Management Accounting: Principles, Role, Techniques and Methods

This report discusses the principles, role, techniques and methods of management accounting and how it supports business growth and success. It includes a comparison and contrast of planning tools and an evaluation of the effectiveness of management accounting in dealing with financial problems. Case studies and recommendations are provided. The report is based on AIRDIR, a significant drying industry founded in 1974.

MANAGMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
PART 1............................................................................................................................................3
TASK 1............................................................................................................................................3
1. An explanation of the principles of management accounting............................................3
2. The role of management accounting and management accounting systems......................5
3. The use of techniques and methods used in management accounting by presenting
calculations for an income statement using marginal and absorption costings to show how
these financial reporting and statements support business growth and success.....................8
4. Evaluation of how management accounting is integrated within the organisation. ........13
5. The benefits of the function to the organisation...............................................................13
6. Conclusions that critically reflect the application of management accounting................14
PART 2..........................................................................................................................................14
1. Compare and contrast three planning tools used in management accounting, indicating how
effective you judge each to be and why. Your judgements should be supported by examples to
demonstrate advantages and disadvantages..........................................................................14
2. Using specific case studies as examples, compare ways in which management accounting is
applied, the effectiveness of management accounting in dealing with financial problems and
preventing financial problems in organisations....................................................................16
3. Provide conclusions and recommendations to the organisation on which methods to apply
in order to achieve sustainable business success, based on your findings and evidence
provided................................................................................................................................17
CONCLUSION..............................................................................................................................17
REFERENCES .............................................................................................................................18

INTRODUCTION
Management accounting is the process which makes chain of activities that helps in
making analysis over the cost in relation over particular business is provide. Also in this
operations related to build financial report, records and different accounts for taking relevant
decisions over goals and objectives that has been set by an organization. This is an important
perspective which makes sense developed about financial and cost data making translation
within the meaning of information and data within an organization. It is an important aspect that
is used in order to make development of accounts possible within an organization. Also the
accounting data of an organization makes various perspective to be achieved which is based
upon making budgetary plans that helps in creating financial stability created in an organization.
The report is related upon AIRDIR that has been founded in 1974 and has been dealing within
significant drying industry by finding gaps. Further, the report is based upon management of
accounting with all kinds of necessary requirement for managing accounting system. Also the
methods for management accounting within an organization has been developed with marginal
absorption cost. Further, the file has been discussing about advantages and disadvantages
regarding planning tools and adoption of accounting system to resolved finnacial problems has
been discussed.
PART 1
TASK 1
1. An explanation of the principles of management accounting.
Management accounting is that part of accounts within which an application in relation
over knowledge, tools and techniques through the concept has been formed leading upon
developing accuracy within accounting information this helps students in developing knowledge,
tool with techniques through concept that helps in making accounting information to be formed.
Through such information an organization is able to make plans with various policies making
organizations operations to be performed with better efficiency. Through the process
presentation of accounting and data is based upon economic conditions which is helpful in
making better effectiveness with strategies formed making data in relation upon economics that
has been helping in evaluating performance with management for building strategies by
comparing over things which helps in making budget and forecasting to be created.

Distinction between management and financial accounting:
There are difference in management and financial accounting that are as follows:
Aggregation:
Financial accounting makes depiction done over entire results in relation to business
which makes marginal accounting with reports achieved in detail manner which makes
influences created upon profit, product line and geographical region of its consumers.
Efficiency:
Financial accounting has been helping in terms of profitability which makes business
developed upon managerial accounts in relation to factors causing problem making ways of
resolving issues in positive way.
Reporting focus:
Financial reporting has been creating lot of financial statements which has made
distribution done both internally and externally within an organization. Also the management
accounting concerned with operational reports that makes distribution done within an
organization. After making the observation done with differences in relation over terms that is
useful for an organization in order to gain important insights with results out of it.
Price optimisation system
 This system help AIRDIR to determine the customers perception on different price of its
product.
 It also help the company to determine the best price of their products and services so that
they can maximise their profitability level.
Cost accounting system
 This system helps them to ascertain the best cost of their products with great profitability.
 It helps AIRDIR to measure the efficiency of their procedures in compare to their cost.
Inventory management system
 The system has created benefits within an organization as it helps to maintain accuracy
within its inventory system.
 Through managing inventory in more effective way an organization is able to minimise
cost by increasing sales leading profit uplifted.

2. The role of management accounting and management accounting systems.
Role of management accounting systems:
Inventory management system:
Inventory management system has been helping in tracking goods which is based upon
whole supply chain in relations to goods and services which is related over consumer base. The
management system is related over production in relation to retail warehouse and shopping that
involves movement of goods or stock between them. Inventory management system has been
proven to be helpful in tracking supply regarding products and services from which path of
goods has been passed through. This makes potential developed over transferring management
that has helped in making management done over multiple sites simultaneously to coordinate
each and every activity in proper way of motivating products that helps in placing important part
within the organization by helping in making organization deal with various aspects in
effectiveness. This system of management basically helps in making production capacity
developed for an organization.
Cost accounting system:
Cost accounting system is based upon making product costing system to be developed
with framework that has been used within various firms or organizations making estimation done
about cost of product and services to making analysis done over profitability through valuation
of inventory by controlling cost done in proper manner. In relation over AIRDRI there are
various kinds of cost accounting system which is used for coordinating each and every activity
making estimation with accurate cost in relation to product and services developed within critical
task for an organization. This makes estimation done over the closing values of materials,
finished products and work in progress with positivity.
Price optimisation system:
Price optimisation is an accounting tool that has been proved to be helpful in pricing
fields over evaluation regarding various applications which enables set prices. This makes
calculation some manner with varieties of demand as price changes making combination data
and information over the cost and inventory levels to make recommendation over prices which
enhances pricing. In relation over AIRDRI has helping in making price optimization of system
organization that able to make best process as per demand and supply of goods with services in
best manner.

Job costing:
Job costing incudes various aspects like cost materials, labour and overhead cost that in
involved within specific job. It is considered to be one of the most effective technique which
helps in making traces of cost in relation to an individual which is done through analysing
various factors in more effective manner. Also it deals over enabling accumulation over various
kind of cost related data over small unit which is based upon material, labour and overhead. In
context of AIRDRI they are required to use job costing in order to evaluate various kinds of
factors based upon cost which makes structure developed in better manner.
In an organization various kinds of management aspects in relation over accounting is covered
with accounting through helping in developing internal concentration regarding data in internal
manner which is done with financial accounting. This is effective in relation upon decision and
planing making controlling developed upon data and statistics over methods used by AIRDRI
helping for making management accounting done through reporting upon goals and objectives
achieved in effective manner.
Budget Report:
Budget report is based over various kinds of internal reporting that makes management
done upon making comparison and helps in budget estimation done with actual performance
within best manner possible. This provides to be making useful with the actual budget with
performance over actual performance during the accounting period in best manner possible. The
budget is based upon financial reports helping about future projects that makes accurate in
nature. In this accounting period managers and other makes comparison done over budget which
has been preparing period of actual results that has been incurred which makes accuracy to be
developed about future projects that makes accuracy developed within its nature. In this
accounting has been managed with the period of managers through comparing the budget ans its
various number that makes preparing done over actual results that has incurred. In relation over
AIRDRI by making budget reported in organization making prediction to be done about
projections in better and effective way making adoption to be done over importation means.
Performance report:
Performance report helps in making various kinds of analysis done which makes creation
and sending with respective stakeholders in an organization. This involve performance
improvement done through reporting in relation over project in more effective manner (Hilton

and Platt, 2013.). In other words performance makes outcome of an activity achieved which
makes actual results with budget and standards making variance observed through positive
approach. It helps in taking important decisions over various conditions with unfavourable
variance. There are various kinds of examples which is based upon report helping AIRDIR in
making personal get report over annual performance making dealing possible with appropriate
actions making goals and objectives achieved.
Accounts receivable report:
Accounts receivable report these are one of the most important part of an organization
that has been helping in listing about the unpaid consumer invoices and methods not used over
credit as per the data ranges. This is one of the primary tool which has been providing collection
upon making evaluation done with various kinds of credit and collections of functions taking
place within the organization helping in listing about unpaid consumer making collection
personal for evaluating different kinds of overdue that has made undue in nature. The kind of
report makes management to be evaluated with the effectiveness over credits and collection
functions taking place within an organization. The report has helped in estimating all the bad
debts that has been building for allowing over doubtful accounts in more effective manner. In
relation to AIRDRI there are various kinds of budget report which makes accumulation over
right kinds of knowledge with information making reach over desirable outcomes in more
effective. There are different factors helping in making costing of management of tools with
different kinds of factors to be done making cost evaluation with management done over
inventory management for gaining fruitful results.
Inventory management report:
Inventory management report is one of the most important aspect which helps in dealing
with various problems in more effective manner which makes data accumulation and information
regarding management of stock done in efficient manner. It is best method to be used making
understanding about right kind of inventory management making report with accurate results
accomplished. In this accurate dare and appropriate inventory management holds importance for
finding trends, weaknesses and strengths which helps in filling gap in effective manner. This is
required to gain knowledge and information regarding profitability over products through which
assurance developed which makes customers preferences understood in detail. It makes
preparation of budget as per requirement of customers needs.

So all are the important tools and techniques for management accounting reporting to get
potential results in better way.
3. The use of techniques and methods used in management accounting by presenting calculations
for an income statement using marginal and absorption costings to show how these
financial reporting and statements support business growth and success.
Marginal cost- This helps in providing indication upon accounting system that includes
variable cost which has been replaced with cost units and fixed costs over period of time making
accumulation of endeavour done effectively. The cost is known as variable cost including labour
and material cost with computation portion of fixed costs. In this organization develops average
cost which is fairly included over marginal cost equal to average cost. This is most common
kind of costing method underlined by an organization making categorization over expenditure
with fixed variable. It makes undertaking done over per unit calculation which is considered to
be production overheads with method of categorising expenditure or costs. Through such kind of
cost various perspective has been developed making expenditure to be prepared as per the
organizational perspective making organization understand budgeter policies. Also under it cost
incurred upon all kinds of organizational aspect is developed that has been affecting organization
directly. Under it an organization is major focused upon those factors that has been directly
impacting business organizations through making financial perspective to be covered with the
optimum utilization of resources that makes organizations perform various functions.
Absorption cost- As per the method used in accounting dimension over entire cost of
producing and manufacturing done over services. In this methods upon analysing and calculation
of cost with goods and services making manufacturing done by an organization. The method is
used for making analysis and calculation done over cost in relation to goods and services that
makes manufacturing by an organization which is taken into account with indirect expenditure as
well as direct costs. In this method all overheads related to analysis and cost calculation is done
over goods and services which an organization manufactures. It makes overhead related process
of manufacturing done in relation to nature which is replaced by cost of goods. In relation to
AIRDRI the cost can be calculated by management of an organization which helps in making
management calculate of an organization. This is cost per unit making sustainability, labour,
changeable determining about overheads. The fixed overheads per unit is deliberate by dividing
total fixed operation by number of units produced.

As per the above discussed various planning tools like zero budget, flexible budget and
master budget are very useful for the organisation. These budgets provide great benefits to the
organisation as it will help them to identify about the inflow and outflow of the cash. Also, it
help them to know about the financial condition of the organisation that they are going in a
downfall position or rising position. Also, it will help them to enhance their overall performance
and proper flow of the cash in the organisation. The cash budget for the business of AIRDIRis
mentioned below :
Receipts £
Cash sales 450
Credit sale receipts from
debtors 220
Other income earned 200
Total receipts (a) 870
Payments

Purchases 205
Wages 105
Fixed costs 200
Capital expenditure -
Machinery 650
Advertising 50
Total Payments (b) 1210
Surplus/Deficit (a) – (b) -340
4. Evaluation of how management accounting is integrated within the organisation.
All the management accounting system are inter linked to the management accounting
reporting. This statement can be understood with the help of the example such as in the business
of AIRDIR the system which has been implemented is inventory management so all the activities
which are related to the stock can be obtained through the inventory management reporting.
Another illustration is that the business of the AIRDIR. Operates their business with the
establishment of the cost accounting system which will enable the business to determine the
accurate cost of its items. Likewise, such company also integrated various managerial accounting
reporting in its business operations. Inventory management report is integrated with its business
operation to show and maintain the effective management and utilisation of its resources.
5. The benefits of the function to the organisation.
Management accounting technique provides that methods which are useful in calculating
the cost and profit by developing financial documents. These documents developed with the help
of above mentioned two techniques which are marginal costing and absorption costing. These
techniques are useful for the company as it will help them determine the profitability of the
business. There are various type of planning tool such as ZBB, master budget, and flexible
budget. These all the planning tools are very useful in budgetary control and also helpful in

solving out the financial problems. As the Master budget consist various budgets within like
cash, sales, purchase etc. So the company can easily solve out the problem of financial crisis as
all the activities can be regulated at one report. Other flexible budget helps them to change their
budget according to the market segments which provide great benefits and profitability to the
company. It will enable them to attract more customers in their business which results higher
success and brand value of the organisation.
6. Conclusions that critically reflect the application of management accounting.
With the help of income statements, it can be interpret that the profit for the month of
November and December is 61000 and 101000 according to the marginal costing method. Other
the profit is calculated 79000 and 83000 by using the absorption costing method. Profitability of
the month of December is higher as the sales revenues is higher in this moth. It is recommended
to AIRDIR that they should adopt absorption costing method rather than the marginal as with
this method they allocate all the direct and indirect cost properly.
PART 2
1. Compare and contrast three planning tools used in management accounting, indicating how
effective you judge each to be and why. Your judgements should be supported by
examples to demonstrate advantages and disadvantages.
Budget is related to those plan which is developed by the management of organisation to
determine their income and expenses in the coming year. Budget is prepared for the coming year
and it is one of the most important aspect of the organisation because it helps the company to
analyse the need of funds and also their expenses. There are different types of budget are present
and each have their advantage and disadvantage which are given below:
Budgetary control:
It is related to the skills and abilities of managers of the organisation under which it
utilises the funds of the organisation to evaluate the cost and other factor in any accounting
period. Budgetary control is related to those operations under which the managers of the
organisation develops a series of plan and financial objectives to conduct their business without

any problem related to the funds. Under this control the managers of the organisation has
compare the performance of the business with the plans and financial goals.
Budgetary procedure
It is related to those procedure which is prepared by management of organisation to
develop effective and attractive economical plan for the organisation for the achievement of
organisational goals and objectives. When the managers of the organisation prepare financial
plan for the organisation, they have to follow series of steps under which helps the employees to
develop the plan. The series of steps are development of budget, enactment of budget and
parliamentary control.
Zero based budget:
It is one of the most used and common method of budgeting under which all the expense
which has some value according to the need are considered in the process. The main
characteristic of this budget is that it start with zero as base.
Advantages:
One of the most important advantage of this method is that it contains even single digit
expenses which is spend in financial year and also all the cost of business.
Disadvantages:
It is one of the time consuming process under which the organisation has to evaluate
every single aspect.
Benchmarking-It is the key tool which is used the companies to evaluate its products, services,
and processes. This is beneficial for the companies as it helps the company to find out the
deviation between the expected and actual outcomes. It is useful for the AIRDIRas it will help
them to solve the issue of improper cash flow as this technique is useful in the identify the
internal opportunities in the organisation and also determine the other successful bossiness
strategies so that they can changes their strategies and operations accordingly. With the help of
benchmarking the company can reduce their issue of the improper cash flow as through the
benchmarking process the business target the standard which is to be achieved so that the
procedure of the business can be followed and the management of overall system can be done in
a best possible way.
Inventory management system: This system is probably make for utilising business tracking
goods and supply chain management. With the help of this firms can easily deliver their products

and customers can track their order easily. As per this AIRDIR mainly examine their raw
materials with their end goods through which they can focus on their overall business processes.
Along with this it will improves the different ways of this company to delivering the goods and
services. So that key functions of this manufacturing process products can be safe from
transmitted to warehouse. Therefore, this system is very useful for this appropriate organisation.
Zero-based budgeting- It takes into account each and every types of expenses which have been
incurred for the particular time period. The cost for every unit is taken as zero which is modified
according to the time and requirement. In the context of AIRDIR., this can be used for assessing
the usage capacity. Hence, the pros and cons are as follows:
Advantages-
 This can be used in bifurcating all the expenses so as to direct the firm's activities to
generate revenue (Soudani, 2012). This ensures a great level of accuracy is maintained which is necessary for proportionate
distribution of the funds.
Disadvantages-
 Every expense has to be reviewed which needs a good amount of time. Hence, it is a time
consuming method.
Price optimisation system:It is also known as the mathematical analysis which is helpful
for firms because by using this concept they can make several pricing strategies with different
channels. In regards with AIRDIR they have ample customers if they follow this strategy so that
they can set their particular prices in a perfect way.
As per the above discussion, it has been proved that financial governance is used by the
AIRDIR to solve the problem of increase the unnecessary business expenses because of the give
the credit facilities to the customers (Cooper, Ezzamel and Qu, 2017). By applying financial
governance they can control on their expenses and can enhance the money management skills of
their management. With the help of this management accounting technique they can continue the
flow of cash in their organisation which will help them to carry out their activities smoothly and
attain a better success. It also enhance the financial strength of the company so that they will be
able to attract various investors in their organisation.

2. Using specific case studies as examples, compare ways in which management accounting is
applied, the effectiveness of management accounting in dealing with financial problems
and preventing financial problems in organisations.
It not possible for any type of organisation to not have any problem in their business
because there are different types of problems are arises such as financial problem and many
more. It is the duty of the managers to solve these problems with effective accounting
management.
Risk management:
It is related to those management of the organisation which helps the managers to
evaluate the risk involve in any task or project so that the organisation can develop series of plan
and strategies to minimise these risk and makes them beneficial for the organisation. This
management helps to change the threat into the opportunity for the managers.
Cash Flow management:
It is related to those management of the organisation under which the managers of the
organisation have track the incoming and outgoing of the cash from the organisation it is one of
the important tool for the managers which helps them to considers the cash flow in the
organisation and utilises them in the business activities.
3. Provide conclusions and recommendations to the organisation on which methods to apply in
order to achieve sustainable business success, based on your findings and evidence
provided.
There are many planning tools which helps the organisation to deal with the issue related
to the financial problems in the organisation, these tools enable the manager of the organisation
to develop those measures in the organisation which helps the company to overcome these
financial problems within organization like
CONCLUSION
From the above discussion it can be concluded that management accounting is the
process by which an organization makes effective tools and techniques developed in relation to

profit and loss earned by making investment which is done by firm in order to sell its products
and goods within market. Further the file covers about various aspects that is related to inventory
management, cost accounting system and job costing helping in making accounting reports. Also
in this different methods of management makes counting report discussed. In the end various
kinds of financial issue faced by organization like lack of fund and makes impact created over
making profit and productivity formed in unfavourable manner. Also the accounting system has
been discussed in the end.

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