Review of Management Accounting Research Studies

The assignment provided is a review of management accounting research studies. It includes a list of references to various articles and books on management accounting practices in different countries and industries. The references are from reputable journals such as Accounting Perspectives, Management: Journal of Contemporary Management Issues, and Industrial Management & Data Systems. The studies cover topics such as activity-based costing, open-book accounting, lean manufacturing, and carbon accounting for sustainability and management. The review aims to provide an overview of the current state of management accounting research and identify potential areas for further study.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and requirement of its systems..................................................1
M1 Benefits of different management accounting systems...................................................3
P2 Management accounting reporting and its types...............................................................3
D1 Integration of management accounting system and its reports in organisational process5
TASK 2............................................................................................................................................5
P3 Different costing techniques..............................................................................................5
M2: Different types of accounting tools and techniques........................................................7
D2: Analysis of data collected from income statement..........................................................7
TASK 3............................................................................................................................................7
P4 Advantage and Disadvantages of different types of planning tools used for Budgetary
Control....................................................................................................................................7
M3 Use of planning tools while forecasting and estimating budgets...................................10
TASK 4..........................................................................................................................................10
P5 How organisation is dealing with financial problems.....................................................10
D3 Planning tools for solving financial issues.....................................................................12
CONCLUSIONS............................................................................................................................13
REFERENCES .............................................................................................................................14

INTRODUCTION
Management accounting is a process of generating reports that may provide actual
information of business to internal stakeholder of an organisation. It help to get exact knowledge
of that how a business is operating and performing its activities (Management accounting, 2018).
Managers of an organisation are liable to record information in different reports so that this
information may be used to analyse actual position of company. It helps in decision making and
planning for future, by estimating possible future consequences. Management of a company
generate reports to record information of cost, inventory, activities and budgets. The company
chosen for this project report is Oak Cash and Carry Ltd, it is a retail company which is based in
Banbury, United Kingdom. Main objective of this report is to analyse use of management
accounting in a business.
In this project report various topics are discussed, that are management accounting, its
systems, reports, benefits, various costing techniques to calculate operating profits of the
company, advantages and disadvantages of different planning tools that are used in budgetary
control and how organisation use management accounting system to resolve financial problems.
TASK 1
P1 Management accounting and requirement of its systems
Accounting: It is a process of recording data of financial transactions in to books. It
includes assessing, summarising, analysing and reporting these transactions to supervise
administration, regulatory bodies and tax collection authority (Amidu, Effah and Abor, 2011). It
is a function which is followed by the organisations. There are two different types of accounting,
that are as followed:
Financial accounting: It refers to the formulation of financial statements such as income
statement, balance sheet and cash flow statements. These are mainly generated for external
stakeholders like customers, suppliers, government and investors of company to analyse
financial position in the market (Carlsson-Wall, Kraus and Lind, 2015). In Oak Cash and Carry
Ltd financial accounting is followed to generate reports that may reflect financial status of the
organisation.
Management accounting: It is a process in which managers prepare management
reports that reflects the performance of a company. These reports are generated for internal
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stakeholders to provide them actual information about operational and executional activities that
are performed by an organisation. In Oak Cash and Carry Ltd managers use management
accounting to analyse that how organisation is performing in market. It helps managers in
strategic decision making so that they may plan in advance for possible uncertainty. In Oak Cash
and Carry Ltd three management accounting systems are followed that are as follows:
Cost accounting system: It is used to analyse actual cost of products that are sold by a
company. It help managers to estimate profitability of firm by analyse most profitable products
(Dražić Lutilsky and Dragija, 2012). In Oak Cash and Carry Ltd cost accounting system is
followed by the managers to record actual cost involved in distribution, sales and supply chain of
products. Management of organisation may estimate actual cost with help of their system. There
are three types of cost accounting system that are used by the company. That are as followed:
 Actual costing: It is a method in which actual costs like labour and overheads are
recorded in books that are related with the product. For example managers of Oak Cash
and Carry Ltd determine direct costs that are concerned with distribution of products.
 Normal costing: It refers to the allotment of costs to products according to their
requirement. For example in Oak Cash and Carry Ltd managers use this system to set
selling prices for their products after analysing costs that are concerned with the same
products.
 Standard costing: It is a method which is used to analyse different between actual cost
and budgeted cost of products. For example in Oak Cash and Carry Ltd management use
standard costing to determine the variances in their actual cost and forecasted or standard
cost.
Inventory management system: This is used by organisation to keep a track record of
their inventory. It help managers to get exact information of stock, whether goods are in transit
or delivered to client (Granlund, 2011). Three different types of inventory is used by organisation
like raw material, work in progress and finished goods. In Oak Cash and Carry Ltd this system
is used by managers to keep detailed information of inventory. The managers of company use
FIFO (First In First Out) method in inventory management system, in which recently received
inventory is used for sale or distribution by the company. LIFO, JIT, Perpetual inventory and
periodic inventory are other methods that can be used by companies in inventory management
system.
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Job costing system: It refers to examination of cost that are involved in different
activities of a company. Managers use this system to analyse exact cost of totally different jobs
that are performed according to demand of customers (Johnson, 2013). In Oak Cash and Carry
Ltd management use job costing system to analyse direct and indirect cost which is involved in
products. For example it can be used to analyse cost of different products that are supplied by
Oak Cash and Carry Ltd according to demand of customers.
M1 Benefits of different management accounting systems
System Benefits
Cost accounting system  Major benefit of cost accounting system is that
managers can analyse most profitable products for
company.
 It helps managers to set right prices for products by
providing the accurate information of cost.
Inventory management system  It leads managers to increase efficiency and profitability
of company.
 It increases level of transparent information of stocks.
Job costing system  Managers can determine profitability of individual
activity performed.
 It provides detailed information of cost like labour and
overheads which is involved in different jobs of
company.
P2 Management accounting reporting and its types
Management accounting reporting: It is a process of recording accounting information
to reports that are generated by managers and presented to internal stakeholder to determine
performance and profitability of organisation. In Oak Cash and Carry Ltd, management create
such reports to record information of company. It help executives of organisation to gather
detained information of their business (JOSHI and et. al., 2011). The objective of management
accounting reporting is to examine cost and than make decisions or strategies to reduce costs and
increase profits. Four different types of management accounting reports are generated by the
managers of Oak Cash and Carry Ltd that are as follows:
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Inventory management report: It is generated to record information of inventory
related activities. It helps to make supply chain more efficient by properly maintaining
information. In Oak Cash and Carry Ltd, inventory management reports are generated to
compare different distribution channels of company to find best way to supply its products.
Managers can keep a detailed information of inventory with help of these reports.
Importance: Major importance of this system is that it help managers to keep a track
record of stock while buying or supplying (Klychova, Faskhutdinova and Sadrieva, 2014). It
directs owners of business that what is quantity of products in warehouses and when to order
inventory before warehouses go empty.
Budget report: This report is generated by managers to compare estimated output and
actual performance of a company. In Oak Cash and Carry Ltd, such reports are created by
management to control and understand costs of products. It helps to estimate future expenses in
prior years so that managers may formulate strategies to deal with or resolve same.
Importance: It helps to analyse financial health and provide overview of activities that
are performed by company in whole year. Managers may monitor revenues with help of budget
reports by keeping exact information about activities that are performed.
Account receivable report: These reports are mainly generated by companies who are
providing goods or products on credit to customers and clients. It assist in getting accurate
outstanding amount of debtors (Mistry, Sharma and Low, 2014). In Oak Cash and Carry Ltd,
account receivable reports are created to calculate actual owed amount which needs to be
recovered from clients. It is mainly prepared for those clients who are not able to pay whole
amount at time of purchase but willing to pay amount later.
Importance: It is very important for company because it helps to find errors in credit
policy. It will lead managers to tighten credit policies of the company.
Financial report: Financial reports are mainly concerned with statements that may show
actual status of company and provide financial strength. It help managers to analyse that what are
the total revenues and expenses of an organisation. In Oak Cash and Carry Ltd, these reports are
generated to analyse position of company in market.
Importance: This is very important for companies because it help stakeholders to
analyse actual performance and its profitability. It is also beneficial for mangers while making
strategic decisions.
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D1 Integration of management accounting system and its reports in organisational process
Management accounting system and its reports help managers and internal stakeholder to
analyse performance of organisation. It provides information of cost which is involved in
distribution activities, actual owed amount by customers, financial position of company etc.
Account receivable reports can help managers to tighten credit policies by providing them
information of those customers who are not able to pay their outstanding amounts. Inventory
management reports is also assisting in management to track inventory in whole supply chain.
TASK 2
P3 Different costing techniques
Cost: Cost is the monetary value of a product that includes cost of material, overheads,
labour etc. Companies set their selling prices according to their cost because it will help them to
earn more profits (Moser, 2012). A customer who is willing to buy a product will always try to
find out that what is actual cost of that product so company should set appropriate cost for their
products, it will help them to attract more and more customers.
Oak Cash and Carry Ltd is a retail company so managers of company should set such
cost or selling prices for products that may attract more customers and help company to acquire
more market share. Cost of products include different direct and indirect expenses. Here, the
mentioned techniques are followed by managers of Oak Cash and Carry Ltd to calculate their net
profits:
Marginal costing: It is a technique which is used by companies to estimate cost of
additional unit which is added by managers in distribution channel or supply chain of company.
It includes variable cost which is going to be absorbed from sales of additional units.
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
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Absorption costing: It is a technology which is used by companies to absorb all costs
that are involved in a product and all costs are going to absorbed from sales of same units.
Computation of net income by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis: It is done by companies to calculate break even point in which
company is having no profits and no loss but all costs are recovered by managers from sales.
A. Total number of product sold
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. Calculation of breakeven point in accordance to sales revenue
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
c. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
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Margin of safety: In this method which shows the safety level if the level is achieved by
the company than it is going to earn profits and do not have to face losses (Ruiz-de-Arbulo-
Lopez, Fortuny-Santos and Cuatrecasas-Arbós, 2013).
D. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M2: Different types of accounting tools and techniques
Accounting is a concept in which various accounting statements are prepared. In order to
effectively develop accounting report, it is important to use accounting tools and techniques.
Some of these techniques are mentioned below:
Marginal cost – This technique helps in ascertaining the profit which is earned by
company by ascertaining marginal or variable cost. Oak Cash and Carry uses this technique to
ascertain their variable cost and determine profit which does not absorbs incurred fixed cost.
Operating profit from marginal costing approach is 17500.
Historical cost – According to this technique, financial statements such income
statement and balance sheet is prepared by using historical cost in order to ascertain correct
amount of depreciation.
D2: Analysis of data collected from income statement
In order to ascertain profit which is earned by Oak Cash and Carry, various accounting
techniques are used. From marginal technique, profit which is calculated is 17500 and profit
from absorption costing is determined as 15675. While calculation break even point for the
organisation it has been observed that if 20000 is earned than company has to face no profit and
no loss situation. Margin of safety has ascertained to be 37.5 which is a safety margin of this
company.
TASK 3
P4 Advantage and Disadvantages of different types of planning tools used for Budgetary Control
Budget - Basically budget is a written document which shows details of expenditure. It
tells that how an organisation is going allot its money (Schaltegger and Csutora, 2012).
Managers of Oak Cash and Carry has used the budgets to allot funds to different departments of
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the organisation. There are various types of budgets which are prepared by manager in order to
determine total expenses and cost they are going to incurred in near future time like, production,
sales, raw material and cash budgets. Some of them are mentioned below:
Budget Advantage Disadvantage
Cash budget: It is known as an estimation of
cash inflows and outflows for a business over
a specific period of time. This particular
budget is used to assess, whether Oak Cash
and Carry Ltd has sufficient cash to operate
their business in near future time. It is
categories into two part such as: Cash receipts: It is basically said to be
an amount of money retain by a
company for sale of product and
services. Accountant of Oak Cash and
Carry Ltd can add cash receipts to
balance brought down to provide
company total amount of cash
presented at present in company.
 Cash payment: It is a kind of journal
i.e. used to record transaction that are
paid in form of cash. A cash payment
consists of paying a creditor or
commission fee or withdraw cash. If
any of payment made in cash is
recorded into cash book.
Advantage: It fits
well with the
requirement for
compliance and
expenses control.
Expenses are
classified through
organisation and
object of expenditure.
Disadvantage: It cannot
overlook issues of
government aims, their
connection to budget and
services to be delivered
by government.
Master budget: Master budget is the
combination of budgets of lower level
produced by company's managers engaged in
Advantage: This
type of budget helps
in planning for future
Disadvantage: Along
with merits, there are few
limitations are also
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budgeting process and includes budgeted
financial statements, financing plan and cash
forecast also (Ward, 2012). This budget is
presented may be in half-yearly or quarterly
or may be yearly. A documentary explanation
as note may be attached with master budget
which explains planning and strategic
direction of company.
Master budget is main planning tool
used by management team to perform and
direct the activities of organisation as well as
used for performance appraisal of
responsibility centres.
 Income statements: Income
statements is the financial document
which depicts company's financial
performance over specified
accounting era. It also shows earned
revenues and expenses through both
operating and non-operating activities.
Overall, it depicts the final net profit
or loss incurred by an organisation
during specified era. Income statement
also known as consolidate Profit and
Loss statement.
 Balance sheet: Balance sheet is also
one of most important final statement
of company which discloses the
overall position of company. Balance
sheet discloses actual performance of
a company and also provide the
events as this budget
incorporates all
aspects of future. It
has budgets of all the
departments due to
management can
easily identify what
department causing
problems in
company.
present which states that
this sort of budget is
difficult to update and
there is lack of
specificity.
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information of available financial
resources. There are two parts of
balance sheet one is assets part which
shows the values of total current
assets and total non- current assets.
Second part shows information about
liabilities as well as total shareholders
equity.
M3 Use of planning tools while forecasting and estimating budgets
There are three planning tools which are Balance Scorecard, Key Performance Indicators
and Benchmarking which translate an organisation's mission and strategy into set of performance
measures. It offers better strategy planning, improved strategy and better execution. Key
Performance Indicators can be measured and it tells how effectively a company is achieving its
targets within a specific time. Benchmarking help to set benchmark for a company and than
perform activities according to the benchmark.
Sept Oct Nov Dec Jan
Receipts £ £ £ £ £
Cash sales 250 350 255 380 450
Credit sale receipts from
debtors 320 150 100 120 220
Other income received 415 430 320 215 330
Total receipts (a) 985 930 675 715 1000
Payments
Purchases 215 260 290 330 415
Wages- Labour and
overheads 115 90 180 210 150
Fixed costs 200 200 200 200 200
Capital expenditure - Plant 650
Advertising 20 35 55 75 90
Total Payments (b) 1200 585 725 815 855
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Surplus/Deficit (a) – (b) -215 345 -50 -100 145
TASK 4
P5 How organisation is dealing with financial problems
Basically financial stability is one of the major aspect of every business whether its a big
or small business. Management accounting help businesses to deal financial difficulties. Every
business should have strong backup as far as financial stability is concerned (Wickramasinghe
and Alawattage, 2012). Oak Cash and Carry Ltd is also dealing with financial problems.
Following are the types of financial problems:
Late Payments from clients on regular basis: As this a big problem for businesses, if
business does not gets payment on time from clients, than rotation of money in business gets
slow. Oak Cash and Carry faced same issues as firm is getting late payments from the clients on
regular basis, which turned out as financial problem for them.
Sales growth: This is a basic issue, many business have this as they have not enough
sales according to their size of business. As if business does not have sales, then they will have
no revenue and as end result, business will suffer from financial issues. As Oak Cash and Carry
also faced the same issues and reported as financial issues.
High cost of production: As if cost of production would be high, rotation of money will
not be there and business have to face financial issues. The reason for high cost of production is
difference of actual yield and standard yield. For example – 1000 units output based on, 1000
kilogram material in 9 hours of production, but actual output is 950 unit. So there is variance of
50 units. And if standard cost is $50, then yield variance would be $2500. As same case
happened with Oak Cash and carry also. And it turned out as an issue like high cost of
production for business (Windolph and Moeller, 2012).
KPI: KPI stand for Key Performance Indicators that can help Oak Cash and carry.
Debtors days is key KPI for business to know issue of late payments from clients, so OAK Cash
and Carry can decide, number of days to receive payments from debtors. And issue of late
payments from supplier can be resolved.
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Balance scorecard: Balance Score Card can help Oak Cash and Carry to grow their
sales. Financial perspective of Balance Scorecard depicts that if any business work on lower cost,
more sales policy (Zainun Tuanmat and Smith, 2011). It can help business to grow sales and if
sales will be more, then similarly revenue will be more. And issue of sales growth can be solve.
Benchmarking: Benchmarking is best solution for issues of high cost of production. As
a standard quantity is set for production, in actual yield if it goes below from set benchmark then
cost of production for per unit will be high, because yield is not according to set benchmark. As
for example – 1000 units output based on, 1000 kilogram material in 9 hours of production, but
actual output is 950 unit. So there is variance of 50 units. And if standard cost is $50, then yield
variance would be $2500. And if benchmark would used there, then material would be used
according to 950 units. So there would not be any yield variance.
Oak Cash and Carry Agmet Chemical
As this company used Key Performance
Indicators tools to solve issue of late payments
from clients. As through this they set specific
time for debtors to make payments in given
time.
This spend less money on raw materials, they
just buy enough resources to make ordered
products.
As this use Balance Scorecard for the boosting
sales, as Balance Scorecard financial
prospective say, low more, more revenue.
This use Just in Time, according to them, one
should focus on primary task like making
goods to interacting with customers, rather
than stocking the material
To avoid high cost of product, they use
Benchmarking as it sets standard before
production and then it compare to actual yield.
Through comparison of actual and standard
yield, difference would be known to company.
As company does not need to store raw
material for production, as Just In Time
concept tells to order material when it needed.
So company does not need to keep material in
warehouses, so cost warehousing can be
minimized through this concept.
M4 How planning tools help to deal financial problems
Planning tools like cash budget and master budget help Oak Cash and Carry Ltd to
resolve financial issues by properly maintaining its monetary funds so that there is not lack of
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such resources. It will help company to possibility of financial problems. In this way, it will help
to respond financial problems appropriately, with help of planning tools like cash budget and
master budget.
D3 Planning tools for solving financial issues
The managers of Oak Cash and Carry have used three different tools to resolve financial
issues which are balance scorecard, benchmarking and KPI. Key performance Indicators helps to
financial issues of business of Oak Cash and Carry Ltd used to eliminate late payments from
clients. As Oak Cash and carry Ltd used Benchmarking to removes high cost of production
through setting up benchmarks.
CONCLUSIONS
From above project report it has been concluded that management accounting can help
managers while dealing with financial problems. It can help internal stakeholder to analyse
actual performance of company as well as level of operational activities of a company. Planning
tools can help to forecast and estimate budgets by analysing possible future expenses.
Management accounting help internal stakeholders to analyse performance and position of the
company.
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REFERENCES
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Schaltegger, S. and Csutora, M., 2012. Carbon accounting for sustainability and management.
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Online
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