Management Accounting.

Management
Accounting

Table of Contents
Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
LO1 Understanding of management accounting system............................................................1
LO2 Application of management techniques..............................................................................4
LO3 Planning tools used in management accounting.................................................................6
LO4 Ways in which organisations could use management accounting to address financial
problems....................................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting or managerial accounting is a tool which is used by management
of organisation to take long and short term and decisions regarding organisations operational
activities. To increase operational efficiency of an organisation with help of using provisions of
accounting information systems is management accounting. Prime furniture private ltd is a UK
based furniture retail sale company and this report is conducted in context of this company.
Accounting management, accounting management systems, accounting methods, financial
reporting, planning tools used for budgetary control and use of management accounting systems
for financial problems are explained in organisation’s context.
MAIN BODY
LO1 Understanding of management accounting system
P1 Management accounting and management accounting systems
Management Accounting: This also known as cost accounting, management accounting
is a process of interpreting, analysing and identifying information relevant to operational
activities of firm and provide it to managers so that, they can achieve business goals. Internal
management accounting systems are used in providing critical information to management to
make decisions regarding operational activities of business (Agrawal, 2018). These systems can
be valuable for costing and managing different operational processes. Following are different
management accounting systems which are used by management of company.
Cost Accounting: This is a traditional accounting system which is used in measuring
cost by using job order costing or process costing. Allocation of cost is also done on basis of cost
accounting such as direct labour, direct material, manufacturing overhead etc. this traditional
accounting system measures a single overhead rate and that rate is applied to each job or
department. Job order costing is used in accumulation of manufacturing cost distinctly for every
job whereas process costing accumulates manufacturing cost for each process. Activity rate and
application of overhead is measured with help of activity-based costing on basis of activity
usage.
Lean Accounting: This management accounting system is used by lean organisations,
this system is used for gathering all financial and non-financial information to perform lean
strategies of organisation and attain financial growth. Lean accounting system not only focuses
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over cost but it helps in reducing cost and eliminating waste by providing efficient strategies
(Alawattage, and Wickramasinghe, 2018). Financial information is gathered on basis of these
strategies with help of that information accountants can take immediate decisions and excess cost
which a waste can be cut down. Implementation of various lean accounting principles and effect
of these principles on business is also measured with help of lean management accounting
systems.
Throughput Accounting: This accounting system is used in improving profitability of
company with principle-based and simplified management accounting approach. Throughput
refers to number of units which go through a process in a particular period of time. All revenues
which are generated by process and minus all expenses which are incurred during that particular
process presents throughput. In this process all constrains revenant to production system of
organisation are identified. These constrains include inadequate levels of production capacity,
labour and materials of company. Cost of individual products can be reduced and production
volume can be increased by putting more throughputs and reducing constraints.
Transfer Pricing: This is a pricing accounting system; it is used when one department of
organisation sells or provides its manufactured goods to another department of same
organisation. So at what price particular department will provide products to other department is
decided with help of transfer pricing accounting management system (Almasan and et. al. 2019).
Transfer pricing common management accounting system under this method, goods are costed
when they move through different departments. Common cost of product is added with transfer
price, opportunity cost and variable cost. Opportunity cost refers to price which company would
have to pay otherwise if company outsources production.
P2 Different methods used for management accounting reporting
Management accounting reporting: This reporting purposes at informing managers
various aspects of business so that, mangers can make better decisions. Data is collected and
tacked from different departments of company through key performance indicators (Ammar,
2017). Financial and operational information of a specific period is disclosed, on basis of that
worth of business is measured. These reports are used in decision making, regulating, planning
and measuring performance. Various methods of management accounting reporting are
explained below.
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