Management Accounting and its Essential Requirements

Management
Accounting
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Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Explain management accounting and its essential requirements...........................................3
P2. Explain different methods used for management accounting reporting...............................6
TASK 2............................................................................................................................................7
P3 Calculate costs using appropriate techniques of cost analysis..............................................7
TASK 3..........................................................................................................................................12
P4 Planning tools used for budgetary control...........................................................................12
TASK 4..........................................................................................................................................14
P5 Management accounting system..........................................................................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18
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INTRODUCTION
Management accounting is the provision of financial and non financial decision making
information for managers (Bobryshev and et.al., 2015). It is an accounting practice different
from financial accounting as it includes both monetary as well as non monetary factors into
consideration. Reports produced out of different management accounting systems provides
information whenever and wherever required. This information is used by management to
determine variances from the planned targets and to take necessary corrective steps.
This report has been made by consultancy firm AJ and sons in the context of their client Innocent
Drinks. The report is categorized into three parts. First part covers information about
management accounting systems and their integration within organisational processes. Second
part covers application of a range of management accounting techniques using given sets of data.
The last part covers the use of planning tools by management accounting to respond to financial
problems in organisation.
TASK 1
P1 Explain management accounting and its essential requirements
Management accounting is the practice of identifying, measuring, analysing, interpreting
and communicating financial information to managers for the pursuit of an organisation's goals.
It is also called managerial accounting (Carlsson-Wall, Kraus and Lind, 2015). It is aimed to use
internally by managers only to make well informed business decisions while financial accounting
is aimed at providing financial information to both internal and external stakeholders.
Basis for comparison Management Accounting Financial Accounting
Purpose and user It is used for internal decision
making purpose only by
management
It is used by both internal and
external stakeholders to take
their relevant decisions
Regulation It is not under regulation of
any law or statute.
It is governed by standard
laws, rules and regulations by
different authorities.
Audit It is not subjected to any kind
of audit or external
It is subjected to multiple
audits such as tax audits,
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investigation. corporate audit, etc.
Contents It includes both financial and
non-financial information.
It is only concerned with
financial information.
Management accounting is very beneficial and hence is being used widely now. Few benefits are
as follows:
 Planning and decision-making – In management accounting, financial information and
non financial information is presented at regular intervals (Charifzadeh and Taschner,
2017). This presentation includes forecasts, budgets and in-depth analysis. Hence, it
assists the management in planning the business activities and decision-making.
 Identifying early signs of problems – Management can identify early if a product is not
performing well, by comparing the accounts prepared and the actual performance of
product. This will aid in overcoming the constraints early on and avoiding future losses.
 Strategic management – Based on the information presented in management accounts, the
management can take decisions about continuing a product or modifying the sales
strategy. Since management accounts are not subjected to any law, management can
decide the areas that require more analysis, investigation and accordingly draw up
strategies.
Innocent Drinks can also adopt management accounting techniques to know if they
require any strategic changes to suit the current market situation such as changes in pricing,
location, marketing, etc. It can help them find shortcomings and plan better for the better future
of the company.
The study of management accounting are interlinked with each segment of business and
department of organisation. A few of the most common management accounting systems are as
below:
 Cost accounting system – It is an accounting system designed for manufacturers that
tracks the flow of inventory continually through the various stages of production.
Material flow cost accounting is a powerful tool when it comes to the identification of
resource inefficiencies in production systems (Sanjay Borad, 2020). This accounting
system is beneficial for companies to address those areas in which company's expenses
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