Role of Management Accounting and Types of MAS

This article discusses the role of management accounting (MA) and different types of management accounting systems (MAS). It explains how MA helps in long and short term planning, better controlling, and participating in the management process. It also explores the benefits and applications of MAS in British American Tobacco Plc. The article further evaluates the integration of MAS and MA reports with organizational processes. Overall, it provides a comprehensive understanding of the importance and implementation of MA and MAS in business entities.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1............................................................................................................................................3
TASK 2............................................................................................................................................8
TASK 3..........................................................................................................................................11
TASK 4..........................................................................................................................................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
The term MA is an accounting process of assessing data regards to monetary & non
monetary transactions and activities with an aim of producing reports (Fleischman and Parker,
2017). In the aspect of today's competitive business environment, this is essential for business
entities to manage their all activities and operations in a systematic manner by implementation of
an effective accounting system so that desired outcomes can be achieved. In this project report a
company is selected that is British American Tobacco Plc. The company is located in London
and manufacturer of cigarette and tobacco. As well as this business entity is the second largest
cigarette maker in the world as accordance of financial information of year 2012. The project
report covers about a vital range of MAS and MA reports. As well as income statements are
produced by help of costing techniques. Along with, variety of planning tools and significance of
MAS in order to sort out the monetary problems is covered under the project report.
MAIN BODY
TASK 1
Role of MA and types of MAS.
Management accounting – The MA is an accounting process in that reports are produced
for internal stakeholders' perspective. By deriving useful data from these reports managers of
business entities become able to take corrective actions as accordance of need (Gurarda, 2015).
In other words, under this accounting internal reports are prepared by accountants which consists
information regards to monetary and anti monetary aspects. These reports help to management
department in order to take corrective actions.
Herein, it is important to know that these reports are not disclosed to external stakeholders.
Below the role of MA is mentioned that is as followings :
 Beneficial for long and short term planning – By help of MA, the companies can make
plan effectively for long and short time period. It becomes possible because managers
assess useful information through these reports and take decisions accordingly.
 Better controlling – In addition, another role of MA is to focusing on better controlling
over different aspects of businesses. This is so because by utilising important

information, managers can aware about actual financial performance and controls
accordingly.
 Participating in management process – The another role of MA is that, it is helpful for
making participation in managerial process. Due to this accounting, the business entities
can derive both types of information in the aspect of management.
MAS- In the aspect of companies' different operations and activities, this is too crucial to apply
different accounting systems as accordance of requirement. The MAS can be defined as those
accounting systems that provide framework in order to manage different aspects of companies.
Types of MAS :
 Cost accounting system – It is an accounting system which is involved in the process of
gathering and summarising all information regards to cost of various activities (Verma,
2015). Under this accounting system, projection of future possible costs and expenses is
done in an accurate manner so that managers can allocate their resources accordingly.
This accounting system is essential for businesses in order to trace the variances between
actual cost and estimated cost. As well as this accounting system is needed in business
entities for proper management of occurred expenditures in a better way. In the above
respective company, British American Tobacco Plc their finance department is using this
accounting system in order to control total cost of different aspects. In addition, due to
this accounting system they estimate future possible costs that helps in creation of
accurate budget.
 Inventory management system – This is an accounting system which is aligned with
procedure of in and outing of materials from warehouses. By implementation of the stock
management system, the managers of companies can gather useful data in order to take
futuristic steps corrective. Additionally, it is required in companies for making balance
between supply and demand of materials. Eventually, for manufacturing business entities
it is very beneficial because by getting information regards to remained quantity of
commodities in stores the managers make further financial plan for buying and
manufacturing of outputs. In the absence of proper management of inventories, this may
lead to higher cost of storing materials. As well as companies will not be able to take
corrective actions accordance to need. The stock management system is needed for

companies with an objective of tracking quantity of stored material so that accurate
decisions can be taken. In relation to above chosen business entity British American
Tobacco Plc, this accounting system is being applied by their production department and
as per it they take decision for manufacturing and purchasing of materials.
 Price optimisation system – It is an accounting system which has different features and
roles for companies as compare to other accounting systems. This is associated with
process of gathering information about customers' thought and their response towards
companies products. It is done by proper research of customers perception, their buying
habits and many more. The collected data is being used by sales department of companies
for setting prices at a suitable level through at which customers can get value of their
spent money. Thus, it is needed in companies for making competitive strategies by
setting prices of new and exist products at an effective level. As well as for determining
those aspects which are needed to be improved and demanded by customers in products.
Along with, this accounting system plays a significant role for overcoming the issues
regards to lower sales. In the context of British American Tobacco Plc, this can be stated
that they are using above accounting system and their sales department flex their prices as
accordance of competitors movement and customers' demand.
 Job order costing system – This is an accounting system which is related with process of
determining production cost of each manufactured unit (Baumann and Losbichler, 2015).
It consists detailed information about total number of individuals are assigned in order to
produce a single unit of output. As well as total cost of job which occurred in the process
of manufacturing. Hence, it is needed in business entities for determining cost of job for
each unit separately. In addition, this accounting system is required for keeping cost of
job lower as much as possible. If companies do not implement this accounting system
then it can be difficult for them to assess each produced units' cost separately. In addition,
this accounting enables business entities to keep the job cost under control. In the aspect
of British American Tobacco Plc, it can be stated that their production department is
using this system for computing each manufactured units' cost. As they are involved in
production of different kind of tobacco products and this is helping them in order to
control each product's cost. In addition, under this accounting system mainly three types
of cost information is included such as direct labour, material and factory overheads.

Methods of MA reports :
MA reports – The MA reports can be defined as those reports which are prepared by accountants
containing detailed information about monetary and non monetary transactions of a particular
time period. Management accounting reports are too crucial in the aspect of companies because
these reports assure that monetary and non monetary goals have been achieved or not. This is
particularly relevant for businesses, that can gain major strategic perspectives from such vital
documents. In the context of above British American Tobacco Plc, they are preparing different
types of reports which are as followings :
Budget Report - Budget management accounting reports are very crucial in the
measurement of financial performance and are produced as a whole for tiny companies and big
organisations, departmentally speaking. Under this report detailed information monetary and non
monetary aspects is included which play a significant role in order to manage overall functions.
This report is prepared by the British American Tobacco Plc to predict and estimate overall
business activities. It is produced on the basis of last year experience and add additional amount
of unforeseen circumstances. Budgeting-related management accounting reports can direct
executives to give good opportunities for employees, cut expenses, and negotiate a new
conditions with sellers and distributors. Thus, any company is important to a budget report
(Endenich and et.al, 2016).

Performance Report – It is developed by the company to analysis the performance of
employees as well as organization. In this report information about variation between actual and
estimated outcomes is included. On the basis of it, managers of companies take decision about
growth and development of employees. This reports prepared by the manager of British
American Tobacco Plc, department basis to make strategic decisions regarding the future of a
company. The performance of the employees analyses as per the task, how efficiently they
conducting task and laid off with as required.
Inventory management Report – The particular report produce by the manufacturing
companies to keep detail information regarding to stock (Golyagina and Valuckas, 2016).
Inventory management report help to arrange stock level at every stage efficiently. The report
contains information about how much quantity of raw material is stored in warehouses. On the
basis of this report the future requirement of material is assessed in an effective manner. If any
order come to British American Tobacco Plc that time provide information how much raw
material need for further process. It is helpful for the British American Tobacco Plc to efficiently
allocate of very it every stage to producers. If there are recognised any wastages that will use in
other procedure but did not easily increase wastages.
Cost Managerial accounting Report – This report produced to measure the cost of
products that are manufactured. There are consisting of all raw material costs, overhead, labour
and added any cost are interpreted into achievement. Basically in the absence of this report, it
can become difficult for companies' finance department to keep their cost under control. The
report consists detailed information about each aspects' total cost and variation from estimated
cost. A cost report provide summary of information of British American Tobacco Plc. On the
basis of this report manager of British American Tobacco Plc realize the capacity of cost of
several items versus their marketing price. It is mainly applied by the company focus on the
labour cost, wastages of stock and overhead cost. They enable a right understanding of all
expenses that is important for better allocation of resources between all sections.
Benefits of MAS and their applications in the aspect of chosen organisation.
MAS Benefits
Cost accounting system This accounting system helps to companies in controlling total
cost by proper estimation of futuristic costs. Such as in above
chosen business entity they are applying this accounting

system and it is helping their managers in reducing unwanted
additional costs.
Inventory management system This accounting system acts with coordination of production
department for controlling of over-purchasing and
manufacturing. In British American Tobacco Plc, their
production department derives useful information through this
accounting system and take suitable actions accordingly.
Price optimisation system It is associated with the process of setting prices of produced
outputs (Oldroyd, 2017). The British American Tobacco Plc, is
applying this accounting system for collecting useful about
customers' perception and need. As accordance they determine
the price of their tobacco products.
Job order costing system It is linked with computing cost of each individual output
effectively. In the context of above British American Tobacco
Plc, they are producing different kinds of tobacco items. Thus,
by help of this accounting system they determine prices as
accordance of customers' requirement.
Evaluation of integration of MAS and MA reports with organisational process.
In the aspect of scenario of business entities, there are different kind of operations and
activities are performed at various levels. These vital range of activities are managed by
implementation of an effective accounting system (Busco and Quattrone, 2015). For an example
in British American Tobacco Plc, their departments are linked with accounting systems. Such as
price optimisation system is aligned with sales department as well as cost accounting system
with finance department. It shows that MAS are integrated with process of companies. Along
with, MA reports are also linked to above business entities' process like stock report helps to
production department and rest of other reports are also aligned with their process.
TASK 2
Preparation of income statement as per the absorption and marginal costing method.

Absorption costing method : It is a costing method in that fixed and flexible costs are
absorbed in order to produce income statement at the end of year. Such as in the aspect of above
British American Tobacco Plc, they prepare their profit & loss account by applying this costing
technique.
Marginal costing : This is a costing technique in that accountants prefer fixed cost as
period cost and flexible cost as cost of unit for preparation of profit & loss statement. The above
company's income statements are prepared as accordance of this costing technique.
Income statement under absorption costing:

MARGINAL COSTING
Notes Year 1 Year 2 Year 3
£ £ £ £ £ £
Sales
2,52,0
00
3,33,0
00
3,06,00
0
Marginal cost of sales:
Opening Stock - 4,086 5,655
Add variable production
costs:
Direct materials 59,200 64,000 60,800
Direct labour 37,000 40,000 38,000
Variable overheads 14,800 16,000 15,200
Less closing stock 1, 2 4,086 5,655 1,968
Marginal cost of sales
1,06,9
14
1,18,4
31
1,17,68
7
Fixed manufacturing costs 91,000 91,000 91,000
Gross profit 54,086
1,23,5
69 97,313

Selling and distribution
expenses 5,600 7,400 7,000
Administration expenses 10,100 10,100 10,100
Profit /(Loss) from
operations before interest
and tax 38,386
1,06,0
69 80,213
Interest expense 1,100 1,350 1,600
Profit /(Loss) from
operations before tax 37,286
1,04,7
19 78,613
ABSORPTION
COSTING
Notes Year 1 Year 2 Year 3
£ £ £ £ £ £
Sales
2,52,0
00
3,33,0
00
3,06,0
00
Cost of sales:
Opening Stock* - 49,135
Add total production costs:
Direct materials 59,200 64,000 60,800
Direct labour 37,000 40,000 38,000
Variable overheads 14,800 16,000 15,200
Fixed manufacturing costs 91,000 91,000 91,000
Less closing stock** 1,2 49,135 63,300 21,579
Cost of sales 1,52,8 1,96,8 1,83,4

65 35 21
Gross profit
99,13
5
1,36,1
65
1,22,5
79
Distribution expenses 5,600 7,400 7,000
Administration expenses
10,10
0
10,10
0 10,100
Profit /(Loss) from
operations before interest
and tax
83,43
5
1,18,6
65
1,05,4
79
Interest 1,100 1,350 1,600
Profit /(Loss) from
operations before tax
82,33
5
1,17,3
15
1,03,8
79
MA techniques in order to produce reports regards to chosen organisation.
In the business entities, this is important to prepare financial and non financial reports on
a regular time period so that external stakeholders can be aware about actual monetary
performance. There are different kind of techniques which are being used by accountants in
order to produce financial reports. Basically, these techniques provide a framework for
preparation of reports in a legal format which can be accepted and compared at global level. In
the aspect of above chosen business entity, British American Tobacco Plc their accountants are
preparing profit and loss statement as accordance of both absorption and marginal costing.
Eventually, both costing techniques have different features and format for preparing financial
statements.
Apart from these techniques, there are some other MA techniques that can be
implemented by business entities such as activity based costing (ABC), standard costing and
many more (Grace, Leverty and Shimpi, 2015). The use of these techniques depends on
accountants that how well they can manage their quantitative transactions in a systematic
manner.

Interpretation of produced income statements.
The British American Tobacco Plc 's income statements are prepared by help of both
absorption and marginal costing techniques. In the aspect of absorption costing technique, this
can be stated that their net profit is of £40000. As well as in this technique both fixed and
variable costs are absorbed by considering this cost as unit cost. On the other hand, under
marginal costing technique their net profit is of £32000. Herein, this can be find out there are
similar data is used for preparation of income statements but resulted outcome is variant. The
cause of this variation is way of taking both costs in different manner. In comparison manner of
both costing techniques, the absorption costing seems suitable to use for businesses. This is so
because in this technique, value of both costs are assigned in an equal way.
TASK 3
Benefits and drawback of planning tools.
Budgetary control – This can be defined as a kind of approach which is related to managing
businesses monetary performance by help of different types of budgets. There are different kind
of budgets that have their own importance in order to trace the actual outcome and allocating
funds effectively. Below some types of budgets are elaborated that are as followings :
Capital budgeting- This is a type of budgeting in which different types of investment assessments
are evaluated to assess their effectiveness (Sithole, Chandler, Abeysekera and Paas, 2017).
Under it, various types of methods are used, such as net present value, rate of return accounting,
etc. These techniques plays a key role in order to assess efficiency of investment proposals.
Herein, below analysis of these techniques is done:
 Net present value- It can be defined as a difference between present value of cash flows
including in and out flows of a particular time period.
 IRR- This is related with computing rate of interest on that net present value of cash
flows of any particular project becomes at zero level.
 Payback period- It is type of technique which is used to compute time period needed to
recover investment cost.

 ARR- It is defined as a rate of return needed for initial capital expenditure on any specific
investment.
In the aspect of above British American Tobacco Plc, their finance managers implement this
budgeting approach to evaluate their investments. It has below mentioned advantages and
disadvantages such as:
Advantage- It helps businesses to choose an effective way to choose investment options inn that
leads to higher returns.
Disadvantage- To evaluate different options, it absorbs too much time and expense that is not
suitable for small businesses.
Operational budgeting - It is a kind of budgeting strategy in which different kinds of things are
projected to be effectively accomplished in various operations. This is perfect for those
companies that run a large number of functions (Akroyd, Biswas and Chuang, 2016). In this
budgeting approach, a detailed analysis of variability is carried out by comparing the actual
results with the estimated results. Herein, below some techniques are mentioned such as:
 Forecasting- Accounting forecasting refers to the practice of predicting future costs by
using current and historical cost information.
 Variance analysis- Analysis of variability is the statistical analysis of the disparity
between real and expected behaviour.
 Standard costing- Standard costing is the method of replacing an estimated cost in the
accounting records with a real cost.
British American Tobacco Plc, is preparing this budget for managing their over all operations. It
has below mentioned advantages and disadvantages such as:
Advantage - This budget benefits as well as being flexible in the field of assigning total resources
for lengthy-term planning.
Disadvantage- This budgeting strategy takes too much time and expense for small business
companies that is not sustainable.
Flexible budgeting- It can be described as a form of budgeting technique in that the sums entered
in the budget can be adjusted as variation in total units and quantities (Jacobs, 2016). In the

aspect of British American Tobacco Plc, this budget is used for those activities which have
nature of fluctuation during accounting period.
Benefits - This budget's major benefit is that it's simple to use.
Drawback- This budget leads to information theft and abuse as it requires changes to be made by
employees.
Planning tools for preparation of budgets.
For business entities, this is important to estimate futuristic expenses and revenues in an
effective manner so that budgets can be prepared accurately (Burritt and Christ, 2017). In this
aspect planning tools are very useful because under planning tools different kind of budgets are
included and each of them has own role for preparation of budgets. In the British American
Tobacco Plc, their managers are utilising important information about monetary transactions for
a specific time period. Basically, in the absence of budgets this can be tough for companies to
use their financial resources in an effective manner.
TASK 4
MAS to solve the financial issues.
Financial problem – In the recent business scenario, companies are trying to expand their
business operations across the nations and in this process a vital range of issues occur that can be
of financial or non financial nature. Basically, the monetary problems incur in businesses due to
inefficiency of internal aspects. There are different kind of issues which are faced by companies
and some of them are demonstrated below such as :
 Inadequate protection of company's assets- This is a kinds of problem which occurs in
business entities because of lack of effective control over assets (Arnaboldi and
Cuganesan, 2017). Due to ineffective control over assets, it becomes difficult to
companies in order to make better utilisation of their resources in an effective manner. In
the context of British American Tobacco plc, they are facing this financial issue and as a
result they are not able to take proper advantage from their assets.
 Error in accounting records- It is a type of financial issue that is related with making
error in accounting records. Due to this issue, it becomes difficult for managers in order
to take suitable decisions because of wrong financial information.

Accounting methods to respond the financial issues :
 Benchmarking – It is an approach that is widely used by companies in order to make
compare actual financial position with rest of other business entities that operates in same
operations (Saeidi, 2018). In broad sense, under this technique companies' track the
variances of different aspects with other companies. By help of this approach, it becomes
easier for managers to assess actual monetary issue and as per it they find alternatives. In
the aspect of above British American Tobacco Plc, they are applying this approach in
order to assess actual monetary issue and as accordance search possible alternatives.
 Financial governance – Under this approach all types of monetary outcomes of
businesses are recorded in a systematic way. Due to this managers of companies focus on
those activities which are causing as lose in terms of lower revenues. Basically, this
approach is suitable for those business entities wherein large number of monetary
transactions are done on a daily basis.
Herein, below key techniques are mentioned that are as followings:
 Balance scorecard - A balanced scorecard is a measurable statistic of management used
to classify and enhance various important business processes and their external results.
Balanced scorecards are being used to assess institutions and to provide input. In order to
provide quantitative results, data gathering is essential as managers and directors gather
and define the data and use it to make better choices for the institution. In the aspect of
above company's financial issue of inadequate protection of assets is sort out by help of
this technique. It became become possible because by help of this, they evaluated their
actual level of performance and implemented strategies accordingly.
 Activity based costing- Activity-based costing (ABC) is a method of costing associated
goods and services with overhead and indirect costs. This costing accounting method
acknowledges the connection respectively costs, overhead practices, and products,
allocating administrative costs less arbitrarily to goods than classical cost methods. In the
above company, they are applying this technique in order to find out variation between
actual and estimated costs.
MAS to solve financial issues.

There are different kind of monetary issues which are faced by companies in their
operations and activities (Hemmer and Labro, 2017). Such as in the above British American
Tobacco Plc, their issue is regards to decreasing total amount of sales which has been sorted out
by “Price optimisation system”. Thus, it can be stated that MAS are useful for solving issues.
Planning tools to solve monetary issues.
Along with the MAS, the planning tools are also beneficial for solving the monetary
issues. Like in the above British American Tobacco Plc, they are using a variety of budgets in
order to access financial transactions and to sort the issues. Their financial managers are mainly
based on production budget, sales budget for getting accurate data of financial transactions.
CONCLUSION
As accordance of above detailed project report it can be articulated that in present
business scenario the role of MAS is increasing as companies are moving towards globalisation.
The report concludes about different types of MAS like cost accounting system, price
optimisation system and many more. As well as MA reports such as performance report, stock
report etc. are mentioned. In further part of project report income statements are produced by
help of absorption and marginal costing on assumption based data. In addition role of planning
tools and MAS in aspect of sorting monetary issues is concluded in the last part of project report.

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APPENDIX