Management Accounting Concepts and Applications

This assignment delves into the core concepts of management accounting, encompassing its role in organizational decision-making. It examines various techniques like Cost-Volume-Profit (CVP) analysis and strategic management accounting, illustrating their practical applications through real-world examples. The provided reading list guides your understanding of these concepts and their relevance in diverse business settings.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK1.............................................................................................................................................1
P1 Explain management accounting and different types of management accounting systems. .1
P2 Explain different methods used for management accounting reporting................................3
TASK 2............................................................................................................................................5
P3 Calculate costs using appropriate techniques of cost analysis such as marginal and
absorption costs...........................................................................................................................5
TASK 3............................................................................................................................................9
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control........................................................................................................................9
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.....................................................................................................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is the process that is used to identify, interpret and communicate
the financial information with other members of the firm. On the basis of this, manager will be
able to achieve their goals in an efficient manner so that their profitability level can be achieved.
Through this, higher authority will be able to prepare management report with an appropriate
financial information so that day to day operations can be managed in an efficient manner. An
enterprise will be able to minimise their risk by using these accounting data and that will lead
towards the success (Baldvinsdottir, Mitchell and Nørreklit, 2010). The present report is based
on Base Build Services Ltd which perform their operations in construction industry. They are
managing their accounting data so that their overall performance can be improved. In this
context, report explains the different types of management accounting and their benefits for an
entity. Along with this, cost can be calculated on the basis of absorption and marginal approach.
It focused on different types of planning tools and budgetary control techniques. Further, it
explains that how problems can be resolved by using the effective accounting techniques.

TASK1
P1 Explain management accounting and different types of management accounting systems
Management accounting is a particular area in which financial manager prepare accounts
and reports that is helpful for them in making decisions regarding any investment. Through this,
company will be able to manage their operations and activities in an efficient manner. This is a
process which includes some of the steps such as identifying, analysing, interpreting and
communicate the important information with the managers of the other functional area.
Management accounting is based on the past performance of enterprise as through this they will
be able to do planning and forecasting in an efficient (Contrafatto and Burns, 2013). Through
this, they will be able to achieve their future goals so that success can be achieved and their
financial growth can be enhanced.
There are some of the benefits of management accounting like through this company will
be able to enhance the efficiency of their different functional areas so that overall growth of Base
build services Ltd can be improved. It is beneficial for the firm in terms of price fixing, decision
making and so on. On the basis of these, an enterprise will be able to accomplish their planned
objectives in an effective manner. It is useful for the construction industry as through this they
will be able to control their wastage and other operations. The cost can be controlled by the firm
in an efficient manner as through this an entity will be able to enhance their profitability level.
The financial report is flexible in nature so company can make this on monthly basis as per their
requirements so that they can improve their overall performance.
There are different types of management accounting system and these are essential for an
enterprise so that their overall cost can be controlled in an effective manner (Dillard and
Roslender, 2011). Some of these are:
 Throughput managerial accounting system: It is a management accounting approach
which helps the manager in order to make the decisions so that overall profitability can
be achieved. Through this, higher authorities of Base Build Services Ltd. will be able to
identify the factors which may affect their performance. Due to these factors, an
enterprise will not be able to enhance their profits. So, by using this approach an
enterprise can make their decisions in an efficient manner and that will lead towards the
success.

 Transfer pricing: This approach is related to prices of the products and services which
includes labour expenses and manufacturing cost (Fullerton, Kennedy and Widener,
2014). Through this approach, Base Build Services Ltd can maintain their prices so their
overall cost can be minimised and profits are get maximised. By using this, an enterprise
will be able to manage their overall transactions so that operations can be managed.
 Traditional cost accounting: This is a management accounting approach which is used by
an enterprise in order to identify the direct and indirect expenses. Through this, industries
will be able to control their overall cost so that their overall performance can be
improved. This is based on generally accepted accounting principles. Along with this,
they are using this in order to enhance the performance of the construction enterprise.
 Lean management accounting: This kind of approach is used by an enterprise in order to
make their business strategies so that their overall operations and activities can be
managed in an efficient manner (Kaplan and Atkinson, 2015). Through this approach, an
organisation will be able to provide the accurate information to the manager so that their
decisions can be made in an efficient manner and all customers will be able to get the
quality and valuable services.
There are some management accounting systems which are used by the companies in order to
enhance the financial performance of Base Build Services Ltd. The higher authority has to
communicate to all other members of the company so that their growth can be improved. Some
of these are as follows:
Inventory management: The manager of construction industry can use this kind of system in
order to track the level of their inventory or stock. For example, they can use bar code technique
so that data can be record in an effective manner.
Capital budgeting: It is a kind of process that is used by an organization in order to evaluate
their all investments. Through this, the future profits can be calculated in an efficient manner and
their growth can be improved.
Price optimization: Here, in this method the prices can be evaluated for every product. It is a
mathematical tool which is beneficial for the organization. Along with this, the manager will be
able to identify the demand which is varying with the prices.

Cost accounting: This type of system is used by Base Build Services Ltd in order to reduce
the overall cost of products. Some of techniques can be used by the firm such as throughput,
process and so on. In this manner they will be able to reduce their overall expenses.
P2 Explain different methods used for management accounting reporting
There are different types of methods that are used by the organisations so that they can
manage their overall performance in an efficient manner. Some of these methods are:
Financial planning: The main objective of an organisation is to enhance their
profitability level so that their overall performance can be improved. So, in this manner Base
build services Ltd can use an effective financial planning so that their objectives can be
accomplished (Håkansson, Kraus and Lind, 2010). This is the best tool that is used by an
enterprise in order to enhance their performance in the market.
Financial statement analysis: This approach is used by an organisation in order to make
their financial statement. Some of these statements are profit loss account and balance sheet.
These statements are made by the company after a particular period of time and through this type
of analysis the growth of Base Build Services Ltd can be improved.
Cost accounting: This approach is used by an enterprise in order to represent the data in
the terms of product and process. In this, company compare the present cost with the past data so
that they can make the effective strategies that will helpful in achieving the future goals.
Fund flow analysis: Fund flow analysis approach is used by the construction industries
in order to identify the current fund flow as compare to the previous year. Through this approach,
the enterprise will be able to identify that funds are properly used or not by an organisation.
Further, changing working capital funds are also identified by the organisation so that their
overall performance can be improved in an efficient manner.
Cash flow analysis: By adopting this approach, an enterprise will be able to identify the
movement of cash from one period to another (Herbert and Seal, 2012). So, companies can
identify the changes that are occur in the cash balance in between two periods. Base Build
Services Ltd can use this analysis and make an appropriate strategy so that their overall growth
can be improved.
Budgetary control: This kind of approach can be used by an organisation so that they can
estimate the future needs and make the changes as per the requirements. On the basis of this,

they will be able to control their financial performance so that they can get the success in the
market.
Marginal costing: This kind of approach is used by the firm in order to set the prices of
the products, utilization of resources in an efficient manner and select an appropriate element of
marketing mix. Through this, company will be able to identify their factors so that they can
enhance their growth.
Revaluation accounting: The assets can be revalued through this revaluation accounting
approach as through this they will be able to enhance the values of their fixed assets. Along with
this, manager of Base Build Services Ltd can gain more benefits so that their overall
performance can be improved (Hiebl, 2014).
Decision making accounting: This is an appropriate approach that is used by an
enterprise as through this they will be able to select the best alternative for their business
enterprise. When company select their best alternative tool then then they will be able to
compare their different costs so that they can enhance their profitability level.
Statistical techniques: A business organisation can use different statistical technique in
order to resolve their issues so that they will be able to enhance their performance. Some of the
techniques are like regression, least square and quality control can be used by Base Build
Services Ltd (Jansen, 2011). Through these, company will be able to achieve success in the
market.
M1
In every business organisation, management accounting plays a critical role. As per the
name, management accounting manages all the income and expenditures of the businesses. It
helps to reduces extra expense on any activity, so organisation save more amount in hand of the
organisation (Lee, 2011). Then business can make new goals and targets.
D1
Management accounting helps in evaluating the management accounting system and
reporting system of the organisation. It works in measuring the performance of the organisation
by assessing annual budgets also analysing the performance of the employees. It also set aims
and future plan for the organisation, so that it can make a place in market or as well as
customers.

TASK 2
P3 Calculate costs using appropriate techniques of cost analysis such as marginal and absorption
costs
Cost analysis a systematic technique that is used by an organisation in order to enhance
their performance and growth at the marketplace (Luft and Shields, 2010). Through this,
companies will be able to identify the best alternative so that they can achieve benefits in an
efficient manner. Base Build Services Ltd can use two cost analysis techniques such as
absorption and marginal costing approaches. These are approaches are:
Absorption costing approach: This is an approach of managing accounting as through
this companies will be able to identify their overall cost which includes direct and indirect
overhead charges. Through this technique, Base Build Services Ltd can calculate their overall
expenses so that their cost can be minimised and profits can be maximised. The construction
industry will be able to examine their overall expenses and they will be able to determine their
net profits (Lukka and Modell, 2010). This is more appropriate approach that is used by the firm
in order to manage the inventory level of an organisation. Through this, company will be able to
calculate the higher net income as compare to other method.
Marginal costing: It is a management accounting approach that is used by an
organisation so that they can calculate the total cost of production in an efficient manner.
Through this, company will be able to know about the total manufacturing cost and their overall
expenses. This consider both kind of overhead charges such as variable and fixed. The overall
profitability level can be examined through profits volume ratio and that will lead towards the
high net profits (Macintosh and Quattrone, 2010). The expenses are calculated in some situations
where breakeven point is reached so through this they will be able to achieve success in the
market. On the basis of these, companies will be able to make an effective decision so that
overall success can be achieved.
If marginal costing of any product or service is high, then this is beneficial for an
organisation as through this they will be able to achieve success in the market.
Income statement for Absorption costing method
Selling Price £35
Unit costs

Direct materials £6
Direct Labour £5
Variable Production overhead £2
Variable sales overhead £1
Budgeted production for the period is 600 units
Fixed cost for a month:
Budget cost Actual cost
Production overhead £1,800 £2,000
Administration cost £800 £700
Selling cost £400 £600
Sales (35*600) 21000
less:
Cost of Production (6+5+2) -9100
closing stock (100*13) -1300
variable cost -7800
Contribution 13200
less:
variable sales overheads (600*1) -600
fixed overheads -2000
Admin & selling cost (700+600) -1300
-3900
NET INCOME AS PER MARGINAL COST 9300

NET INCOME AS PER ABSORPTION
COSTING:
Sales (35*600) 21000
less:
Cost of Production 9600
Gross Profit 11400
LESS:
Fixed and variable cost:
variable sales overheads (600*1) 600
Admin & selling cost (700+600) 1300
less;over absorbed fixed production overheads -100 -1800
NET INCOME AS PER ABSORPTION
COSTING: 9600
M2
Base Build Services Ltd can use some of the cost accounting techniques such as
absorption and marginal benefits so that their overall performance can be improved. In this
construction industry there are approx 50 employees who are working at the workplace. These
approaches are:
Absorption technique: On the basis of this approach, Base Build Services Ltd can
identify their overall expenses and cost. The overall cost of production of the construction
industry is £200 and their net profits is £9800. So, in this manner they will be able to enhance
their financial growth in the market.
Cost volume profits technique: On the basis of this approach, the firm will be able to
identify their cost and profitability level so that their growth can be improved.
PV ratio= contribution /sales x 100
= 10800/21000 x 100
= 51.42%
D2
Every business organisation who perform their operations in the country they have to
maintain their financial data in the form of profits and loss account and financial statement so

that their overall growth can be improved (Nandan, 2010). The net profit that is calculated by
marginal profits is £7500. On the basis of this, their overall performance is get enhanced in an
efficient manner. Through this, financial manager will be able to identify their position in the
market and on the basis of that they can make an appropriate strategy. Further, the financial
growth of the firm can be increased.
TASK 3
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control
Budgetary control is an approach that is used by an organisation in order to control their
overall cost by preparing an appropriate budget. Along with this, companies establish a
coordination among all the people of the different departments so that their overall performance
can be improved. Base Build Services Ltd can use this approach in order to identify their actual
performance as compare to past.
Through this kind of approach, construction industry will be able to analyse their plans
that they made so that their future goals can be achieved (Shah, Malik and Malik, 2011). After
implementation of the budget, firm will be able to analyse their actual performance with the
standard. If there is any variation between the performance, then an enterprise will be able to
make an effective strategy so that their performance can be improved. There are some of the
characteristics of the budget control technique are like through this an enterprise will be able to
prepare a budget. Along with this, actual operations are identified from the company and that are
compared with the budgetary data.
There are different types of planning tools that are used by Base Build Services Ltd for
budgetary control technique. Through these companies will be able to enhance their performance
in an efficient manner. These tools or techniques are: Operational budget: These kind of budget are short term which are made by the
operational manager in order to manufacture the products and services in an efficient
manner. In this, companies are preparing their plan for their particular functional area so
that their overall performance can be improved in an efficient manner. Master budget: In this approach, an organisation will be able to manage their activities so
that they can control their overall cost (Setthasakko, 2010). This kind of budget is

beneficial for whole organisation as through this they can accomplish their planned
objectives in an efficient manner. In this various financial statements, cash flow analysis,
financial plan is made by an enterprise so that their overall performance can be enhanced.
 Financial budget: It is related to the overall financial performance of an enterprise as
through this they will be able to examine their performance in the market. Some of the
balance sheet, budget control, cash management are including into the financial budget.
Through these, Base Build Services Ltd can use this in order to maintain their cash flows
in an efficient manner. Static budget: This kind of budget is based on the various elements such as input and
output so that their overall performance can be improved effectively. In this, actual
performance can be compared with the standard performance.
 Cash flow budget: Through this approach, construction industries will be able to
maintain their overall cash inflow with outflow so that they can achieve their objectives
in an efficient manner (Renz, 2016).

There are some advantages and disadvantages of the different planning tools of the
budgetary control. These benefits are as follows:
 Through these planning tools an enterprise can manage their overall operations in an
efficient manner and they can achieve their future goals.
 The overall financial performance of the organisation can be improved so that their brand
image can also be improved.
 The manager can get the valuable and exact data from these budgetary control techniques
so that their overall performance can be improved.
There are some of the limitations of the planning tools of the budgetary control and these
are:
 The stress among all the people of the organisation is get improved so due to this their
performance is get affected.
 Some of the conflicts may arise among all the employees of an enterprise so they will not
be able to utilise their resources in an efficient manner.
 When Base Build Services Ltd prepare a budget than it will consume their time and cost
is also get increased.
M3
Base Build Services Ltd can use different planning tools such as operational, master,
financial, cash flow and so on. Through this, company will be able to enhance their performance
in the market and that will lead towards the success (Quinn, 2011). These techniques play an

important role while forecasting the data on the basis of the past performance of the company.
Forecasting is necessary for the enterprise as through this they will be able to enhance their
performance in an efficient manner. When data is forecasted then through this they will be able
to enhance manage their overall operations.
D3
On the basis of these financial tools and budgetary control techniques, manager of Base
Build Services Ltd can solve the financial problems of the company. Through these techniques,
an enterprise will be able to achieve the success in the market. Through cash flow analysis,
enterprise can identify the overall cash fund so that their overall performance can be improved in
an efficient manner.
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems
Base Build Services Ltd can use management accounting system at their workplace so
they can resolve their financial problems. Through this, companies will be able to enhance their
financial performance as compare to other competitors. There are many enterprises who perform
their operations in an efficient manner so that they can accomplish their goals and performance
can be improved. There are some of the techniques of management accounting such as cost and
financial accounting (Cinquini and Tenucci, 2010). On the basis of these approaches companies
will be enhance their performance in an efficient manner. Different firms are using management
accounting as per their requirements so that their performance can be improved. Base build
Services Ltd can these tools.
Financial accounting: All the organisations are using financial accounting in order to
manage their financial performance so that they will be able to achieve success. Some of the
financial tools are used by Base Build Services Ltd and Borahurst Ltd so that they will be able to
accomplish their goals in an efficient manner. For this, they are using some approaches such as
ratio analysis, cash flow analysis and so on. Through this financial manager can use different
approaches in an efficient manner and their performance can be improved.
On the basis of this the manager of an organisation will be able to get the data from their
financial reports so that their overall performance can be improved. Cash flow approach is used
by an enterprise so that they can manage their total flow of cash so that they can get the services
in an efficient manner (Christ and Burritt, 2013). If there is any fluctuation in the cost

management of current and past, then manager can change their services as per the requirements
of their organisation.
Every organisation uses these tools and techniques in an efficient manner in an efficient
manner so that they will be able to enhance their growth at the market place. In the another
method such as ratio analysis the organisation can identify their total financial value.
Cost accounting: This is an another approach that is used by an organisation so that they
can identify their total cash inflow and outflow. So, in this manner they will be able to manage
their overall expenses and due to this their overall performance can be enhanced. Base Build
Services Ltd can use this approach in order to resolve their financial problems so that they can
perform their activities in an effective manner.
Budgetary control: Through this approach, an enterprise will be able to control their
overall spending level so that their overall performance can be improved. On the basis of this
technique, manager will be able to manage their overall performance and they can also forecast
their benefits as compare to the past performance of the company (Busco and Scapens, 2011).
Further, the construction industry will be able to control their overall cost in order to generate
more revenues.
Base Build Services Ltd can use different techniques and tools so that they can manage
their overall operations and activities. Along with this, an enterprise can use some of the capital
budgeting techniques in order to manage their overall capital. The financial manager has to
communicate with the other managers of different departments as through this the overall growth
of the industry can be enhanced.
There are some ways that can be used by an enterprise in order to overall all financial
problems in more effective manner. Some of these are like:
Key performance indicators: This is a type of measure which is used by an enterprise in
order to evaluate their success. Through this, the performance level can be identified of all
employee and problems which are faced the organization can be overcome.
Bench marking: It is a kind of approach which is used by the firm in order to measure
their policies, procedures and system with the standard measurements. The main goals of this
tool is to make improvements at the workplace. So, in this problems can be resolved and their
performance can be improved.

Budgetary controls: In this, manager utilise the budget in order to control overall cost so
that high revenues and profits can be achieved. Through this, overall data can be maintained and
spending level can be controlled.
Financial governance: There are some rules and regulations that are made by
organization so that their overall financial performance can be improved. By adopting these
polices, the overall financial problems of Base Build Services Ltd can be improved.
M4
Management accounting is helpful in solving all the financial and budgeting problems of
the organisations (Bennett, Schaltegger and Zvezdov, 2013). It identifies all the expenditure
issues of the company and make relevant solutions for it. It also manages annual reports and
statements so that they can be using at the time of requirement. Management accounting also
included financial and cost accounting. In that all the revenue of the business is analysed and
after that makes plan to reduces it.
D4
Tools of financial planning accommodating in analysing overall production and
operation cost of production. They can solve all the financial problem of the business
organisation. It makes many strategic and plans to resolve all financial issues. They are also
useful in maximising sales and makes a proper annual budget. Financial tools also assessing the
cash inflow and cash outflow of the business. These tools help at the time of inflation.
CONCLUSION
From the above mentioned report it has been concluded that management accounting is
an essential part of the organisation as through this the overall benefits of an enterprise can be
achieved. For this, financial manager can use some of the accounting system such as traditional
approach, throughput and so on. Along with this, the enterprise uses methods of the management
accounting such as financial statement, cash flow analysis, fund flow, marginal analysis and so
on. Along with this, there are some of the planning management tools that are used by the higher
authority so that they can enhance their overall financial growth. Further, Base Build Services
Ltd can use some of the accounting systems approach in order to manage their overall growth of
the company.

REFERENCES
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