmark achieve its targets and goals.
Key Performance Indicator (KPI): It an analytical tool which assists in identification of
performance in comparison to business targets. It describes way to achieve business targets in
efficient way. KPI are classified in two parts low level KPI and high Level KPI, A low level KPI
emphasises on workers and staff in department such as administration, marketing and sales
where as complete performance of organisation is measured through high level KPI. In BT, KPIs
are used to enhance efficiency of specific function and solve particular task issue.
2. Evaluation of planning tools to respond financial problems
In BT manager adopts various management accounting systems to short out different
financial problems such as company is facing problem of working capital requirement so
managerial personnel in organisation has adopted Contingency tools, Forecasting tools and
Scenario planning to identify main reason for the problem of working capital requirement which
ultimately help the mangers to increase efficiency in working capital management (Ward, 2012).
CONCLUSION
From the above conclusion it has been concluded that management accounting helps to
evidence, summarize and investigate all the necessary financial transactions that happen within
an organisation during an accounting year. Different types of planning tool such as scenario,
contingency are used to develop effective budgets. Manager uses different accounting tools that
are helpful in resolving financial problems that benefits to increase profit and performance. The
above mention presentation concluded that, management accounting is an effective methods that
help manager of company in order to get useful information about operation so that effective
decision making are made. Various types of system such as cost accounting, inventory
management etc. are use to control and reduce cost and mismanagement of resources. Different
report like performance report, job costing report are used by manager in order to evaluate and
measure performance and control cost involved on specific job.

REFERENCES
Books and Journal:
Lavia López, O. and Hiebl, M. R., 2014. Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of Management
Accounting Research. 27(1). pp.81-119
Leitner, S., 2013. Information Quality and Management Accounting: A Simulation Analysis of
Biases in Costing Systems (Vol. 664). Springer Science & Business Media.
Modell, S., 2014. The societal relevance of management accounting: an introduction to the
special issue. Accounting and Business Research. 44(2). pp.83-103.
Nielsen, L. B., Mitchell, F. and Nørreklit, H., 2015, March. Management accounting and
decision making: Two case studies of outsourcing. In Accounting Forum (Vol. 39, No.
1. pp. 64-82). Elsevier.
Senftlechner, D. and Hiebl, M. R., 2015. Management accounting and management control in
family businesses: past accomplishments and future opportunities. Journal of
Accounting & Organizational Change. 11(4). pp.573-606.
Soin, K. and Collier, P., 2013. Risk and risk management in management accounting and
control.
Ward, K., 2012. Strategic management accounting. Routledge.
Wickramasinghe, D. and Alawattage, C., 2012. Management accounting change: approaches
and perspectives. Routledge.