Management Accounting: Methods, Tools, and Techniques

This article discusses the different management accounting systems, including cost management, inventory management, and price optimization. It also covers various costing techniques and tools for budgetary control, along with their advantages and disadvantages. Additionally, the article explains pricing strategies and ways to determine prices. Finally, it discusses the implications of budgeting and PEST analysis in management accounting.

Management
Accounting

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Part 1................................................................................................................................................1
Task 1...............................................................................................................................................1
P1. Discuss the Management Accounting System......................................................................1
P2. Different methods used for management accounting reporting............................................3
Task 2...............................................................................................................................................5
P3. Calculation of cost using different costing techniques..........................................................5
Task 3...............................................................................................................................................5
P4. Tools and budgetary control along with advantages and disadvantages...............................5
Task 4...............................................................................................................................................8
P5.Comparision on how the organization are adopting management accounting system...........8
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management Accounting is the process of preparing reports about business operations
that helps managers make short-term and long-term decisions. It helps a business pursue its
having goals to identifying, measuring, analysing to communicates information to managers
(Allain, Lemaire and Lux, 2021). Strategic decision-making power through which organizations
can gain stability in market. It also assists the external stakeholder to be more effectively in
determining the actual financial status of an organization's efficiency. The primary aim of
preparing management accounting is that help to holding back to maintain structure of company.
The company is selected Capital Joinery Ltd is an medium sized standard enterprise where they
incline render better financial services as well as dealing with furniture goods better gaining of
competitive advantages against competitors (Alvarez, Bello and Vazquez, 2021). They
guarantees that their furniture must be trendy according to the current needs and requirements of
the customers.
As per the report, the important topics are following with discussion on the different types of
management accounting system, a variety of methods used in accounting reports and preparing
income statement by analysing the cost analysis with various types of cost. They are preparing of
income statement along with the merits and demerits, methods of planning tools that can be used
to control budgets, and comparison between the two organizations related to the financial
problems they are facing and solutions to them.
MAIN BODY.
Part 1
Task 1.
P1. Discuss the Management Accounting System
Financial Accounting: It is an effective reporting division that leads ti maintain leads for
business transciation in the organization (Balstad and Berg., 2020). It is depicted for suitable
paymemt reported and reflected quarterly to consider financial statements, including
income, balance sheets, etc.
Management Accounting: It is a type of methodology that managers use to measure
specific operation for the company. It tend to undertake effective collection of data from
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several department by effectively reviewing to undertake decision by managers. In the
perspective of Capital Joinery Ltd, several accounting systems have beenfital for managers
that create develop effective strategies considering to get success within prominent
activities.
Difference Between Management and Financial Accounting
Management Accounting Financial Accounting
It assists managers to make effective and
profitable decisions making for an
organization.
It provide information that is in monetary as
well as non monetary terms.
It helps management analyze the actual
financial position of an organization through
preparing within annual financial records.
It facilitates proper details of an organization
in terms of financial statement basis like
profit and loss, balance sheet etc.
There are various management accounting systems are as following below:
Cost Management System: According to this method effectively opted by the suppliers to
measure the suitable cost of the product within other concerning functions. For this, the
manager needs to decide the company's overall spending, which is useful for the effective
cost (Becker, Pedell and Pfaff., 2021). In relation to capital Joinery Ltd, their manager trends
to follows a suitable program that leads to offers with various benefits in terms of having an
effective company development strategy.
Inventory management system: This system depicts maintaining records of current level
of inventory with an organisation that helps meet customer needs and wants. In the
perspective of Capital Joinery Ltd is use to maintain better relationships with new clients
and reality loyalty of existing customers by maintaining with a better sufficient level pre
ordered product can be delivered on time without dealy in time. Furthermore, it consists of
different types, which include LIFO, FIFO and AVCO. The term LIFO means the received
inventory that used in manufacturing activities. FIFO means the product and services
purchased earlier will be used at first production house activities. About AVCO is referred at
an average cost which is distributed based on produced. The management team of Capital
Joinery Ltd is handling to collect important information about the inventories.
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Price optimizing system: This system facilitates providing information about the client's
actual perception towards better pricing policy framed through an organisation in which the
manager makes easy to bring new pricing policy to retain employees.
Job order costing system: This system facilitates to providing information about the actual
cost incurred in manufacturing each and every unit within an organization. It guides an
organization in keeping a record of total cost, making it easy for managers to estimate the
profit where it provides better returns on the maximum amount of investment. This will
make easy for manager Capital Joinery Ltd to producing better finances to manufacture
items of furniture which include more cost and give less return after selling to the customer
P2. Different methods used for management accounting reporting.
Management Accounting reporting: It is an activity of recording business transactions that
facilitates management in making profitability decisions for an organization's future growth
and success. This reporting system includes cost accounting report, inventory management
reports etc (Berg and Madsen., 2020). The management of Capital Joinery Ltd must require
making their report to analyze the financial situation in the market.
Types of managerial accounting report:
Performance reporting: It is part of the communication management plan by collecting the
information which is related to work performance analyze it, creating report of sending them
stakeholder respective. Performance reporting improves customer insight by determining on the
best sales opportunities. It also develops visibility of the business partner activities and enhances
better purchasing behavior. Along with this report, employees of Capital Joinery Ltd need to
understand the customer requirements. In which manger once understood customer needs and
wants, they would easily provide them product and services. Apart from it, employees require
training and development to perform better in an organization to effectively gain more positive
outcomes. Through performance, reporting generates real-time information about the business
performance and helps set realistic targets for the workers that are achievable where employee's
efforts in the right areas. In this management focuses on employee's efforts to leads increase
better productivity and profitability.
Cost Accounting Report: The report offers a summary of all cost of manufactured articles,
including raw material cost, overhead labour where they added that are taken deliberation. The
report offers managers of Capital Joinery Ltd the capacity to realise the cost of prices of items
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versus in selling prices. Profit Margins are estimated and monitored through an accounting report
so that it can give clarity of overall production went in the procurement of the articles.
Also, Inventory waste, hourly labour waste costs and overhead costs are the part of these
report. For the optimization of resource among all departments where these reports provide an
exact understanding of all expenses. Through cost accounting report is also help to Capital
Joinery Ltd to make a difference between variable cost and fixed costs to fix prices in different
scenarios. The control over material and restocking of material is also done with helps of cost
accounting reports.
Inventory management report: An inventory report is a summary of items belonging to
the business , industry, or organisation. It shows overall the costs associated with obtaining,
holding, transporting inventory and ensuring inventory stock in its proper condition to sell
(Chaudhry and Amir., 2020). The assorting of an Inventory management system is to help
company trend to identify weaknesses and strengths and fill gaps and inefficiencies. It has
become vital for the survival of an organization to have a good control over inventory; otherwise,
the company can lose their control over the profits.
Job Costing Report: This reporting is the process of coding and allocating project
expenses to track the financial and profitability. The job cost is divided into following categories:
 Labour Cost.
 Material Cost.
 Sub Contractor Cost. Etc.
The proper format depends on how much job-costing levels were used in estimate. For instance,
for smaller jobs, total for material and labor with subcontracts are sufficient. Capital Joinery Ltd
assorts this job costing reports and with provide clarity of gross profit margins (FUADAH.,. and
ARISMAN., 2020). This helps to customize job costing reports and clear gross profit goals
where a company is driven to answer questions.
Task 2.
P3. Illustrate the calculation of cost using different costing techniques.
Cost: This is defined the value of amount which is invested in operating differnet business
activities. The amount includes various aspect such as time, efforts etc. In the perspective of
Capital Joinery Ltd, they are engaged in manufacturing furniture and products that they
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manufacture products to analyse their real prices better. As the cost includes two types such as
direct and indirect cost. Through direct cost which relates with manufacturing of furniture type
of products and services. While, indirect cost the process of manufacturing activities indirectly
manner.
Cost Analysis: It refers to the process of measuring the benefits received due to different
actions so that overall productivity goals can be accomplished.
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Task 3.
P4. Tools and budgetary control along with advantages and disadvantages.
Budget: Budget refers to an estimation of expenses and revenue over a specified period
of time. Governments, individuals and businesses majorly use this.
There are majorly four types of budget and it is defined into following manner:
Master Budget: Master budget is the kind of budget produced by the company's various
functional areas and is the aggregation of all lower-level budgets. It also includes budgeted
financial statements, cash forecast and financing plan.
 Advantages: This kind of budget are given in capsule form and also available in one
report. Master budget gives an overall estimated profit of the organisation.
 Disadvantages: Master budget lacks in terms of specificity and also it is difficult to
update (Gunarathne and Lee,, 2021). While preparing master budget, in order to achieve
set targets and earn compensation employees might estimate high expenses and low sales.
Operating budget: Operating budget can be defined as it is a kind of detailed projection
of what a company expects its revenue and expenses will be over a period of time. To show
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expected activity during the following year, companies usually formulate operating budgets near
the end of the year.
 Advantages: Operating budget helps in terms of where money is flowing and gives an
idea about what to buy in the new year and where to cut in terms of reducing expenses
and costs. Operating budget supports in terms of enabling better investments.
 Disadvantages: This kind of budget only considers financial outcomes and also act as in
terms of rigid decision making.
Cash budget: A cash budget refers to an estimation of cash flows of a business over a
specified period of time. This kind of budget could be prepared for weekly, monthly, quarterly or
annual period of time.
Advantages: Cash budget allows to arrange extra funding such as bank overdraft and also gives
opportunity to business to plan ahead. Cash budget also help in terms of regulating expenses.
Disadvantages: Cash budget limits the spending power of businesses and also it creates danger
of theft. Cash is the easiest asset to steal because it can be easily traced. Cash budget also limits
the ability to build a credit profile.
Financial budget: Financial budget refers to that kind of budget which estimates the
firms cash budget, capital expenditures and balance sheet line items. Such as assets, liabilities
and owner's investment.
 Advantages: Financial budget will provide financial awareness of spendings and
earnings of the business. It also provides business opportunities that can help market and
expand the business.
 Disadvantages: For planning this kind of budget it requires time on a larger scale. If
targets cannot be achieved within a period of time then it blames for outcomes as well.
Financial budget act as gaming the system and it can be serious problem which requires
considerable oversight to eliminate.
The implication of budget: It will helps to effective communication as well as coordination
among their workers and optimum resources are properly utilized within an organization because
they are focused on actual budget rather than estimated figures.
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Pricing strategy: To fix the prices of goods and services, a company uses several kinds of
pricing strategies. Some of considered as below:
 Penetration: This company focuses on setting minimum prices at the initial phase,
marketed to their customer.
 Premium: In this prices are high as they are the ones who approach high-quality
products to provide customers for a high level of satisfaction need.
Ways through which prices are determined: To identify the prices of analysis in perspective
of market situation is required to know the competitor's strategies such as other competitors of
Capital Joinery Ltd.
Supply-demand consideration: This is based on the certain market condition that are
required to measure by Capital Joinery Ltd to attain better competitive advantages and success.
Pest Analysis
According to this framework, the tool is analyzed to provide external and internal factors of
information to provide the company in terms of Political, Economic, Technological, social,
environmental, and Legal (Hutahayan., 2020). All these six-factor plays a vital role in generating
business in a competitive marketplace.
Political Due to fluctuation of governmental policies or unstable political
conditions can create better impact on Capital Joining Ltd while
formulating strategies.
Economical By having fluctuation inflation as well as deflation rates to affect Capital
Joinery Ltd. Customer purchasing power effectively. Thus, recession
and inflation are the main reasons to create major drawbacks and
directly impact business growth.
Social Conclusion: there are timely the taste and preferences of people change
that can reduce the Capital Joinery Ltd product and services in the
market. With this, the team of Capital Joinery Ltd can make strategy to
approach customers based on demographic factors such as age, gender,
income basis etc.
Technological To get competitive advantages, a company where it requires to
emphasized on the latest technologies. Artificial Intelligence plays an
important role to flexible handle to gain positive outcomes.
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Swot Analysis: This framework is used to analyze the strength, weaknesses, opportunities, and
threats of specific organizations. It helps to build and address mainly opportunities and
minimized risk which create advantages chances of success. In the following, a detailed
explanation about the Swot analysis for Capital Joinery Ltd company:
 Strength: The brand image of Capital Joinery Ltd is quite better in United Kingdom
market. Apart from it, the company has potential marketing promotional tea, who help
create awareness about Capital Joinery Ltd products in the market.
 Weakness: They have a shortage of funding, on which they may not spend much in
Research and Development activities, resulting in inappropriate information through
market changes.
 Opportunity: To gain high growth and success about company expansion opportunities
within the marketplace (Kapiyangoda and Gooneratne, 2021). Artificial intelligence
technology is also one of the major advantages of implementing flexible handling work
and growth in the market.
 Threat: Strong competition is a threat for the company as the competitors focused on
gaining high market shares.
Balance score Card: This is defined as a performance management tool used by Capital Joinery
Ltd manager to analyze and monitor the employees' performance and reduce unfavorable
activities.
Task 4.
P5.Comparision on how the organization are adopting management accounting system.
There are some financial issues arise due to various reasons, which includes the following:
 Sudden Expenses: The financial issues faced by Capital Joinery Ltd due to having
insufficient planning which incures towards most cost and less income
 Late payments by customers: In perspective Capital Joinery Ltd can also faces
finanacial issues due to receving late payments by clients. Through this, it will reduce
their financial stability and creates challenges like insolvency.
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 Emergency Expenses: These are the expeneses which are flow in not overall properly
controlled immediately. For example: there are machinery damages, urgent requirement
of raw material and manpower which is essential fulfilled for the company.
 Good Sales but low profit: This is one of the common issues occurs there is more cost
of production or having low selling prices of better product and services offered by the
company (Oyewo, 2020). These issues arise when finance people do not accumulate
properly towards raw material and selling the limit of the price that exactly how much
production people can match their material.
Some Strategies are suggested in following to resolve financial issues better and also plays
an important role:
Key Performance Indicators :
Key Performamce Indicators are the factors that are tracked by organisation to analyse
their manufacturing process. These criteria are used to measure success to set professional goals
or objectives. For assessing and measure the process, companies often use KPIs. This helps to
Capital Joinery Ltd controlling employees' behavior and their action implementation. Through
this, employees of Capital Joinery Ltd can improve their efficiency which increases their job
satisfaction level.
Benchmarking:
This is practice that improvises quality in performance that identifies what the company is
doing, how the company is performing in competitive business, how other companies are doing
it, and how to measure to what and how to improve effectively. For example, Benchmark could
better differentiate the process used by Capital Joinery Ltd from its competitor Prime furniture
company.
Financial Governance:
It defines the way a company collects managers, monitors and controls financial problem
situation. It helps Capital Joinery Ltd to have examined entire life to the perspective cycle of data
and where the data appears, having clarity ownership and accountability to mitigate financial
issues.
Budgetary targets: This is considered an approximation of fund for a specific year and used
through Capital Joinery Ltd to measure different variances by measuring actual with standard to
deal with the challenges of finance.
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Price Optimisation System: According to this system which is used by organisation to
identify about the estimated price of product and services. In order to implement this effectively,
management recruit experts who better leads firm to gain proper information about the
satisfaction level of customers, according to the price-quality of the product (Sari and et. al.,
2020). Due to this activity, it is easy for Capital Joinery Ltd to better ensure sufficient profits
within the organization.
Differentiation
Capital Joinery Ltd. Howden Joinery Ltd.
Issue 1: There can be a shortage in working
capital, which could create problems that the
company would face because they don't have
the proper capital budgeting method and skills
to apply such effective tools.
Solutions: By using capital budgeting tool as
better solution whrere company can easily
resolve their financial issues regarding the
shortage in working (Sikora., 2021).
Issue 1: Mispricing is the difficulty through
which a company is better lining because they
do not have proper KPI formulation and
abilities for better utilize such tools.
Solutions: Within KPI is the resolutions
through which the company can figure out
their better financial trouble regarding the
mispricing problem.
Issue 2: There are good sales, but the company
faces low profit because they don't have proper
balanced score card knowledge and improvise
the skills to apply such tools effectively.
Solution: Through Balance Score Card is the
solution through which the company can solve
their financial issues to increase the company's
profit.
Issue 2: The payments are getting properly
made by clients who do not have proper capital
budgeting preparation and abilities to utilise
such tools.
Solutions: To maintain payments company
need to record of their financial statements
such as profit and losses.
CONCLUSION
The above report is summarised about detailed management accounting activities that
helps to assists towards an organization to accomplish growth and success within a better
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competitive market. The accounting manager having the responsibility to make autocratic
decision-making in terms of maintaining plans and adopting an accounting reporting system.
Through flexible and cash budget are some kind of tools necessary to prepare to reduce their
company's expenses. There are two costing methods: Marginal and Absorption costing method,
among which is the best method utilised company according to their objectives effectively. Apart
from it, differentiation between two companies by discussing their financial issues with solution
along with the challenges described how specific company faces that while during the business.
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REFERENCES
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Alvarez, T., Sensini, L., Bello, C. and Vazquez, M., 2021. Management Accounting Practices
and Performance of SMEs in the Hotel Industry: Evidence from an emerging economy.
International Journal of Business and Social Science, 12(2), pp.24-35.
Balstad, M.T. and Berg, T., 2020. A long-term bibliometric analysis of journals influencing
management accounting and control research. Journal of Management Control, 30(4),
pp.357-380.
Becker, A., Pedell, B. and Pfaff, D., 2021. Management accounting developments in German-
speaking countries: an overview and editorial reflections. Journal of Accounting &
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performance and the impact on corporate financial performance. Benchmarking: An
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Kapiyangoda, K. and Gooneratne, T., 2021. Management accounting research in family
businesses: a review of the status quo and future agenda. Journal of Accounting &
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Oyewo, B.M., 2020. Outcomes of interaction between organizational characteristics and
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