Management Accounting Research and Studies

The provided assignment is a collection of research papers, studies, and articles related to management accounting. It covers various topics such as the development of management accounting at Kyocera, corporate environmental management, principles of strategic management, and more. The assignment also includes a list of relevant sources and references for further reading.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
PART A.......................................................................................................................................3
Covered in PPT............................................................................................................................3
PART B........................................................................................................................................3
TASK 2............................................................................................................................................6
(a) Explain Advantage & disadvantage of different type of planning tools which is used for
budgetary control.........................................................................................................................6
(b) Analyse different planning tools and it's applications............................................................7
(C) Evaluate how organisation system adopt different management accounting system............8
(d)Analysis of financial problem in respect of management accounting which lead the
organisation for the success.........................................................................................................9
(e)Explain how planning tool solve the financial problem which lead the organisation to
sustainable success.......................................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
In business scenario, management accounting is defined as the process of analysing,
gathering, recording and reporting of useful financial information that help the internal manager
to take valuable decision (Abdel-Kader, 2011). Manager of company makes annual accounts by
applying generally accepted accounting principle that help the outsider stakeholder to gather
relevant information about companies happing during an accounting year. In general,
management accounting has major objective of doing so is to accomplish more benefits by
making proper use of resources within an organisation. To better understand the concept of
management accounting Airdri company is selected. This company produces designer hand dryer
with best price within Industry.
The main aim of this project report is to calculate the net profit using absorption and
marginal costing method, advantages and disadvantage of different types of planning tools that
are beneficial in forecasting budgets and controlling them. Apart from this, the report also shows
that various financial tools are used by company in order to resolve the financial issues.
TASK 1
PART A
Covered in PPT
PART B
Calculation of Net profit through marginal costing:
Marginal Costing Method
Particular Year 1 Year 2 Year 3
Sales 70 2520000 2800000 4200000
Less: Marginal cost
Opening Inventory - 192000 576000
Direct Labour 16 640000 768000 816000
Direct Material 12 480000 576000 612000
Variable Expenses 20 800000 800000 1200000
Less: Closing Inventory 192000 576000 144000

Marginal cost 1728000 1760000 3060000
Contribution 792000 1040000 1140000
Fixed indirect production cost 64000 64000 64000
Selling and Distribution overheads 10000 10500 11000
Administrative overheads 15000 15000 15000
Interest Expenses 1000 1250 1500
Net Profit 702000 949250 1048500
Marginal Cost
Direct Labour 16 16 16
Direct Material 12 12 12
Variable Expenses 20 20 20
Total Marginal Cost 48 48 48
Year 1 Year 2 Year 3
Opening - 4000 12000
Production 40000 48000 51000
Units Sold 36000 40000 60000
Closing 4000 12000 3000
From the above calculation, the net profit for 1 year is 702000, for second year is 949250
and for 3rd year the profit is 1048500. The total Marginal cost for three year is 48 respectively. In
1st year the closing stock is 4000, for 2nd year it is approx 12000 and in year 3 the closing stock is
equal to 3000.
Calculation of Net profit through Absorption costing:
Absorption Costing Method
Particular Year 1 Year 2 Year 3
Sales 70 2520000 2800000 4200000

Less: Cost of Goods sold
Opening Inventory - 198400 592000
Direct Labour 16 640000 768000 816000
Direct Material 12 480000 576000 612000
Variable Expenses 20 800000 800000 1200000
Fixed indirect production cost 64000 64000 64000
Less: Closing Inventory 198400 592000 147764.71
Total cost of goods sold 1785600 1814400 3136235.29
Gross Profit 734400 985600 1063764.71
Selling and Distribution overheads 10000 10500 11000
Administrative overheads 15000 15000 15000
Interest Expenses 1000 1250 1500
Net Profit 708400 958850 1036264.71
Absorption Cost
Direct Labour 16 16 16
Direct Material 12 12 12
Variable Expenses 20 20 20
Fixed indirect production cost 1.6 1.33 1.25
Total Absorption Cost 49.6 49.33 49.25
Year 1 Year 2 Year 3
Opening - 4000 12000
Production 40000 48000 51000
Units Sold 36000 40000 60000
Closing 4000 12000 3000

In the above calculation, it has been observed that net profit for absorption costing is
708400 in first year, for 2nd year it is 958850 and in year 3rd profit is equal to 1036264.71.
Closing stock for year is 4000, in year 2nd it is equal to 12000 and in 3rd year the amount of
closing stock is 3000.
Difference between the marginal and absorption costing methods.
Marginal costing Absorption costing
It is a costing technique which includes change
in the total cost that incurred when the material
quantity produced is increased by one unit. In
short, this is the cost of manufacturing one
more unit of a good (Akbar, 2010.). It contains
increase or decrease in price of manufacturing
one more unit or delivery to one more
customer. It is used to get impact of variable
cost and valuation of stock of finished and
work in progress products.
It is a costing system which contains full
amount of production and providing a
service. This also includes total cost occurred
to manufacture products or services and to
transfer them in to finished products for
selling it. In finish goods they involve direct
labour, direct material, fixed and variable
overhead. There are different types of
Absorption costing system such as Job order
costing, Process costing, ABC costing. It
helps to get overall profits for organisation
after deducting all production cost (Callahan,
Stetz and Brooks, 2011).
Use of Marginal costing in a business.
It is observed that marginal costing is easy to understand that combined standard and
budgetary control that help to control business in specific manner. There are different specific
managerial uses of marginal costing such as cost ascertainment, cost control, improve the
decision making process while taking important decision to resolve problems like profit
planning, product mix etc.
Reasons for the difference in profit / loss figures under these 2 methods.
The main reasons for differences in profit and loss figures under absorption and marginal
costing method such as:
 When opening inventory is more than closing inventory, the profit under absorption will
be less due to inclusion of a relatively higher amount of fixed cost in opening inventory.

 When opening inventory is less than closing inventory, the profit under absorption
costing will be higher due to inclusion of a relatively higher amount of fixed cost in
closing inventory.
TASK 2
(a) Explain Advantage & disadvantage of different type of planning tools which is used for
budgetary control
Fixed Budget: - It is a financial plan for the company which include the time period,
planning of sales volume and assumed revenue (Hilton and Platt, 2013). This budget does nor
change expect variation among sales and revenues. Budget also includes the quality of material,
cost per unit on fixed basis. its basically, budget is prepared for balancing income and expenses
of the organisation. There are some advantages and disadvantages of the budget.
Advantage:
 Company be able to analyse the fixed terms of business.
 It provides recording facility to the company for their activities.
 It improves resource allocation because in the budget all activities clearly mentioned.
Disadvantage:
 Fixed budget can increase the cause of perception.
 It can create a limit of resource allocation.
 It creates demotivation subject to varied expenses.
 Rigid budget reduces the chances of innovation and creativity.
Variable budget: - This budget is changed according to change in volume or other
organisational activity. Most of the organisation used variable budget in comparison to fixed
budgets because it provides the limit of spending amount at every level, which is difficult some
times. That's why variable budget is more sophisticated (Morden, 2016).
Advantage:
 It is activity based budget and also effective tool for evaluation of manager's performance
in Airdri.
 It is very useful budget for the managers to make any plan so that proper plan are made
for Airdri in order to meet future problems.

 Variable budget not provide any stress because it provides the facilities to change in the
activities.
Disadvantage:
 It creates confusion in the business because this budget accepts the change various time.
 According to traditional budget, company need to spend in their limited budget. But
variable budget method breaks this rule and jump the boundaries (Hopper and Bui, 2016).
 In this budget, it is difficult to forecast expenses because it can change according to
requirement.
Zero based budget: - This budgeting method calculate the expenses of company at every
new time which is based on actual expenses. In this budget every expenses need to be justify by
the manager (Endenich, 2014).
Advantage:
 This method provides the accuracy and efficiency to allocated the resources.
 It is helpful for the identification of opportunity and also very cost effective.
Disadvantage:
 It is time-consuming method and required huge manpower.
 Manager need to justify every line item, so it required training for this.
Variance analysis
This is one of the type of budgetary analysis that helps to identify the differences between
actual and standard budgets. This is one of the effective tool that helps to manage the available
resources in more strategic and impactful manner.
Advantage:
 This method provides the Appropriateness and efficiency subject to available resources.
 It assist in managing the variation among different sections .
Disadvantage:
 It does not provide clear aspects regarding available financial resources.
 This is one of the statistical aspect that helps in determining the regulatory framework of
business and operations.
(b) Analyse different planning tools and it's applications
According to the above mentioned various types of planning tools, it has been examining
that all of them are equally helpful for earning sufficient amount of profitability by controlling

the budgets of the company (Grabner and Moers, 2013). By the help of variablebudgets manager
are can easily be able to determine their upcoming issues those are affecting the operation on
regular interval. While with the use of Zero based budgets manager are able to calculate business
outflows that are related with company’s promotion or other activity in coming period of time. It
has been found that there are specific kind of risk that can affect the overall growth and
efficiency at the time of production process whose entire influence is been seen on reputation of
the company.
(C) Evaluate how organisation system adopt different management accounting system
History of management accounting
Pre 1950: In recent time management accounting is more involved with regression
analysis, linear programming and probability theory. So manager use to do the manual
recording of transaction to keep the day to day records (Cleary, 2015). The accounting is
done by recording data on every day transaction at the end of the day. This was the stage in
which financial control and cost determination was the main objective of business. In
managerial accounting it this age was so diminising.
1950-1970: After the end of 1950, the government established an institution called
AIA which are responsible to set accounting standards that were founded in early 1936. The
(SOX) Sarbanes-Oxley Act was enforced to heighten accounting regulation so that auditing
can be made easily for the accuracy of company financial statements (Zoni Dossi and Morelli,
2012). In interrelation market feasibility of management accounting was one of the complex
factor highlighted in different countries. Diverse culture and strategies is the major aspect to
be related with these scenarios.
1970-1990: From there, there has been drastic changes in the system of management
accounting, as it has been observed that 1970s, inflation and political uncertainty put
maximum pressure on the accountancy profession to shape up as per the requirement of the
company. In this age the IAFC (International Federation of Accounts was concerned about
the purpose of management accounting and underpins the accounting concepts in various
forms.
1990 to current time: It has been determine that there is huge modification is seen in
the recording of financial transactions. With the use of Key performance indicators, financial

governance and benchmarking tools are taken into consideration. This will make easy for the
accountant to because of automatic data tools. Another caveat, recognized by the statement,
is that the scope, role, and organizational positioning of management accounting differ
across
organizations, cultures and countries How companies use it to detect their financial
problems.
In recent time, companies are helpful in determining the financial problems with the
support of different accounting tools that follows the concept of management accounting. So
there are different techniques that are used by Airdri in order to detect the financial problems. All
of them are discussed below:
Ratio analysis: - It is a quantitative analysis of company's information and it evaluate the
various aspect of organisational financial and operational performance. Such as company's
liquidity, efficiency, solvency and profitability (Takeda and Boyns, 2014). It is also called
financial ratio of the company and it includes the 5 major type of ratio analysis like activity,
liquidity, profitability, debt and market ratio. This analysis is often used by the accountant for the
comparison of their records. There is an ongoing problem in Airdri that they are not able manage
so manager use the Ratio analyses to determine the excess loss company is bearing for a longer
period. They are helpful to determine that because of addition expense on advertising and less
profit generation company is bearing losses.
Benchmarking: Benchmarking is the process of comparing company's process and
performance. The dimension of the comparison is based on time, quality and cost invest by the
company on any product (Lavia López and Hiebl, 2014). Main objective of the organisation is to
understand the current position of the business. Follow best practice for the identification of best
area of improving performance. This method supports the selection, planning and delivery of
projects of the company. Manager of Airdri use to detect the problem of excess use of resources
and less result due to profitability and productivity of company is keeps on reducing.
Balance scorecard: It is a strategic approach used as matrix in order to determine the
gaps and improve the section by implementing valid action plans. Data collection is type of
information used in more preferable and determined manner (Holsapple, 2013). This approach
was introduced by Dr. Robert Kaplan and the business executive Dr. David Norton.

Key Performance Indicator (KPI): It is measurement tool which identify the
performance in comparison to business objective. It shows that how organisation achieve their
goals in effectively manner (Armitage, Webb and Glynn, 2016). It also includes two type of KPI
such as low or high level, low level KPI focus on employees in the department like marketing
and sales. Overall performance measured by the high level KPI. With the help of this tool
company is able to detect the problem of increasing employee’s turnover due to which profit is
reducing in a specific time period.
Airdri Tesco
In the Airdri company, manager find the
problem in the financial statements. That is
about cash flow of the organisation. Cash
outflow is higher than cash inflow.
Tesco company find the problem which is
related to wastage of stock or some time
shortage too. So they can order enough raw
material because higher inventory cause
carrying cost and lower inventory can face the
shortage of material which affect the
production level.
It used balanced scorecard approach to detect
the problem in more effective way.
Financial KPI is used to understand the key
strategic problems occurred in inventory
management and operations.
Airdri adopt cost control system to reduce
their outflow of money. This method helps the
company to reduce their expenses which can
increase profitability.
So company follow the inventory management
system for effective work. Company make
proper team for managing inventory and give
instruction to keep their regular eyes on
inventory.
(d)Analysis of financial problem in respect of management accounting which lead the
organisation for the success
Airdri company's manager follow the different management accounting systems to solve
the financial problem which develop in the organisation. For example: - company face the issue
regarding their cash flow (Schaltegger, Burritt and Petersen, 2017). So the manager of the
company follows the cost control method which provide the better efficiency to the Airdri.

Firstly, manager find out the actual reason for excessive outflow. This management accounting
system help the organisation to grow further toward success.
(e)Explain how planning tool solve the financial problem which lead the organisation to
sustainable success
In the organisation, budgeted method help the most, to solve financial problem of the
company. There are various planning tools such as flexible, zero based and fixed budget. Firstly,
manager need to know that which tool they going to choose (Collis and Hussey, 2017). Than it
helps the manager to make plan according to the budget, which is, further helpful in the
execution of plan. After the execution of plan, it provides success to the Airdri company.
Effective budget always move towards the successful plan which is continues happen in every
financial year.
CONCLUSION
In conclusion it has been stated that, the main motive behind using various types of
management accounting system to record, summarise and analysis all the essential financial
transactions that are done by the company during an accounting period of time. Costing method
such as absorption and marginal costing method are taken into consideration to calculate net
profit for company during a financial year. Variablebudgets are used in company to take valuable
decision by considering forecasted budgets.