Management Accounting: Principles and Planning

This document provides an introduction to management accounting and its essential requirements. It explains the different categories of management accounting systems and discusses various methods used for management accounting reporting. It also includes calculations of different types of costs to generate an income statement. The document is relevant for students studying management accounting or related courses.

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Management Accounting
Principles and Planning
Tools for Managing
Accounts

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Table of Contents
INTRODUCTION...........................................................................................................................1
TASK1.............................................................................................................................................1
P1 Explaining what is management accounting as well as essential requirements of its various
categories of system of management accounting........................................................................1
P2 Defining certain methods that are implied for management accounting reporting in the
company.......................................................................................................................................4
TASK 2............................................................................................................................................6
P3 Calculating multiple types of costs with the help of suitable methods to generate an income
statement of the company............................................................................................................6
TASK 3............................................................................................................................................8
P4: Identification of benefits and drawbacks related to tools of planning used in company......8
TASK 4............................................................................................................................................9
P5: Compare how organisations are managing the function of management accounting for the
purpose of dealing with financial problems.................................................................................9
CONCLUSION..............................................................................................................................10
REFERNCES.................................................................................................................................12

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INTRODUCTION
Concept of management accounting is seen as a part of organisation which is directly
connected to managing the provisions of the accounting information system and help the
stakeholders in identifying the current financial position of the organisation by managing
different kind of accounts (Qian, Hörisch and Schaltegger, 2018). In relation to the current
report, Airdri Limited is the chosen organisation. It is a medium sized establishment which
manufacturers variants of hand dryers.
Under the current report, there is a discussion about the management accounting in
addition the requirements of unalike kind of management accounting system within the
organisation where the explanation related to method used for management accounting will also
be considered. There is also use of practical illustrations to define the absorption and fixed cost
implemented by the organisation. In the end of the report, there is a discussion about the
advantages and disadvantages of various budgetary control tools as well as comparison between
management systems to respond different financial problems by using two organisations.
TASK1
P1 Explaining what is mmanagement accounting as well as essential requirements of its various
categories of system of management accounting
Definition of management accounting
Management accounting can be definite as a development within organization which is
related to identification and valuation of different accounts to determine the financial position of
the company as well as use the information for management of finance (Gibassier and Alcouffe,
2018). In relation to Airdri Limited, management accounting can be defining as system which
provides a particular process to the organization for recording its different accounts to identify its
current position for achieving the goals and objectives.
As per Institute of management accounting, it is determined that "Management
accounting is that field of management which is related to Management of financial and cost
accounts of the organization which help the management in taking different decisions related to
planning and increasing the performance of the organization. This system is directly associated
with the current position of the organization because it provide the analysis of financial
accounting system of the firm which are prime standard for determining the financial position of
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the organization in the current market. Management accounting can also use and system which is
related to controlling and monitoring the cost of different products and services offered by the
organization and various activities which are involved in process of business”.
Differentiation among financial accounting and managerial accounting
Financial accounting Managerial accounting
It is aggregation of accounting information
for devising financial statements.
It refers to internal processing that accounts for
transactions of entity (Bishop, 2018)
In Airdri Limited, financial accounting looks
to prepare profits only and is based on
historical records.
Within Airdri Limited, managerial accounting
cares towards bottleneck operations as well as
examines aspects to improve profits. It is
generally historical addition to forward looking.
In relation to Airdri Limited, there are ample of benefits to organization by using the
management function which are discussed below:
Profit maximization: management accounting is helpful to the organization in
maximizing the profits because it is related to management of cost the organization which it
implements on different kind of activities. With help of management of cost organization and
easily identify with actual amount of profit as a financial position of the company within market
(Smyth and Vanclay, 2017).
Efficiency booster: Management accounting also acts as a tool to increase the efficiency
of employees within the organization as well as other resources of the firm. This is because
management accounting helps in identification of various cost involved which directly related to
evaluation of the performance of different individuals and their roles. This will increase the
efficiency of individuals while working on a job because they can identify their performance and
can use the tools of management accounting in management of cost (Collis and Hussey, 2017).
Various types of MAS that are applied in Airdri Limited:
Price optimization system: Under the system of management accounting or organization
use a calculation instrument which is directly related to managing the performance of accounting
system within the organization to identify the response of customer behavior and use this
customer behavior for managing the prices of the product offered by organization (Sugahara, ,
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Daidj and Ushio, 2017). It is the best suitable method for the organization like Airdri Limited,
because it helped the firm in determining the price of the product identification of their actual
cost and expenditure which is involved while producing the products and services. Key
requirement of the system is to increase the profitability of the organization by using appropriate
pricing strategies and structure for the products and services offered by the firm within the
market.
Inventory management system: Inventory management system is also important part in
the marketing accounting system which is related to focusing on the organization product by
managing inventory and classifying the inventory in finished, unfinished and processing goods
(Trång, Johansson and Rosell, 2015). Under this system, organization used to manage the
inventory by the help of software and hardware. Key requirement in Airdri Limited of the system
is for managing the inventory where various kind of methods like FIFO, LIFO and many more
used by the organization to manage the inventory with inventory management system.
Cost accounting system: Cost accounting system can be defined as in that part of
management accounting which is directly related to identification of the overall cost of the
product identification of various factors and cost involved within the manufacturing of the
product (Psomas and Antony, 2019). It is mandatory part for the organization to adopt a cost
accounting system within the firm so that it can identify the overall manufacturing cost by using
different kind of cost like operating cost, absorption cost, variable cost, fixed cost and many
more. Management accounting style includes different kind of diagram charts. It includes sales
chart marginal cost chart and other which help in identification of cost related to the product and
manage the performance by identification of cost involved.
Job costing system: It is that type of costing system which include identification of the
overall cost and expenses which are incurred by the organization on a particular job. These
expenses are related to development of products and services in relation to a particular activity.
These activities include sales of product, purchase of products and many other operations within
the organization. It act as an important system within the management accounting of
organization because there are various industries like manufacturing in process which are highly
dependent on the job costing system. In relation to the system of job costing, organization used
to identify the cost involved in a particular activity so that it can decide the pricing of the product
by managing the compensation to labors and other factors involved in the activity. This method
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can be used by the Airdri Limited in identification of actual profits by determination of revenues
and expenses on products and services offered by the organization according to the particular job
(Haski-Leventhal, 2018). In Airdri Limited, essential requirement of the system is to assign
overhead costs to cost pools.
It can be analyzed from above mentioned information there are different kind of
functions performed under the management accounting system. It can also see that management
accounting is a great impact on the organization show a firm must use a proper system within the
management accounting to manage its accounts and identify the actual position within the
market.
P2 Defining certain methods that are implied for management accounting reporting in the
company
Management accounting reporting
Accounting reports can be defined as a crucial part of the organisation which healthy
form in framing a complete picture of the business performance. In relation to the organisation, it
is mandatory for the organisation to produce valid accounting reports in every quarter so that it
can identify the current position of the business. Accounting reports can be defined as a financial
status of the business which is directly related to presentation of the data over a specific period of
time (Tronchin, Manfren and Nastasi, 2018). These reports are based on financial information
from the accounting records which can be used by the organisation and filled with the data
related to transactions operational cost product profitability and regional sales. these reports are
essential for the organisation as well as manager so that they can take business decisions in an
effective way by identifying the current position of the business. There are different methods of
accounting reports that helps managers of Airdri Limited. Some of which are discussed below:
Budget report: Budget report can be defined as in most fundamental report within the
organisation which is included under the managerial accounting system. Reports are essential for
the business owners to understand and control the cost on the overall enterprises. This is because
these reports provide the data related to unified organisation or several departments in an
appropriate manner where the decision-making can be facilitated. Under budget reports, there is
evaluation of expenses in prior years so that it can become possible to estimate the overall budget
for particular year (Miatto, Schandl and Tanikawa, 2017). In context to Airdri Limited, budget
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report is useful in cutting the cost the placing a proper budget to a particular department and
identification of each and every aspect of a department by evaluation of their cost.
Account receivable aging report: These are also essential accounting reports to the
organisation specially deals in credit (Dabbicco and Mattei, 2021). This type of report is
generally useful to the organisation in identification of the credit customers where it provide the
overview of the balance according to the age. This report helps organisation such as Airdri
Limited in dividing with credit customer in separate categories which are classified as 30, 60 and
90 day’s credit period. Organisation to manage the credit policies so that it can manage account
receivable ageing report in an appropriate we identify the late payment from the customers and
charged interest according to the requirements and period of late payment.
Job costing report: It include that kind of reports which are directly related to providing
the side by side view of total cost implemented in a single project compared to the total expected
revenue from the project. In Airdri Limited, the method permits clerk accountant to track
expenses relevant to taxation together with financial analysis purposes. It is important report in
relation to the organisation performing within the retail industry because It helped the leaders in
evaluating the profitability of a particular project and taking decision according to it. It help in
optimising the resources by identification of the the profitability within the operation where
organisation can take decisions related to continuation or closure of the operation on the basis of
job cost reports (Howlett, 2019).
Inventory and manufacturing report: In relation to these reports get include physical
product specially those manufactured with no fault tolerance. These reports are important to the
organisation in identification of inventory and manufacturing process where it helps in
centralising the data of inventory cost labour and other forms of overheads which are involved
with the process of production. It helps managers of Airdri Limited in identification of
production processes for providing raw data as well as manage the assembly of machineries so
that management can get knowledge about different aspects of a process related to inventory and
manufacturing of products and services (Darbi, Hall and Knott, 2018).
It can be evaluated from the above that there are various kind of accounting reports which
can be used by the organisation for managing its functions as well as identification of
opportunities within the market. It can be seen that budget reports account receivable aging
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reports and job costing reports can be used in identification of appropriate cost and using the
tools and techniques for achievement of objectives (Nunhes, Bernardo and Oliveira, 2019).
TASK 2
P3 Calculating multiple types of costs with the help of suitable methods to generate an income
statement of the company
Income statement: Income statement can we define a document which is related to
financial position of the organization in a particular period of time. it shows how the revenues of
the organization are transformed in the net income and net profit by adjusting overall expenses.
Main purpose of income statement within the organization is to show the manager and the
investors about the financial position of the organization in relation to profit and loss during
particular period. it is necessary for the organization to perform separate income statement which
credit ability of the firm within the market and its financial position to attract the investor
(Salgues, 2018).
Absorption cost: Absorption cost can be defined as in that kind of cost which includes the
full cost of manufacturing for a particular service within the organization. It is not only the cost
of materials and Labor but also include the manufacturing overhead whether the fixed or variable
(Van der Stede, 2017). The cost of each cost center can be direct or indirect where the direct
costs can be easily identified within the individual cost centers but indirect cost cannot be
identified easily within a cost center. This is the reason behind using the concept of absorption
cause which distributes the overhead among the departments in an appropriate way for
identification of a particular cost which is absorbed by a particular department.
Marginal cost: It involves alteration in cost to manufacture an additional unit or to serve
more customer. The costing technique is used at the time when there are enough items that have
to be or are produced for the purpose of covering fixed costs as well as manufacturing things at
break even point in which expenses going forward are at direct or variable costs (Obasogie and
Newman, 2016). In Airdri Limited, calculating relevant to marginal cost assist in deciding key
point where to enhance number of commodities manufactured will create push to average cost
up.
Calculating different costs with suitable techniques relevant to cost analysis that are used in
Airdri Limited:
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TASK 3
P4: Identification of benefits and drawbacks related to tools of planning used in company
Budget: Budget can be defined as a statement which carries the estimation of cost,
revenue, sales, profitability and expenses that is used for a specified time period. It is very
helpful for a organisation to ensure its timely internal management and to measure the
performance according to set standards (Anderson, 2020). In Airdri Limited, budget are
prepared in advance along with further are compared with reality so to establish variances.
Budgetary control is a technique that can be used for the purpose of determination of
sales accordance to some budgeted figures but the time period is specified. After which the
actual calculation is made to understand these figures in context of a organisation. Within Airdri
Limited, budgetary control is seen as a process with the help of which financial control are
exercised.
There are some specific tools that are used for the purpose of budgetary planning:
Flexible budget: This is a tool that is used in case of budgetary control so that activities
can be easily managed according to the requirement of organisation (Cantwell, 2020). Airdri
Limited can also use this for the purpose of monitoring their sales as compared to the standard
sales that is desired by the organisation for a specific time period.
Benefits: It is used for determining the required level of production. According to sales of
a specific period future prediction can be done. Organisation such as Airdri Limited has a motive
to minimise the inventory cost.
Limitation: There is need of highly trained staff so that there can be proper management
of work according to future requirements (Alibašić, 2018). Flexible budget is not financially
viable to organisations as there is need of high monetary compensation that has to be paid to
trained staff.
Master budget: It consist lower level of budget, in this divisional budget is summed in
one budget that is combined in one single department. This consists of financial planning, cash
flow forecasting, budgeted statements. In Airdri Limited this type of budget has to be prepared
for a time of one financial year.
Benefits: This budget is the summary of management information. It is reflecting the
whole expense and associated revenue of each department. In Airdrio Limited, use of the
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planning tool helps in summarisation of all the budgets together so there is no need to maintain
separate budgets.
Limitation: It is difficult to upgrade to budget so there comes a need to make timely
changes that can help in meeting the overall budget requirements(Kieso, Weygandt and
Warfield, 2020). There is need to timely make Changes as the requirement are changing very
fast this can affect the overall procurer of financial management in a organisation like Airdri
Limited.
TASK 4
P5: Compare how organisations are managing the function of management accounting for the
purpose of dealing with financial problems
Financial issues are related to limited supply of financial resources. There are issues that
can happen because of misrepresentation, default of financial managers or sometimes financial
departments. Some of the financial issues are mentioned below:
High expense: There are some situations where Airdri Limited have to make lot of
promotion while they are launching some new products (Alsharari, and Youssef, 2017). They
have to distribute their free samples so that people can realise its taste and then purchase.
Management accounting approach to resolve problem related to funds in Airdri Limited:
Financial governance: This is a method that can be adopted by organisations for the
purpose of gathering of the necessary information. It helps in enhancing the authenticity of
financial information so that further decision can be made on this basis. This helps in fast
decision making so that no opportunity can be lost.
Benchmarking: It is a approach that can be adopted by organisation to work according to
certain specified standards. This is a very effective tool that can help in setting benchmarks and
then working according to such pre set benchmarks (Kornberger, Pflueger and Mouritsen, 2017).
For the Purpose of analysing two organisations on based below discussed is the
differentiation table that will help in analysing some of the aspect that are different in two
organisations who are operating at similar level and are part of same industry.
Basis Airdri Limited Mars Limited
Airdri Limited are dealing in Marks is having speciality in
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juices, smoothies that are sold
in coffee shops, supermarkets.
All its functions are managed
by brands such as Coca cola.
manufacturing vacuum
cleaners
Issues There has been a Huge decline
in revenue since quarter
ending in march 2020 because
of the situations of COVID-19
as people are not preferring
outside eatables (World Health
Organization, 2019).
There is no meeting up of the
set sales targets.
Management accounting It is a branch of cost
accounting which is used for
cost ascertainment like fixed
cost calculation. This help in
taking benefits of economies
of scale as when fixed cost is
spread overall large quantities
of production then it leads to
reduction in its elements and
taking benefits of variable cost
(Boshnakova and Goldblatt,
2017).
The financial department of
Mars drinks has adopted the
inventory management system
to maintain the cost of
inventory.
Mars Limited is more suitable in solving financial problem than other company as it has
adopted financial as well as non-financial matrix to solve financial problem.
CONCLUSION
It can be concluded from the above-mentioned report that management accounting is an
essential part of the organisation because it was elected in identification of different kind of cost
which is involved by the organisation in production services. It can be seen that businesses can
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use different kind of management accounting which help form in profit maximization as well as
increasing the efficiency. There are different kind of systems like price optimisation system,
inventory management system, cost accounting system and job costing system which is
mandatory for the firm to achieve a separate image within the market by using proper costing
techniques. It is also analysed that management accounting reporting is also essential for the firm
which include different kind of reports for increasing efficiency and working within the firm in
an appropriate manner.
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