Management Accounting: Principles, Tools, and Techniques for Pharmacy2U

Unit – 5 MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
Management accounting and essential requirements of different types of management
accounting system........................................................................................................................3
Meaning of Management Accounting.........................................................................................3
Essential requirement of different types of management accounting system..............................3
Methods used for management accounting reporting..................................................................4
Principles of management accounting.........................................................................................4
Role of management accounting & MA systems........................................................................5
Income statement under variable and absorption costing............................................................6
Income statement under absorption costing.................................................................................7
Income statement under marginal costing..................................................................................8
Reason of difference between Marginal and Absorption costing................................................8
Critical evaluation of management accounting system and reporting integration within the
Pharmacy2U company.................................................................................................................8
Benefits of the function of management accounting to Pharmacy2U industry...........................9
Conclusion on application of management accounting...............................................................9
PART 2..........................................................................................................................................10
Comparison of three planning tools used in management accounting......................................10
.......................................................................................................................................................13
Comparison of ways in which management accounting is effective in dealing with financial
problems by preventing it..........................................................................................................13
CONCLUSION AND RECOMMENDATIONS:.........................................................................15
........................................................................................................................................................16
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting (MA) is also termed as managerial accounting is a process of
identify, estimate, analyse, interpret & communicate the financial information to managers of the
company for successfully achieving organizational goals (Ax and Greve, 2017). This report is
based on Pharmacy2U founded by pharmacist Daniel Lee in November 1999. It is an online
pharmacy located in UK. This report will study about principle of management accounting & the
role of MA. Moreover, it will study about income statement using absorption & marginal costing
method to present the co. financial statement & position. This report will also discuss the
function of MA & its advantages and disadvantages. Study will also further focus towards
planning tools of MA or case studies with example for compare the ways in which MA is
applied. Report will also give conclusions and recommendations to the company.
PART A
Management accounting and essential requirements of different types of management
accounting system
Meaning of Management Accounting
The institute of Cost and Management Accountants, MA is the preparation of financial
information by implementing of professional knowledge & skill. This information help in a way
to guide manager in the formulation of various policies and also help in planning and controlling
of the company's operation for achieving sustainable growth (Qian, Hörisch and Schaltegger,
2018).
Essential requirement of different types of management accounting system
The basic management accounting system which is required to be followed and apply by
Pharmacy2U are as follows:
 Cost Accounting
Cost accounting direct the manager to evaluate the company's total cost of production including
variable costs & fixed costs for production of per unit. For ex. Pharmacy2U co. use cost
accounting system to know the cost of each capsule which involve cost of drugs, any chemical
solution, or plastic body, packaging and so on. It assists the managers to take decision about the
price of per capsule.

 Inventory management system
This system is used for calculating the value of inventory by using various methods such as
LIFO, FIFO, AVCO. For ex. Pharmacy2U can use inventory system to evaluate the need of
quantity of products such as drugs, chemical solution, aluminium & plastic for packaging etc. so
that the overstock of material is ignored (Ngo, 2020).
 Price-optimization system
Price-optimization is used to calculate the price according to the changing market demand of the
product at different price levels. It helps companies to decide their price at that level they earn
maximum profit. For ex. Pharmacy2U use this system to calculate the price according to the
particular demand of the medicine.
Methods used for management accounting reporting
The different methods of MA that need to be used by Pharmacy2U finance and account manager
are as follows:
 Budget reports
Budget reports are very critical in evaluating company performance. An estimated budget is
made based on historical data & then according to that budget company's actual performance is
compared (Andriani and Suhartini, 2020). For ex. Pharmacy2U used cash budget to know the
cost of raw materials and on the basis of that plan their future prices to earn maximum profit.
 Performance reports
These reports are used to create the performance review of a company as a whole. Each
employee performance are analysed by this report which help company to know that which
employee underperform & need training.
 Cost managerial accounting reports
These reports help the company to analyse their cost of production including all direct and
indirect cost such as raw material cost, overhead, labour etc. For ex. These methods used by
Pharmacy2U to identify their cost including drugs, chemical solution, plastic & aluminium and
so on.
Principles of management accounting
The principles of MA that Pharmacy2U need to be followed are described below: