Management Accounting: Tools and Techniques for Financial Problem Solving

This document provides an overview of management accounting and its relevance in making business decisions. It discusses the different types of management accounting systems and reports used in organizations. The document also explains the benefits of integrating management accounting reports with systems. Additionally, it covers the use of various management accounting techniques, such as marginal and absorption costing, for financial reporting. The document further explores the benefits and drawbacks of different planning tools and their use in forecasting budgets. Lastly, it discusses the tools of management accounting that can be applied to solve financial problems in organizations.

Management Accounting
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Table of Contents
INTRODUCTION...........................................................................................................................4
TASK 1...........................................................................................................................................4
P1Brief description regarding the term management accounting and needs of various types of
management accounting system.............................................................................................4
P2Explanation regarding use of different types of reports use in management accounting
approach.................................................................................................................................4
M1Benefits of management accounting system....................................................................4
D1Evaluation of benefits of integration of management accounting reports with systems.. .4
TASK 2............................................................................................................................................4
P3 Preparation of income statement by using marginal as well as absorption costing method..4
M2 Use of management accounting technique for the purpose of formulating financial reports.
................................................................................................................................................8
D2 Explanation of reverence of financial reports for interpretation of data..........................8
TASK 3............................................................................................................................................8
P4 Brief explanation regarding benefits and drawbacks of different types of planing tools. 8
M3 Brief description regarding use of planning tools for forecasting budgets....................11
TASK 4..........................................................................................................................................11
P5 Brief description regarding tools of management accounting apply for solving financial
problems...............................................................................................................................11
M4 Uses of management accounting tools for attaining organization success solving issue of
finance..................................................................................................................................13
D3 Evaluation of how planning tools use in order to resolve financial problem for leading
organization success.............................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15
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INTRODUCTION
Management accounting, the term define as systematic procedure which help in
collecting, analysing, measuring and representing accounting information in such a way which
useful for take essential business decision. In order to understand relevance of management
accounting Prime Furniture has been taken. It is medium size organization which operate
business in UK. This report define uses of different types of management accounting system for
the purpose of systematically run business operations. As well as use of costing technique for
determining value of profit. It is also showcase how different types of planning tools use for
formulate budget and useful for solve financial problem by using tools of management
accounting.
TASK 1
P1Brief description regarding the term management accounting and needs of various types of
management accounting system.
P2Explanation regarding use of different types of reports use in management accounting
approach.
M1Benefits of management accounting system.
D1Evaluation of benefits of integration of management accounting reports with systems.
Covered in PPT
TASK 2
P3 Preparation of income statement by using marginal as well as absorption costing method.
Costing: Procedure of determining cost is known as costing. There are various types of
method in management accounting technique which manager use for the purpose of evaluating
and measuring cost. Organizations on the basis of their suitability select or choose techniques
which beneficial for calculating cost of each business activity. Following are define below
Marginal costing: This is consider as one of the most useful and suitable technique
which manager apply for calculating marginal cost. In marginal costing only variable cost are
consider for the purpose of evaluating cost of each business activity (Christensen. and Himme,
2017). Thus it is also known as variable cost. The main purpose of using marginal cost is to
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recognize the impact of increase production capacity of organization profit and affect of each
business unit on organization.
Marginal costing statement help in providing base for evaluating relationship between cost and
profit as well as useful in analysing cost benefit analysis ratio.
From this calculation it evaluate that Prime Furniture able to generate 4300 profit by applying
marginal costing for calculation of cost.
Adsorption costing: This is also consider as effective technique which beneficial and
useful in order to determine price as well as cost of each business activity(Hiebl, M. R. and
Richter, 2018). It is differ from marginal costing as in variable costing manage only consider
variable cost for the purpose of evaluating profit value, on the other side in case of absorption
costing, manager consider variable as well as fixed cost and each element which directly impact
on profitability of organization. It is useful tool for evaluating cost and fulfilled all the limitations
of marginal costing.
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Standard costing: This is also consider as essential technique which is part of
management accounting. Standard costing use for set standard cost and on the basis of that
manager evaluate the different arise between budgeted and actual cost incurred for operating
business activities. Manager calculate different types of variances in order to determine cost
required for completion of business projects (Hoozée and Mitchell, 2018).
Inventory costing: It is relevant for organizations to evaluate cost required for
managerial inventory. Manager use to evaluate their cost of managing stock by determining
holding as well as storage cost.
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Ordering costs: This is cost which incurred during the time of giving delivering order
and cost incurred for transportation.
Holding costs: This type of cost is define cost required for maintain products till they get
delivered. Thus it is known as holding cost.
Storage costs: Cost of holding and maintaining inventory in storage place is now as
storage cost. Higher storage cost showcase that manager not able to evaluate effective policies
for maintaining their level of stock.
M2 Use of management accounting technique for the purpose of formulating financial reports.
Manager of Prime Furniture use absorption costing method , through which they can
determine cost incurred for specific period of time as well as ability of organization to generate
profit by selling products (Johnstone, 2018).
D2 Explanation of reverence of financial reports for interpretation of data.
Financial reports help in showcase the real picture of organizations;s financial
performance, on the basis of that manager formulate those business policies which useful in
decision making procedure. Manager of Prime Furniture by using tools of managerial accounting
able to formulate financial reports which useful for take future business decision.
TASK 3
P4 Brief explanation regarding benefits and drawbacks of different types of planing tools.
Planning tools: Theses are consider as tools which useful in take decision for future
business plan. Following are the tools of planning which manager of Prime Furniture use:
Budget:Theses are documents or financial statement which formulated for predict future
expenses and earning by operating business activities .There are many types of budget are
prepared for evaluating future earning. Manager of Prime Furniture use following budgets
Capital budget: This budget is formulated for evaluating cost required for operating long
term business activities. Capital budget useful for estimate expenses incurred in investment in
long term future business plan.
Operating budget: This statement is formulated for the purpose of estimate expenses
incurred for run day to day business activities.
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Master budget: This budget is summery of all the budget formulated for estimating cost
of each department. Master budget showcase brief summery of purchase, sales, production as
well as cost required for managing inventory .
Advantage
 Budget useful in determine business policies and manager take decision on the basis of
evaluating capital as well as operating budget .
 Manager formulate budget for measuring performance and took corrective business
action (Matsler, 2019).
Disadvantage
 It is not required that formulated budget showcase accurate future outcomes as future is
unpredictable and budget are rigid they are not change with changes of time scenario.
 Formulation of budget is increase internal coherence and create competition for
allocation and uses of business resources.
Types of budgeting techniques: The procedure of preparing budget is known as
budgeting following are way which manager of Prime Furniture use for formulate their budget.
Activity based budgeting: This budget is formulated on the basis of allocation of
business activities.
Zero based budget: Manager formulate zero based budget from initial level, they do not
use any past data for prepare budget. Thus it is known as zero based budget.
Pricing strategies: There will be many strategies use for determine price. This planning tool
useful in take decision regarding which pricing strategy is beneficial for company. There will be
different kinds of strategies and policies which manager can apply for setting price of their
products.
Rolling budgeting: In this types of budgeting method, manager formulate budge for
financial statement generally for short period of time, which is maximum one year. In these types
of budget target is set for short term period and when the time complete manager evaluate the
data and performance of organization. On the basis of that they formulate new short term budget
by cutting all the error which arise in their previous budget. Theses type of budget formate on
continuous basis thus it is known as rolling budget.
Advantage
 By using budgeting tools manager able to allocate resource in effective way.
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 Zero based budgeting technique useful in provides accurate and reliable data for future
business activity.
Disadvantage
 For formulation of different types of budget it require hiring of expert who have
knowledge regarding accounting standard.
 Zero based budgeting is time consuming activity.
Cost system: This is also consider as essential tool of planning. Manager evaluate cost of
running business activities by using different types of cost accounting techniques.
Advantage
 By using marginal cost technique manage able to determine profit as well as cost required
for running business activities.
 On the basis of evaluating cost manager formulate policies which is beneficial in cutting
high cost incurring activitie (Ostaev and Khosiev, 2018).
Disadvantage
 Cost accounting system is not beneficial for small organizations as personal don't have
proper knowledge regarding how to calculate cost.
 Accountancy of evaluating profit and cost is depend on the skills of person it may be
possibility that they manipulate accounts for the purpose of making secret business
profits.
Strategic planning tool: Manager in order to take decision regarding their future
business policies need to apply strategic planning tools. There will be many sources through
which manager able to evaluate and analysis market condition. By using SWOT, PESTLE as
well as porter's model organization able to recognize requirement of customers and competition
level in market.
Advantage
 Using strategic planning tools is time consuming activity.
 It is not necessary that information provides by applying theses tools showcase accurate
information.
 Strategic planning tools useful in evaluate market condition on the basis of that manager
formulate financial business policies in order to maintain long term position in market.
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 With the use of PESTLE analysis manager able to determine impact of different
environment factors on ruining business activities.
Disadvantage
 Using strategic planning tools is time consuming activity.
 It is not necessary that information provides by applying theses tools showcase accurate
information.
Pricing strategies: This tool useful in de6termine price rate for selling products.
Manager have many option which they choose on the basis of their suitability
Advantage
 By using pricing strategies organization able to generate profits by increasing selling rate.
 Pricing strategy help in attain competitive business advantage in market.
Disadvantage
 Value of price rate as been changed thus rigid pricing policies are not apply for long time
period.
 It required marketing expert who have knowledge regarding pricing as well as perception
of customer for deciding rate of products (Oyewo Ajibolade and Obazee 2019).
M3 Brief description regarding use of planning tools for forecasting budgets.
Manager of Prime Furniture in order to forecast their budget use activity based budgeting
method through which they can allocate resource and on the basis of that they formulate capital
as well as operating budget for running future business operations. They also use price skimmia
strategy which help in determine their price rate for increasing profitability ratio by increasing
their rate of selling products. They by using absorption as well as standard costing method easily
determine business cost.
TASK 4
P5 Brief description regarding tools of management accounting apply for solving financial
problems.
Financial problem: Business organizations suffers from financial issue specially small
or medium type of organizations. Generally theses types of entities face issue related with
finance. When business organizations not able to pay their short as well as long term debt
liability and not able to operate day to day business activity due to lack of monetary resource,
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then this kind of situation known as financial problem. In which managers not able to systematic
run their operation in market area due to non availability of cash and cash relevant assets.
At present time period Prime Furniture face financial problem due to mismanagement of
inventory as well as decrement in sales rate. They can overcome this problem by using tools of
management accounting , which are define below
Benchmarking: It is consider as essentials tool of measuring performance which
manager uses for their organization. Benchmark help in measuring and evaluating business
practices by comparing it with measurement of industry. On the basis of that manager able to
determine and measure performance as compare with industrial indicators. In case of Prime
Furniture , the main reason of facing financial problem is that they are not able to increase the
rate of selling products. Thus manager on the basis of setting their sale target and compare it with
industrial benchmark able to increase their selling rate . As they also provides incentive to
department if they cross the setting benchmark criteria.
Key performance indicators: This tool is also a part of management accouti6titing
approach. Key performance indicator useful in determine or evaluate performance by comparing
it with setting performance indicators. On the basis of that organization able to formulate their
policies and evaluate performance of organization for specific time period. Manager of Prime
Furniture use this tool to setting target regarding use of inventory. They on the basis of deciding
time and criteria able to control and manage wastage of inventories (Setiawan, Rahmawati,
Djuminah and Widagdo, 2019).
Financial governance: This is consider as essential policy which organization use for the
purpose of managing and work in ethical manner. Financial governance is systematic procedure
which help in collecting, managing and tracking business transactions for managing performance
. As well as it help organization to according to ethical norms as well as use of those policies
which motivate employee to working ethical manner. By applying this policy manager of Prime
Furniture able to work in ethical manner as well as control correction and internal coherence.
Which will also beneficial for the purpose of controlling wastage of financial resources.
Particular Tesco Sainsbury
Financial problem Tesco suffers from financial
issue due to the reduction in
sales rate.
This organization face problem
related to finance due to not
able to collect funds from
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debtors and mismanagement of
inventory.
System In order to overcome financial
problem it is the ability of
manager to implement those
system which help in
increment sales rate. Manager
of this organization need to use
effective pricing system to
increase sales rate.
In order to overcome financial
problem, management
department of Sainsbury needs
to use tools of inventory
management system through
which they can able to control
and manage stock.
Technique Manager of Tesco needs to
apply benchmarking technique
through which they can set
target and able to increase
sales rate (Shichkov., 2018).
Management department of
Sainsbury by using key
performance indicator able to
manage and control level of
inventory within the
organization.
M4 Uses of management accounting tools for attaining organization success solving issue of
finance.
Manager of Prime Furniture in order to overcome issue related with finance use different
types of managerial accounting tools through which they can easily recognize the main reason
of financial problem. With the use of benchmarking Prime Furniture as management department
set target which beneficial for increase sales rate and also cash inflow rates.
D3 Evaluation of how planning tools use in order to resolve financial problem for leading
organization success.
In order to overcome monetary issue management department of Prime Furniture use
planning tools as well as technique of management accounting. With their use of different types
of planning tools such as strategic planning tool manager able to evaluate market condition and
on the basis of pricing strategies they change the rate of selling products which help in increase
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sales rate as well as influence debtors for cash purchase on the basis of that they able to
overcome financial problem.
CONCLUSION
From the above analysis it has been concluded that manager in order to maintain their
position in market, need to use management accounting approach. By using tools of managerial
accounting, manager able to take decision by evaluating cost. With the use of planning tools they
able to measure their performance for specific period of time as well as by applying
benchmarking, financial governance and key performance indicator manager able to overcome
issue which generate due to lack of availability of cash within the organization.
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REFERENCES
Books and journals
Hiebl, M. R. and Richter, J. F., 2018. Response rates in management accounting survey
research. Journal of Management Accounting Research. 30(2). pp.59-79.
Hoozée, S. and Mitchell, F., 2018. Who influences the design of management accounting
systems? An exploratory study. Australian Accounting Review, 28(3), pp.374-390.
Johnstone, L., 2018. Theorising and modelling social control in environmental management
accounting research. Social and Environmental Accountability Journal, 38(1), pp.30-48.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production, 136,
pp.237-248.
Mahmoudian, F., Lu, J., Yu, D., Nazari, J. A. and Herremans, I. M., 2020. Inter-and intra-
organizational stakeholder arrangements in carbon management accounting. The British
Accounting Review, p.100933.
Matsler, A.M., 2019. Making ‘green’fit in a ‘grey’accounting system: The institutional
knowledge system challenges of valuing urban nature as infrastructural
assets. Environmental Science & Policy, 99, pp.160-168.
Ostaev, G.Y. and Khosiev, B.N., 2018. Management Accounting: Development of a brand
promotion strategy. International Accounting. 21(5).p.443.
Oyewo, B., Ajibolade, S. and Obazee, A., 2019. The influence of stakeholders on management
accounting practice. Journal of Sustainable Finance & Investment. 9(4). pp.295-324.
Setiawan, A. S., Rahmawati, R., Djuminah, D. and Widagdo, A.K., 2019. Owner power,
deliberate strategy formulation, and strategic management accounting. Opcion.35(89).
pp.254-270.
Shichkov, A.N., 2018. Tools of the management of an accounting system. Scientific Israel-
Technological Advantages. 20(4). pp.31-44.
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