Management Accounting Principles and Planning Tools for Budgetary Control

This report discusses the role of management accounting in making business decisions, including the principles of management accounting, different types of management accounting systems, methods of management accounting reporting, benefits of management accounting systems, and their application within the organization. It also compares three planning tools for budgetary control with their advantages and disadvantages. The report includes a portfolio of calculations for financial statements and ways to implement management accounting within an enterprise.

MANAGEMENT
ACCOUNTING PRINCIPLES

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Task-1..............................................................................................................................................3
Introduction to management accounting and its principals.........................................................3
The essential requirement of different types management accounting systems..........................3
Different methods of management accounting reporting............................................................4
Evaluation of the benefits of management accounting systems and its application within the
organization.................................................................................................................................5
Management accounting systems and management accounting reporting integrated within
organizational processes..............................................................................................................5
Part B...........................................................................................................................................5
Task-2..............................................................................................................................................7
Comparison of three planning tools for budgetary control with their advantages and
disadvantages...............................................................................................................................7
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
A process of accounting by which organizations prepare financial statements that helps
the external users as well as internal users of accounting to make financial decisions is known as
management accounting. This report will be based on the case study of JM. It is a company
headquartered in London, United Kingdom and deals in products related to clothing and apparel
This report is prepared in order to analyse the use of planning tools and the role of management
accounting in making business decisions. This project will include a portfolio of calculations for
financial statements and further find ways to implement management accounting within an
enterprise.
MAIN BODY
Task-1
Part A
Introduction to management accounting and its principals
The process of determining, measuring, analysing and presenting financial information to
the internal management of an organization is known as management accounting. This financial
information assists the internal management to make business decisions for the purpose of
achieving organizational objectives (Ameen, Ahmed, and Abd Hafez, 2018.). The concept of
management accounting follows a set of principles which are presentation of unbiased data,
accurate presentation of financial statements, consistency, stability and punctuality. The
principle of unbiased data states that the information presented in the statement should be
relevant and accurate for the users. It should not focus on achieving personal objectives, rather it
must help the company in making business decisions. The methods and principals of accounting
followed for the preparation of the statements should be consistent throughout. The principle of
punctuality states that the financial information should be presented to its users on time so that
the management can make necessary decisions on time without being delayed.
The essential requirement of different types management accounting systems
The need of the different types of management accounting systems have been explained below:
Cost accounting

Cost accounting is a part of management accounting used by the company Capital
Joinery. It helps the company in determining and segregating different costs associated with the
process of manufacturing and production (Maheshwari, Maheshwari, and Maheshwari, 2021).
With the help of the cost accounting, the company can find out costs associated with different
units and take necessary steps in order to control the cost and increase the profitability of the
company.
Inventory management system
The inventory management system is a way through which companies keep a track of
their inventory. There are various methods of inventory management followed by Capital Joinery
such as FIFO, LIFO, AVCO (Azudin, and Mansor, 2018.). These methods help the company in
identifying the need of inventory within the organization and ordering whenever required.
Job costing system
Job costing system of management accounting is used to identify the cost associated with
a specific project or job. The method of accounting is implemented within the capital joinery in
order to identify the accurate costs related to individual projects and take necessary actions
accordingly.
Different methods of management accounting reporting
Budgeting report
A budgeting report is projected report which helps the company in comparing the actual
expenditure with the forecasted budget. The method of management reporting is used by Capital
joinery for controlling cost and expenditure incurred by comparing their actual expenditure with
budgeted one (Pedroso, and Gomes, 2020).
Accounts receivables aging
The company Capital Joinery makes use of accounts receivables aging reporting for the
purpose of achieving the best financial results by managing the cash flow of the organization.
This report helps an enterprise in keeping a track of the debtors and creditors of the company.
Profit and Loss
The preparation of P&L statement by the Capital Joinery also comes under the scope of
management accounting reporting. P&L statement helps in identifying the expenditure incurred
and the profit earned within a specified period (Cescon, Costantini, and Grassetti,2019).

Evaluation of the benefits of management accounting systems and its application within the
organization
Benefits of cost accounting includes ascertaining direct as well as indirect cost, improving cost
efficiency by controlling extra costs incurred. It helps the company in formulating targets for
different heads by considering all costs associated with the business.
The benefits of job costing consists of evaluating the profitability of each job individually and
providing a base for calculating the cost of jobs of similar nature (Zahid, and Vagif, 2020).
Management accounting systems and management accounting reporting integrated within
organizational processes.
The systems of management accounting and management accounting reporting makes
use of different sorts of data for increasing the effectiveness of the organizational performance. It
includes qualitative as well as quantitative information to help the management in making
informed business decisions. With the help of management accounting systems and its reporting,
the company Capital Joinery works on continuously improving the quality of goods and services
provided by increasing the productivity and reducing the waste (Yakupova, 2019). These
methods and reporting further helps the company with quality management and cost
management within the organization.
Part B
Cost per unit absorption costing
Opening stock 450000
Manufacturing cost 2760000
Closing stock 1000000 2210000
Fixed expense of manufacturing 3040000
Administrative expense 10500
Selling and distribution expense 10000
Fixed expense 100000
Salaries 200000
Depreciation 21000
Total cost 5591500

Production 460000
Cost per unit 12.1554347826
Cost per unit marginal costing
Variable manufacturing cost 2300000
Administrative expense 10500
Selling and distribution cost 10000
Variable expense 1380000 3700500
Fixed expense 220000
Salaries 200000
Depreciation 21000 441000
4141500
Production 460000
Cost per unit 9.0032608696
Income statement
Absorption costing
Sales 5250000
Less: cost of goods sold
Opening stock 450000
Manufacturing cost 2760000
Closing stock 1000000 2210000
Fixed expense of manufacturing 3040000
Administrative expense 10500
Gross profit 3029500
Selling and distribution expense 10000
Fixed expense 100000
Salaries 200000
Depreciation 21000

Net profit 2698500
Marginal costing
Sales 5250000
Less
Variable manufacturing cost 2300000
Administraruve expense 10500
Selling and distribution cost 10000
Variable expense 1380000 3700500
Contribution 1549500
Less: fixed cost
Fixed expense 220000
Salaries 200000
Depreciation 21000 441000
Profit 1108500
Task-2
Comparison of three planning tools for budgetary control with their advantages and
disadvantages.
Budgetary control refers to a method that helps the organization in evaluating the actual
performance of the company that will be achieved by the company in future on the basis of
estimated budgets. Further, the actual performance of the company is compared with the
estimated budgets in order identify the variances and take measures accordingly. Three planning
tools of budgetary control used by the company JM are as follows:
Financial budgets
Financial budgets are used by JM into its organization as it helps the company in tracking
the activities related to the cash flow (Ho, 2018). Financial budgets focus on providing the
information from where the company will be sourcing the cash and how it will be spent. It
includes the preparation of cash budgets, balance sheet budgets and capital expenditure budgets.
Advantages

The use of cash budget which falls under the category of financial budgets, helps the
company in identifying potential deficits within the enterprise. It helps the company to keep a
check of all the activities related to cash flow and ensures if the company has enough funds to
meet the obligations of the company.
Disadvantages
The major disadvantages of using financial budgets comprises of disability to build
creditworthiness and jeopardy of the documents prepared. The preparation financial budgets
might limit the amount of debt taken by the company (Nikulina, Butyugina, and Gorbunova,
2019). It is a good sign as company will be able to save more but it will affect the
creditworthiness of the company and will face difficulty in taking loans from the market in the
times of need.
Operating budgets
Operating budgets is a planning tool used by enterprises in order to plan the operations
for a specific period. It is used by the JM company as it provides the company with a detailed
forecasting statement relating to the revenue and expenditure of the company. Types of operating
budget include sales or revenue budget, expense budget and project budget.
Advantages
If the company efficiently follows the process of operating budget, it can help the
company in increasing the accountability of the company. With the help of operating budget, the
company can manage its expenses and even spend beyond its means. This develops a financial
obedience under the organization. Another advantage of operating budgets is that it helps the
company in building financial reserves by keeping a track of revenue and expenditure of the
enterprise. It helps in increasing the investment and reducing the debt taken.
Disadvantages
Operating budgets can be found very time consuming as preparation of operating budgets
involves various documents, information related to the process of accounting within the
organization. It includes continuously taking steps of similar nature in order to improve its
quality before it gets approved which it time consuming and a costly process to follow. Another
disadvantage of operating budget can be inaccuracy of information. Since, the operating budget
is merely a forecasted statement based on previous accounting information, it is possible that the

projections do not match with the actual performance and lead to presentation of wrong
information.
Rolling budget
Rolling budget is a technique of budgetary control used by financial department of JM. It
allows an enterprise continuously extending the accounting period for which the budget is being
prepared. Under this technique, a budget for a period of 6 months or a year is created and then
rolls forward by a month, bimonthly or quarterly.
Advantages
This planning tool of budgetary control provides flexibility to the companies as they are
prepared for a short period. Because of this, the company can easily make necessary changes
whenever required (Henttu-Aho, 2018). It further reduces the uncertainty and helps in the
management of cash strategically and take corrective measures immediately whenever required
to minimize the impact of the any misconduct. It improves the efficiency of the organization as it
is easier for the management and the company to meet the short term targets as compared to the
budgets planned by way of traditional methods.
Disadvantages
The main disadvantage of rolling budget is that it occupies the staff for most of the time in a
year. As rolling budgets are created for a short period and are continuously prepared during a
year, most of the employees gets occupied in preparation of rolling budget. It affects the working
of other departments of organization and leads to mismanagement.
Part -B
Management accounting is among the most significant practice that is used and applied in
corporate entities. The role of management accounting practice is to allow the companies to
record the financial transaction in the best way possible and further to use the same in delivering
the business objectives. Companies in different industries and sectors such as retail, clothing,
fashion, information technology, manufacturing and many more sector are involved using the
management accounting practice as a way to record the business transactions and further to make
important decisions in business (Rikhardsson and Yigitbasioglu, 2018). the role of, management
accounting is to allow the companies like Marks and Spencer, Tesco and many more to assess

the performance of the organisation with the use of technique like ratio analysis that can direct
the venture about the overall performance of the venture. This has presented as a fact that the
management accounting practice play a vital role for the company to analysis the all areas of
performance and financial aspect of the venture and make relevant decision to maximise the
growth and development of the company. Management accounting as a technique also play role
in building the community partnership or alliances between the business venture. This is a key
aspect associated with management accounting practice is that it is highly engaged in developing
and establishing the community partnerships. Partnership and strategic alliance are one of the
core need companies hold as in order to deliver or execute any operation or business function
partnership and strategic alliance play a fundamental role. Strategic partnership allows to the
organisation to maximise its reach in respect to execute operations and functions of the venture.
In retail setting management accounting practices play a fundamental role. Today
companies like Marks and Spencer are one step ahead of its other competitors in market. The
way company has adopted different technique of management accounting like costing related
methods, investment appraisal, ratio analysis and such related methods are adopted to execute
the business functions (Ameen, Ahmed and Abd Hafez, 2018). These techniques and method of
management accounting could completely strengthen the decision making area of the company
which could further maximise to the overall growth and development of the venture. The key
role management accounting practice is to provide the competitive advantage to the organisation
in respective target market.
Operating a statutory body also require the use of management accounting practice. This
could allow the government to establish the statutory bodies every time they tend to utilise the
technique of management accounting. Government intervene in the market in order to regulate
the whole market and the act or actions companies in market are taking to execute the business
objectives (Juliana, Gani and Jermias, 2021). Management accounting play a fundamental role
for the government to strategically regulate the business operations and further to control the
same tragically. Role of management accounting is in every aspect and area of industry that can
regulate by the body. Costing is an important aspect and the management accounting practices
could favour to the management to control the cost of production along with controlling other
operational cost as well to make production cheaper in the market.

Management accounting has also been involved in managing the supply chain of the
organisation. Operation management is among the key area of function in organisation and
management accounting could completely influence to the operation management related
practice of the venture. With the use of effective technique like economic order quantity method
and such other of management accounting the organisation get to make the decision in respect to
the supply chain management feature of the organisation. Wincanton in United Kingdom is one
of the leading logistic company based in United Kingdom by holding the 13% market share of
the entire market (Zyznarska-Dworczak, 2018). The management accounting also contributed in
growing the value of the firm. This practice cold also secure the interest of the shareholders and
investor involve in the business by providing sufficient right to such stakeholders. Audit involve
in the management accounting could allow to the organisation for achieving better public
services. Adopt assure to the stakeholders that the money invested in the company are utilising in
conducting the relevant business operations. This is important that the shareholders are
convinced with the use company is utilising its resources. Management accounting payed a
fundamental role in improving the feasibility of the way funds in business are use. This entire
practice allows the organisation to make important decision related to different functional area in
business (Endenich and Trapp, 2020). The role management accounting play is to allow the
organisation to make all important business decision that can favour the venture in maximising
the overall growth and development of the venture. The role management accounting play is also
to support companies in taking competitive advantage in respective business environment.
Management accounting allow the company to ensure control over the operations and functional
areas of the organisation. Strengthening control over operation is among the key advantage
management accounting provide to the organisation.
CONCLUSION
From the above report, it can be concluded that the management accounting is must for
any organization in order to deal with financial problems within an organization. The principles
of management accounting guides the enterprises with the process of accounting to make

informed financial decisions within the organization. Further, the planning tools of budgetary
control helps the company in forecasting the budget for future period and compares the actual
performance with them. It helps the company in taking corrective measures for the deviations
found. With the evaluation of different systems of management accounting, it can be stated that
it helps the company in enhancing its profitability.

REFERENCES
Books and journals
Ameen, A. M., Ahmed, M. F. and Abd Hafez, M. A., 2018. The impact of management
accounting and how it can be implemented into the organizational culture. Dutch
Journal of Finance and Management. 2(1). p.02.
Ameen, A.M., Ahmed, M.F. and Abd Hafez, M.A., 2018. The Impact of Management
Accounting and How It Can Be Implemented into the Organizational Culture. Dutch
Journal of Finance and Management. 2(1). p.02.
Azudin, A. and Mansor, N., 2018. Management accounting practices of SMEs: The impact of
organizational DNA, business potential and operational technology. Asia Pacific
Management Review. 23(3). pp.222-226.
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Cescon, F., Costantini, A. and Grassetti, L., 2019. Strategic choices and strategic management
accounting in large manufacturing firms. Journal of Management and Governance.
23(3). pp.605-636.
Das, S.C., 2019. Management control systems: principles and practices. PHI Learning Pvt. Ltd..
Henttu-Aho, T., 2018. The role of rolling forecasting in budgetary control systems: reactive and
proactive types of planning. Journal of management control.29(3). pp.327-360.
Ho, A.T.K., 2018. From performance budgeting to performance budget management: theory and
practice. Public Administration Review.78(5). pp.748-758.
Juliana, C., Gani, L. and Jermias, J., 2021. Performance implications of misalignment among
business strategy, leadership style, organizational culture and management accounting
systems. International Journal of Ethics and Systems.
Maheshwari, S.N., Maheshwari, S.K. and Maheshwari, M.S.K., 2021. Principles of Management
Accounting. Sultan Chand & Sons.
Mishra, C.R., A STUDY ON BUDGET AND BUDGETARY CONTROL: ANALYSIS OF
CASH BUDGET.
Nikulina, S.N., Butyugina, A.A. and Gorbunova, E.E., 2019, October. Investment activity in
conditions of automation use of budgeting system. In IOP Conference Series: Earth and
Environmental Science (Vol. 341, No. 1, p. 012217). IOP Publishing.
Pedroso, E. and Gomes, C.F., 2020. The effectiveness of management accounting systems in
SMEs: A multidimensional measurement approach. Journal of Applied Accounting
Research.
Pellerin, R. and Perrier, N., 2019. A review of methods, techniques and tools for project planning
and control. International Journal of Production Research. 57(7). pp.2160-2178.
Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of Accounting
Information Systems. 29. pp.37-58.
Yakupova, L.R., 2019. BASIC PRINCIPLES OF IMPLEMENTATION OF STRATEGIC
MANAGEMENT ACCOUNTING AT THE ENTERPRISE. In Развитие
бухгалтерского учета и аудита в условиях цифровой экономики (pp. 302-308).
Zahid, N.A. and Vagif, L.M., 2020. ROLE OF MANAGEMENT ACCOUNTING IN THE
ORGANIZATION. Economic and Social Development: Book of Proceedings. 3.
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Zyznarska-Dworczak, B., 2018. Legitimacy theory in management accounting
research. Problemy Zarządzania. 16(1 (72)). pp.195-203.
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