Management Accounting and Its Applications

This assignment delves into the field of management accounting, examining its core concepts and practical applications. It discusses how management accountants utilize accounting information to aid decision-making processes within organizations. The assignment also explores the impact of management accounting on business performance, highlighting its contribution to strategic planning, cost control, and profitability analysis.

Management
Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
a) Preparing report on the function of management accounting..................................................4
I. Definition of management accounting and distinguish management accounting from
financial accounting ....................................................................................................................4
ii. Importance of management accounting information as the decision making tool for
department managers...................................................................................................................5
b) Different types of management accounting system and its use for departments to improve
their reports..................................................................................................................................6
TASK 2............................................................................................................................................6
Preparing the income statements for the month of September using the absorption and
marginal costing methods............................................................................................................6
TASK 3............................................................................................................................................9
Providing the written report on planning tools............................................................................9
a) Different types of budgets and their advantages and disadvantage.........................................9
b) The process of preparing the budgets....................................................................................10
c) Pricing strategies....................................................................................................................10
TASK 4..........................................................................................................................................11
(a) Balance score card approach and describing the its implement of a balanced scorecard . . .11
i. Using Balance Score Card (BSC) to identify and respond financial problem........................11
ii) Use of Balance Score Card to improve the financial governance and development of
effective strategies.....................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
The management accounting refers to the procedure of handling the cash related activities
and reporting regarding different department of the business so as to manage varied activities
effectively for controlling the expenses. The present report is based on Imda Tech Ltd which
deals in special charger for mobile telephone and other carry on gadgets for retail outlets in UK.
The report covers aspects related to functions of management account along with its importance
and varied management accounting systems. Furthermore, income statement have been prepared
in accordance with the absorption and marginal costing. In addition to this, different types of
budget and process of preparing the budgets have been explained. Moreover, financial problems
which are being faced by the business are identified and accordingly effective strategies are
developed to resolve the situation effectively.
TASK 1
a) Preparing report on the function of management accounting
The functions of management accounting are explained as follows with the explanation
of different kind of aspects associated with the same. It helps to conduct the operational activities
effectively and manage the performance of the business in the right manner. It has been
understood with the help of definition of the management accounting and its different from the
financial accounting (Fullerton, Kennedy and Widener, 2014). Management accounting helps to
track the expenses of the firm and increase the profitability through the proper record keeping.
I. Definition of management accounting and distinguish management accounting from financial
accounting
The process of management accounting consists of aspects such as estimating, collecting
and preparing the management accounting information for taking the suitable decision for well
being of the business. It is helpful for taking the decision on daily business and controlling the
business activities effectively so as to meet the objectives of the business in the right manner
(Chenhall and Moers, 2015). Financial accounting basically deals financial statements which are
rotated to the lenders and stockholders. On the other hand, management accounting deals with
internal information management system so as to meet the requirement of all respective

department of the business. The Imda Tech Ltd get support from management and financial
accounting in the following manner-
Management accounting Financial accounting
Collected information from the financial
accounting is used for management accounting
Monitored transactions is the base of the
financial accounting
Aids in taking decision through planning,
controlling and handling the operation of the
business (DRURY, 2013).
Aids in getting the financial statements
published
There is not any mandatory rules but the
internal focus is done
The GAAP is considered for preparing
financial statements along with external focus
The financial and non-financial information are
collected through subjective information
The historical data are taken into account for
presentation of information.
Future performance of the business can be
considered in accordance with the historical
data.
The information is summarized for the purpose
of taking right decision of the business
(Sundem and et. al., 2014).
ii. Importance of management accounting information as the decision making tool for
department managers
The information collected from management accounting is used for taking the right
decision for the business. Management accounting work on the basis of application of different
tools such as budgeting, costing etc through which estimation can be done for the products and
services and accordingly Imda Tech can reach to the valid conclusion. By using the budgetary
control corporation can effectively (Coad, Jack and Kholeif, 2015). For example, business
control is done by using the forecasting method and accessing the cost effective sources of
finance. This leads to manage the business activities effectively and determine the success of the
business in the marketplace with the increased rate of return. The application of management
accounting, makes it possible to focus on sales, cost and tax planning effectively. This in turn
business generate greater rate of return and limited resources can be utilized in the best manner.
Not only this but the management accounting contribute towards the detection of fraud due to

preparing the timely report. For example, fiance or departmental managers of the Imda Tech Ltd
can regulatory review the financial performance of the business and increase the possibility to
detect the fraud with regard to use of financial resources in the wrong activities of business.
b) Different types of management accounting system and its use for departments to improve their
reports
Management Accounting Systems focuses upon gathering financial data from different
aspects of business operations to prepare an analysis report for the business enterprise, which
further enhances the effectiveness of the decision making process of different departments. Some
of the specific areas which are covered by this system are the sales data, inventory shifts and the
alterations which could be witnessed in raw material costs. A timely and accurate analysis
through this system shall enable especially the management to undertake informed decisions in
relation to allocation of budget, cost cutting, availability of inventory and so on. The following
types of systems are available to Imda Tech Ltd:I. Cost Accounting Systems – This framework shall be used by the company to make an
estimation of cost of the products, in order to make an analysis of profitability, inventory
valuation and control the cost. The product costing shall enable the entity to ascertain the
closing value of the inventory, finished goods as well as work-in-progress inventory,
which shall further enable preparation of financial statement (Cornell, 2014). In
pursuance to the same, Normal costing purports to determine the valuation of
manufactured products on the basis of actual material cost, direct labour and
manufacturing overhead costs. On the other hand, Standard Costing shall enable Imda
Tech ltd. to undertake an analysis on the basis of predetermined costs of all the factors.II. Inventory Management Systems – unlike the earlier systems, Cardex and ERP systems
are employed for management of the inventory. Imda Tech can use this system as it
contains an intelligent application which shall manage the inventory of the organization,
further help in analyzing and categorization of the available inventory. These systems are
robust and strong in nature, to appropriately suite the requirements every department of
the business. The methods used for inventory management are LIFO, FIFO and economic
and order quantity. The method is adopted in accordance with the nature of material and
its direct relevance with cost structure.

III. Job Costing System – This is one the techniques which involves the process of gathering
information in relation to costs connected to specific production or service jobs. These
systems are particularly helpful in providing the consumers with appropriate information
for costs incurred under different heads, with the intention to get them reimbursed
(Sundem and et. al., 2014). This is not a suitable option for Imda Ltd., as it is more
appropriate for the manufacturing entities where the production of products require
different material and conversion elements. It is particularly useful when the
organizations are required to produce inventoriable costs in relation to the manufactured
goods.
IV. Price Optimising Systems – These are the programs which ascertain the variation in
demand in pursuance to varying price levels. The information so gathered along with the
data in relation to costs as well as inventory levels can be used by entities to make
recommendation of prices, in order to improve profits. Imda Ltd. can use this system in
the form of powerful profit lever. The company shall utilize this system for tailor pricing
in connection to customer segments, which shall further enable to ascertain the manner in
which targeted customers shall respond to variations in pricing of the product.
TASK 2
Preparing the income statements for the month of September using the absorption and marginal
costing methods
The income statement in case of absorption or marginal cost different from each other
due to role of fixed and direct cost. In this manner, the allocation of cost is different in each case
which tends to affect the operational activities of corporation to a great extent (McPherson and
Karney, 2014). According to the information provided in context of Imda Tech Ltd, income
statement has been prepared as follows-
According to the below mentioned table, it has been found that Imda Tech Ltd incurred
the loss worth 375. It is because of higher fixed cost and the variable one. This leads to reduce
the profitability of the corporation and affect the overall earning in a significant manner. The
sales revenue incurred to the business was 52500 GBP whereas the to cost of goods sold was
30000 GBP along with under/over absorption worth 5000. In this manner, 17500 GBP was
found as the profitability of the business but the direct impact of aspects such as greater fixed

cost brought the profit to the loss of 375. It is presenting the information related to company in
the more accurate manner and accordingly management can go for the selection of right kind of
strategies to improve the internal performance.
Absorption costing
Sales ( 35*1500 ) £52,500
Less COS
Opening inventory 0
Variable cost of production ( 15*2000 ) £ 30,000
Fixed overhead absorbed ( 5*2000 ) £10,000
Closing inventory ( 500*20 ) £10,000
Cost of goods sold (30,000-10,000+10,000) £30,000
Under/over absorption (1000*5) £5000
Gross profit (52,500-30,000-5000) £17,500
Less non production cost (selling and distribution) (10,000+(15%*52,500) £17,875
Profit/loss (17,500-17,875) -£375
Marginal costing
Sales (35*1500) £52,500
Less COS
Opening inventory
Variable cost of production (15*2000) £30,000
Closing inventory (500*15) £7,500
Cost for sale (52,500-30,000) £22,500
Less other variable cost (15%*52,500) £7,875
Contribution (52,500-22,500-7875) £22,125
Less fixed cost/actually incurred £15,000
Less non production cost (selling, distribution and administration) £10,000

Profit/loss (22,125-15,000-10,000) -£2,875
The table mentioned as follow reflects the information related to income statement
preparing in accordance with the marginal costing. The income statement is showing the loss of
-£2,875 under which fixed cost is not included. On the other hand, profit/loss in case of
absorption costing is -£375. It shows that absorption costing is must better in term of rate of
return but marginal one provide more accurate results.
Reconciliation
Reconciliation
Absorption profit - £375
Less fixed overhead on inventory (500-0*5) £2,500
(closing inventory(production –sales2000-1500=500) -opening inventory*fixed overhead)
Marginal profit - £2,875

TASK 3
Providing the written report on planning tools
There are different planning tools such as budgets and other related techniques applied
for the selection of investment project and using the same in order to determine the long run
success of the business in the marketplace. The task covers the major aspects related to varied
kind of budgets and process applied for the same (Safaei and Keith, 2014). Along with that,
pricing strategies used by the corporation to recover the cost of production and increasing the
profitability have been covered-
a) Different types of budgets and their advantages and disadvantage
The budget is considered as the most important planning tool to allocate the financial or
other resources of varied activities of the business. This covers operational, master and sales as
well as cash budget. These are explained as follows- Operational budget-The budget prepared for daily business activities is known as the
operation one under which two distinct heads such as revenue and cost are prepared for
better presentation of profitability and cost incurred by the business in particular time
span. The major advantage of the operational budget is effective record keeping related to
the current expenses and income (Piacentino and et. al., 2015). On the other hand,
disadvantage of the operational budget is the rigid decision making and less accuracy in
the data. Master budget-This budget consists of major activities of the business which is produced
by considering all other budgets. This aids to provide the information related to estimated
earning for the business. The major disadvantage associated with the master budget is
reliability on other budgets such as sales and cash which might not be correct in
accordance with the external factors affecting the performance of the Imda Tech Ltd
(Miller and Kelber, 2015). Cash budget-The cash budget is very effective in allocating the financial resources on on
different operational activities of the business. This is helpful for Imda Tech Ltd to
control the expenses and focus on increasing the flow of production. The major
disadvantage of the cash budget is suffer change in the political or technological factor
which increase the cost (Armstrong, 2015).

 Sales budget-Under this budget management of Imda Tech Ltd can come to know
regarding the requirement of sales of particular number of units in order to earn the
desired rate of profit.
b) The process of preparing the budgets
Budget preparation is completing in the step by step manner under which varied activities
are considered. The first and forecast step is of obtaining the estimation. This is done for each
department of the organization such as production, sales and marketing as well as HR so as to get
the requirement of resources effectively. The second step is of coordinating the estimation in
which each department is asked to provide the estimation and accordingly aggregate demand of
the resources is known (Cornell, 2014). It is made possible through which clear communication
in each department so as to determine the success of the business effectively. Furthermore, third
step is regarding the communicating the budget with the all departments associated to Imda Tech
Ltd. At this stage, company integrate the view point of all managers and incorporate them into
the preparing of the final budget. For example, a particular department might have requirement
related to installation of new machine through which budget increases (Jelsma and et. al., 2014).
In addition to this, the last stage is of implementing the budget plan through proper
communication in the respective department. In addition to this, reporting interim progress is the
last stage whereby reporting is done in the light of the set budgeted objectives. This leads to
derive the valid outcome for the business and accordingly integrate the business activities
effectively.
c) Pricing strategies
Selection of right pricing strategy is the reason behind the success of many small
businesses operating in the marketplace. There are different pricing strategies such as
competitive, skimming and penetration as well as premium pricing strategies as per the nature
of market and product and services both. The penetration pricing strategy is adopted by the Imda
Tech Ltd to enter into new market through putting very low price of the product at the initial
stage. Though, firm increase the price by bringing the innovation in the services slowly. This
strategy is helpful in increasing more customers and raising the overall return for the firm.
Furthermore, skimming pricing strategy is applied for the unique product which is very less in
the marketplace (Ali and et. al., 2015). Though, company forms the strategy to reduce the price

as the competitions related to product start increasing. Apart form this, competitive pricing are
used to stay competitive in the marketplace. For this purpose, company put efforts to recover the
cost of production and attract more customers by offering them product on the competitive
pricing. Apart from this, scenario reflects that Imda Tech Ltd is dealing in the special chargers
where it is not possible to set the low prices. Owing to this, it is necessary for the business to
charge very higher price of the products and services. Therefore, company follows different kind
of pricing strategies as per the nature of products and services.
Price are set by considering the cost and mark up of associated with the product or
services. The below mentioned table is showing that variable and fixed cost are considered to
find the total one. It helps to take out the margin of profit. In this manner, margin of profit is
added under the cost and then accordingly selling price is derived. For this purpose, Imda Tech
focuses on recovering the its overall cost by putting the suitable margin over the cost.
Variable cost
Fixed Cost
Total cost
Margin of profit
Selling price
TASK 4
(a) Balance score card approach and describing the its implement of a balanced scorecard
The balance score card is the effective aspect for the measurement of the business
performance under which corporation can put efforts to manage the business performance in the
direction so as to integrate all business activities for producing valid outcome. It has been
explained as follows- There are several components of balance score card such as financial
perceptive, internal process and customers as well as earning and growth perspective. These are
applied by setting the specific standards for the business and accordingly focus on deriving the
valid outcome. Each of these mentioned component specific the objectives and targets whereby
business can track the performance effectively.

(Source:The Balanced Scorecard approach. 2017)
i. Using Balance Score Card (BSC) to identify and respond financial problem
The balance score card approach is used to set the standard performance of the
organization so that the actual one can be used for the purpose of comparison. It covers several
aspects related to performance of the business such as financial, human resources and customers
perspective, internal business process etc. Along with that, innovation related perspective is also
covered under the balance score card (Burk and et. al., 2013). It proves to be effective to analyze
the business performance in the right manner and derive the valid outcome so as to create
competitive edge of the business in the marketplace. According to the given scenario, Imda Tech
is suffering from loss of 1.5 million GBP, hence, business will apply the balance score card
approach so as to assess the internal performance and accordingly form the effective strategies
for settlement of the business activities. At this juncture, SMART objective strategy will be
followed by the management of Imda Tech Ltd in the following manner-
 To raise the sales turnover of by 25% till the end of financial year 2017
 To increase the customer retention by 20% till the mid of financial year 2017
Illustration 1: Components of balance score card approach

 To enhance the profitability of Imda Tech Ltd by 35% till the mid of financial year 2018.
These SMART objectives will be fulfilled by the business in order to accomplish the all
related activities of corporation in the right direction. However, respective department of Imda
Tech Ltd will look over the issues in order to grab the attention of more customers and enhance
the ratio of profitability in the mentioned time span.
ii) Use of Balance Score Card to improve the financial governance and development of effective
strategies
The balance score card is applied as the effective aspect for address the issues which are
being faced in the finance department of the organization. Here, corporation shed light on each
perspective of the balance score card such as customer perspective wherein focus will be laid on
specific requirement of the customers and accordingly services will be provided to them
(Toluwalope, 2017). For example, marketing manager of Imda Tech Ltd will ask for more
budget in order to offer the discount among customers and promoting the products by using
different mode of communication. This leads to cater the requirement of all related parties. On
the other hand, internal business practices are also covered under the balance score card
approach by setting standard for employees. However, their performance is reviewed in
accordance with the targets and accordingly learning program are introduced for higher
productivity of the business. It facilitates to establish proper control and support for the business
whereby company can effectively go into the upward direction. In this manner, application of
balance score aids to reduce the actual and expected outcome of the business (Fullerton,
Kennedy and Widener, 2014). Therefore, each department of the Imda Tech Ltd remain under
the control of management and organization objectives can be achieved effectively.
CONCLUSION
The aforementioned report concludes management accounting plays important role in
reducing the deviation in the actual and expected performance of the business due to use of
appropriate tools such as budgeting, balance score card etc. This aspect is helpful to have tight
control overall all resources employed to produce the valid outcome. It can also be concluded
different kind of budget system are used along with setting the right kind of pricing strategies so
as to ensure the attraction of large number of buyers and create competitive edge of the business.

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