Management Accounting on TPG Assignment

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Role and essential requirements of different kinds of management accounting........................3
Different methods for management accounting reporting..........................................................5
TEST...........................................................................................................................................6
a) Advantages and disadvantages of different types of planning tools.....................................16
b)Explaining and analysing the uses and the application of the different planning tools.......17
c) Comparison of how organizations are adapting management accounting systems in
responding its financial problems.............................................................................................18
d) Evaluating how management accounting, in responding to financial problems, can drive
organizations to sustainable success.........................................................................................19
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................21

INTRODUCTION
Management accounting is concerned with the preparation of managerial accounting report
by considering all the statistical as well as financial information of the business operations. With
the help of management accounting, proper planning, organising, managing, controlling function is
performed which assist in the decision making process. The present report is based on TPG
Processing, an organization in the manufacturing sector. Report will discuss about different
management accounting techniques and budgetary planning tools which assist in making business
operations more cost effective and profitable. Also, it will describe methods of management
accounting system which can help the company in overcoming its financial problems.
MAIN BODY
Role and essential requirements of different kinds of maangement accounting
Management accounting refers to the systematic process of analysing the costs of
business and activities for the purpose of preparing internal financial reports and records.
(Joshi and Li, 2016). It assists the management of the company in exercising their basic funtions
such planning, organsiaing, monitroing and controlling.
By the way of forecasting of the future revenues and expenses, capital budgeting techniuyes
for appraisaing teh investments, it aids in planning function. Likewise, it facilitates with different
tools such as variance analysis, benchamrking etc., which helps the managrs in monitoring and
assessing the peorfromance of the company. Furthermore, with the help of budgetory tools, it
allows the busines managers in exrecising the controlling by the way of asessing the loopgholes in
the performance by aocmpring it with the standards, and taking corrective actions.
It plays crucial role in TPG company.
 It aids in strategic decision -making.
 It performs the function of margin analysis that helps in ascertaining the profitability of each
product or service.
 It helps managers in optimally allocating the costs to each responsibility centre.
 Inventory valuation is its another function. Valuation of inventory is significant because it
affects the income and balance sheet statements of the company. For example, inventory
management system helps in reducing the costs of handling inventory by maintaining the
appropriate level of inventory at all the time.
 For example Capital budgeting which is one of the technique of management accounting

helps the mangers to examine a proposed investment or project before acquisition of the
same (The funtions of managerial accounting, 2018).
Different kinds of management accounting systems & their requirements
Cost accounting system:
It is a process applied for the managers of company for estimating the costs of its products
and services for the purpose of analysis of profitability, inventor valuation and cost control.
Requirements
 System software and its integration with other management accounting systems.
 It must meet the requirements and needs of the organisation in terms of its size and
information requirements.
 System must be easy to be used and the information derived from cost accounting must be
accurate.
 Cost Accounting System should be tailor-made, practical, simple and capable of meeting the
requirements of a business concern.
 The data to be used by the Cost Accounting System should be accurate; otherwise it may
distort the output of the system.
 It is needed in the firm for fixing the prices of the products. It is also required in the
business for ascertaining the profitable and non profitable activities of the business which in
turn facilitates the management to make more effective strategies for making the non
profitable activities profitable.
Benefits
It assists in controlling the activities of production process. It facilitates in decision making
regarding the production of goods and services along with labour related decisions regarding
machine and hours.
Inventory management system:
It is a framework which tracks the whole supply chain of the organisation. It is concerned
with the management of stock of material required by the company at any point of time.
Requirements:
 Barcoding
 Integration with accounting systems

 Forecasting of inventory
 system software
 Transfer Management :Enterprise businesses that manage multiple sites have the advantage
of moving their product to where it’s most valuable. Bundling or kitting your products can
be attractive to customers.
 Inventory management system is required in the organisation because it aids in improving
the accuracy in the inventory orders. Proper system of inventory management aids in
figuring out exactly how much inventory does the business requires to have on-hand. This
in turn assist in preventing shortages of products and allows the managers in keeping just
the appropriate level of inventory without having excess stocks in the warehouse.
Benefits
It helps in attaining efficiency in production process, saves time and costs of operation. It
facilitates the integration of entire business organization (Hald and Thrane, 2016).
Job costing system:
It is a procedure of information accumulation regarding the costs related to a particular job
order or service. In here, the process of production completely relies on the number of orders
received from the customers. Thus, the cost is determined separately for each job.
Requirements
Information regarding direct labour, material, overheads and production control system
Benefits
It assists in differentiating between the profitable and non- profitable jobs. It enhances the
forecasting of production. Cost control is it's another benefit.
Price-optimising system:
These are the mathematical programs that are concerned with the calculation of how
demand fluctuates when the price changes to different levels. It then brings together the data related
to inventory and costs for the purpose of recommending the equilibrium prices for improving the
profitability of company.
Requirements
 Demand of company's products and services.
 Cost accountant who can rationally determine the prices and can integrate the data related to

cost and inventory.
Benefits
It assists managers of TPG in formulating effective pricing strategy which complements the
market forces. It focuses on improving the profits of organization by ascertaining the price at which
company can earn the highest profits with the give level of demand.
Integration of management accounting systems:
It is necessary because for facilitating smooth flow of required information between the
different accounting systems. It leads to effectiveness in the entire accounts and finance department
of TPG processing. Proper integrating between the accounting systems helps the management in
identifying the profitability centres and it facilitates optimum allocation costs to each responsibility
centre which then leads to estimation of correct prices for the products and services. It also helps
the management in controlling the cost of operations which in turn assist in increasing the
profitability of the business entity(Schaltegger, Etxeberria and Ortas, 2017).
Further, integration of management accounting system such as inventory management
system with the production process aids the company in maintaining the most appropriate level of
stocks & inventory within the organization. The ultimate impact of this integration is reflected in
the seamless production without any delay. Such integration assists in delivering the products to the
customers on time which in a way helps in satisfying the customers. Moreover, appropriate link of
inventory system with production process helps in reducing the material handling and carrying cost
of excessive inventory and stocks. Working capital requirements are reduced because of such
interrelatedness of management accounting systems with the business processes.
Different methods for management accounting reporting
There are various methods of management accounting reporting through which TPG
presents and communicates its managerial information such as :
Cost reports :
It is the techniques of informing the internal stakeholders of company about the costs'
determination process of the products and services manufacturing by the organization. This report
facilitates the overview of the total costs accrued to a product or service against the income that is
expected by the unit of manufactured goods or services (Ismail, Isa and Mia, 2018). This report
assists the mangers of company in evaluating the profitability of specific responsibility centre of the
organization and optimising the operations by emphasizing on the most profitable cost centre.

Budget reports :
It is one of the most commonly used report in the management accounting. Budgets are the
spending plan of firm which lays the expected expenses that will be incurred by the company for
producing a pre-determined number of units of products. These reports are prepared with an aim of
achieving organizational goals within budgeted figures (Suomala and et.al., 2017). These reports
also facilitates the managers in analysing the actual performance by comparing with the standard
amounts to find the variations. Planning the expenses for the future events aids managers in finding
out the places for cutting the costs.
Budget Monitoring Report

Performance Report:
These are the report which are created for the purpose of monitoring and reviewing the
performances of an organisation as whole along with the performance of each employee in specific.
Even departmental reports are created in large companies for assessing the effectiveness with which
the business activities have been performed. Business managers use these reports for a motive of
making more effective decisions for making the performance of company highly impressive.

Accounts Receivable Ageing Report :
This report is concerned with the credit period allowed to customers. The aim of such report
is to help the managers in adjusting the credit policies of company so that it aligns with the
repayment capabilities of the debtors. Such things have a great impact on the sales volume of TPG.
Managerial reports must be relevant, reliable, accurate and updated because the outcomes of
the reports are used by top management in setting their strategic policies. Any fault in the
managerial information or reporting could significantly affect the operations of the company as
major decisions related to credit allowance period, budgets, cost control & cost reduction,
performance analysis are based on such information (Messner, 2016).

TEST

Year 2: Closing stock calculation
=3100+48000-41000 = 10 200
Absorption Costing
Closing stock:

Reason for Differences in Marginal Costing and Absorption Costing are:-
Marginal Costing changes only direct costs such as material, labour and variable overhead costs
into the cost of a product whereas in Absorption Costing changes all the manufacturing costs
into the cost of a product.
In marginal costing, cost of product is lower than the cost calculated is lower than calculated under
absorption costing.
In marginal costing, Fixed manufacturing overhead is considered as a periodic cost and charged
from the periodic gross profits whereas in absorption costing Fixed manufacturing overhead is
considered as a unit cost and charged against the selling price.
The difference in the net profit under both the method was noted and the reason behind that was
treatment of fixed and variable costs. Closing stock under the marginal method was valued
at the rate in which there was no fixed costs while under the absorption costing, the closing
stock was valued at the rate which was inclusive of all the expenses incurred by company
for manufacturing a product.

Use of Marginal Costing in Business:-
 Marginal Costing is helpful in short term decision making and also helps in answering
specific questions about revenue.
 It is most useful in businesses where it generates sufficient profits to pay for a large amount
of overhead.
 Marginal Costing helps in the cost control of production. It avoids allocation of fixed
overhead costs.
a) Advantages and disadvantages of different types of planning tools
Various types of Budgetary Techniques are:-
Zero Based Budgeting-
Zero Based Budgeting is a reverse approach of traditional planning and decision making. In
this managers justifies why this expenses has to be made and what will be profits made if these
expenses will be allocated.
Advantages of Zero Based Budgeting are-
 This technique helps in cost effective to improve activities.
 It helps in efficient allocation of resources.
Disadvantages of Zero Based Budgeting are-
 It is very lengthy and time consuming process.
 It requires an huge knowledge of oneself in decision making and in entire communication
process.
Incremental Budgeting-
It is technique in which budgets are prepared using the previous year information and
budgets by adding new expenses in the previous year budget.
Advantages of Incremental Budgeting are-
 It is very easy to prepare budgets on the basis of previous year budgets and also takes very
less time preparing new budgets.
Disadvantages of Incremental Budgeting are-
 It does not take into account the major changes in expenses such as interest rates, inflation
rates etc.
 There are growing disconnect between the budget and actual results.
Flexible Budgeting-
It is budget which is prepared at the start of the new year and not changed until new year is

started regardless of anything happens in the business environment.
Advantages of Flexible Budgeting are-
 It is best cost controls because it reacts more quickly to adverse conditions.
 It is always updated with current data and information.
Disadvantages of Flexible Budgeting are-
 It is generally based on the capacity of the business and many time it happens that actual
capacity may differ from budgeted capacity.
Activity based budgeting
This method is managed the overall actvity of the business. This method anlysisng all the
activity by mantain all the finacial records.
Advantages of activity budgeting are -
 It is easy to use
 It helps to identify the activities and their cost drivers.
Disdavantsge of Activity budgeting are -
 The collection of data is not preperly accurate.
Pricing strategies :
Pricing strategies are those which the management apply for fixing the optimum price of
company's product foir meeting different types of objectives such as increase in market share,
enlarging profit margin or beating competition in the market. There are different kinds of pricing
stratgies such as :
 Marginal pricing which is related with including only variable prices in determining per unit
cost of production.
 Absorption pricing which is concerned with including all kinds of costs which has been
incured by business for manufacturing a product or creating a service.
 Time and material pricing staretgy wherein customers are invoiced on the basis of labour
and materials used by the company in producing a product along with a profit margin.
b)Explaining and analysing the uses and the application of the different planning tools.
Planning tools Uses Application
Zero based budget It assists TPG Processing by
re- evaluating each item of
cash flow and justifies that all
It helps in identification and
elimination of wastage as well
as out dated business

expense amount which are to
be included in budget
(Donaghue and et.al., 2018).
operations making it cost
effective business process for
TPG Processing. Thus,
effective allocation of business
and financial resources can be
done as per the needs and
requirements of business
department.
Fixed budget It helps TPG Processing in
measuring its short & long
term objectives against
strategies made. It is
considered useful tool for
company as it assist in
allocating fixed amount of
money towards overhead cost
expenses.
Can be useful when changes
are very little and the cost
obtained are of fixed nature. It
helps in preparation of budget.
Also, comparison of actual
results can be made with
budgeted one to determine
variances if any and making
required changes in the budget.
Flexible budget Is useful in making forecast
related to future uncertainty by
making adjustment for all
changes incurred in the level of
activity. It allows TPG
Processing in adopting to
fluctuation related to
unexpected expenses, income
level etc.
Can be used by company
having continuous changes in
their production level and sales
activity (Evers and et.al.,
2019). Also, helps in making
prediction about performance
and income at different level of
sales.
Incremental budget It focuses on altering the
existing budget by making
required addition and
subtraction so as to determine
new budget.
It helps in making estimates
about future business expenses
and income amount as well. By
considering previous year
budget as base TPG Processing
can prepares its new period
budget. Thus, by using this
tool, unnecessary business

expenses can be reduced and
profitability as well as
productivity can be improved.
Variance analysis It helps TPG Processing in
determining the actual gap
between actual and budgeted
performance (Papa and et.al.,
2017). Measures and
appropriate actions can be
taken for making improvement
in variances for successful
attainment of business goals.
By applying this tool, TPG
Processing can control its
business expenditure related to
unproductive business
department by formulating
sound business policies and
strategies.
c) Comparison of how organizations are adapting management accounting systems in responding
its financial problems
Management accounting has evolved over the time and has gone through different phases
which are described below:
 Accounting for process (1812-1920), it focussed on cost of operations and efficiency of
process.
 Cost Accounting (1920 – 1950), this stage was concerned with cost ascertainment and
financial control. Also, matching concept was developed in this stage.
 Managerial Accounting (1951 – 1980), emphasis was more on providing information to
the management for decision-making, planning and control.
 Cost Management 1980, emphasis was on reducing the wastage in the operations, just in
time inventor system, ABC costing, quality management.
 Value Based Management 1990, emphasis was on creating a value for the customer by the
way of balance-scorecard and effective business strategies.
Different organizations employed different management accounting systems for handling

their financial issues. There are various managerial accounting techniques for identifying the
financial problems such as benchmarking, ratio analysis and key performance indicators.
Identification of financial problems by using different management accounting tools
Key performance indicators
( P&G)
Benchmarking
( Unilever)
It is one of the tool for identifying the financial
problem and is a method of performance
measurement. These key performance indicators
are divided into high KPIs and low KPIs which
focuses on assessing the performance of
different areas of the business organization.
High level KPIs are concerned with the
assessment of overall efficiency of the
organization such as profitability etc., while low
level KPIs are concerned with the specific area
of the organization such as employee,
department etc. Procter & Gamble (P&G)
which is a consumer goods production company
uses key performance indicators for identifying
and assessing its financial problems (Parmenter,
2015). The best part about this method is that it
facilitates the managers of the company to
evaluate each and every aspect of the business
from which issues relating to different areas
could be found out. This helps in taking
corrective steps for improving the financial
performance of the company.
This technique of management
accounting refers to the process of assessing the
company's own performance, policies,
processes, products with that of the best
performance set as a standard in the industry.
The benefit of employing this technique is that it
assist the managers in determining the scope of
improvement through which company can
enhance its performance in every sphere of
business operations (Joh and Eeckhout,2018).
Unilvever, which is a consumer goods
manufacturing company applies this method for
identifying its financial performance and also
gets the opportunity for improving their
products, policies, processes, performance by
comparing with the best in the industry.
However, problem with this method is that it
does not take into account each and every of a
business. For example, benchmarking does not
provide the base or conditions under which the
standards were set by the leading company in
the industry.
P&G and Unilever applies different management accounting tools for identifying their
problems and for responding them because every business enterprise have different business
requirements and different ways of conducting business activities which are in accordance with
their business objectives and goals. It is for this reason that every company adapts to management
accounting in different way which is in line with the organisational needs and objectives.

Adaptation of management accounting systems by P& G and Unilever
Unilever employs price optimization system in which it integrates the sales data, customer
preferences and the competition factor for the purpose of finding the most right price for its
products. Proper pricing of the goods is required since higher prices won't attract customers while
too low prices will decrease the profitability of business. Thus, this system of management
accounting helps it in dealing with its financial problems since appropriate price will increase sales
and cash flow for the business.
P& G adapts to cost accounting system for confronting its financial issues. It integrates the
cost accounting system with its other organisational processes for the purpose of appropriately
assigning the costs to each department and use the resources optimally. It helps in controlling the
costs of operations and also aids it identifying the processes and departments which are profitable
and those which are not profitable. Such identification helps the company in making the deficient
departments more productive by making better decisions for them.
Ratio analysis:
It is a tool used by the companies for obtaining the crucial insights about its liquidity,
efficiency and profitability. Through the application of this technique, managers of P&G and
Unilever assesses their liquidity position which eventually helps them in formulating better
strategies for meeting their short term liabilities with more effectiveness (Penman, 2015).
Financial governance :
This can be defined as the manner in which a company gathers, manages, monitors and
controls the information of financial nature. Legal compliance, way of recording transactions,
managing the performances are included in financial governance. With effective financial
governance, budgets, forecasting and planning could be done with more accuracy through which
companies can deal with its financial problem more effectively (Rikhardsson and Yigitbasioglu,
2018).
d) Evaluating how management accounting, in responding to financial problems, can drive
organizations to sustainable success
Adaption of management accounting systems
Management accountant are the persons in the organizations who are responsible for
carrying out the work of management accounting. Management accounting requires the discretion
and judgement of accountant for aptly allocating the costs to each of the department and pricing the
products and services. For example , Appropriate pricing optimization strategy is required for the

success of organization because of customers are availed with wide variety of options and
switching cost is also that high. So, if the pricing of the products are not done appropriately then it
could result into loss of customer base and would create financial problems for the company.
CONCLUSION
From the above project report, it can be summarized that management accounting is an
integral part of the business organization. Most of the major decision makings are done on the basis
of information derived by the way of managerial accounting. It was seen in the study that
managerial accounting have different kinds of systems such job costing system, inventory
management system, cost accounting system etc. Further, there were calculation regarding the
income statement by using different method of costing such as marginal costing which only
considers variable cost in the unit production cost and absorption costing which considers both
fixed and variable cost ion the unit cost of production. Lastly, it was seen that companies can deal
with their financial crisis with the management accounting techniques such as benchmarking, key
performance indicators, variance analysis, financial governance.

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