Management Accounting: Principles, Techniques, and Applications

Unit -5 Management Accounting

Table of Contents
Introduction....................................................................................................................................4
Task 1:.............................................................................................................................................5
A. Explain the meaning of management accounting and give essential requirements
management accounting systems in the business........................................................................5
B. Explain the methods of the management reports as well as justify their importance in
the organization context................................................................................................................7
C. Explain the significance of the management accounting systems in the organization as
well as explain the importance of the management accounting and explain why it is
presented in an understandable manner.....................................................................................9
Task 2............................................................................................................................................13
A. 1) Explain absorption costing and marginal costing.....................................................13
2) Prepare an Income Statement based on the calculations of costs using both a) absorption
costing method and b) marginal costing method......................................................................13
B.....................................................................................................................................................14
Task 3............................................................................................................................................17
Introduction..................................................................................................................................17
A. Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.........................................................................................................................17
B. Show the application of the planning tools for preparing, forecasting and analyzing
budgets..........................................................................................................................................19

C. Compare how your organization is different in adapting management accounting
systems to respond to financial problems..................................................................................20
D. Analyse how your management accounting techniques could respond to financial
problems and lead the organization to sustainable success.....................................................20
E. Evaluate how planning tools could be used to solve financial problems and lead the
organization to sustainable success............................................................................................20
Conclusion....................................................................................................................................21
Conclusions...................................................................................................................................22
References.....................................................................................................................................23

Introduction
The give report has been prepared with the aim of providing a detailed knowledge as well as
scope and ambit of management accounting. This will help the every business organization to
perform better in the business operations so that it can achieve competitive advantage. Through
the application of management accounting, strategic competitive advantage can be achieved.
Also, for the ease of understanding of the concept of management accounting, a real instance of
the small and medium enterprise of UK namely, ThirdWay Group has been taken. This will
facilitate to understand the concept in a better way. Each part has its own introduction and
conclusion so that the reader of the report can get an idea regarding what is going to be covered
in the report, as well as what have been discussed throughout the report.

Task 1:
A. Explain the meaning of management accounting and give essential requirements
management accounting systems in the business.
The management accounting is defined as a process of making the financial and final reports of
the company. It helps the company to maintain the accurate financial and statistical information
of the company. It helps the managers in decision making process (Holt, 2014).
There is a difference in management and financial accounting where the former focus on helping
the insiders the latter used to serve the outsiders with the financial report of the company.
Particulars Management accounting Financial accounting
It is a process of making the
financial reports that helps the
managers in decision making.
It is process making the
financial reports which help
the public in large.
Focus It helps the insiders of the
company.
It helps the outsiders of the
company (Hemmer and Labro,
2016).
Range of accounting It deals in both management
and financial accounting
It only deals in financial
accounting.
Approach It has a long approach in
serving organization.
It used to serve the outsiders
of the company.

Different types of management accounting systems.
 Cost accounting Systems: By this method the company Thirdway Group can assess the cost of
the products and the services. The factors of profitability are analyzed by this method.
Different cost in costing system is;
Normal costing: all the units of the business like direct material labor and overheads are valued
at the actual cost. So, the base they used to value is the actual cost (Kerzner and Kerzner, 2017).
Actual cost; the actual cost of the company is measured in forms of actual material, actual labor.
This method also records the product cost.
Standard costing; it is a method of substituting the expected cost with the actual cost. The
difference of the expected and actual cost can be ascertained through this (F.O., 2015).
Job costing systems: this method helps to establish a manufacturing cost to each product and
item of the business, thus assigning each product a manufacturing cost, this may help the
company in knowing manufacturing cost of each product. Also this system helps in allocating
the manufacturing cost of each product (Holt, 2014).
Inventory management system; this system helps to maintain the inventory level at each
interval of the construction business.
Types of inventory management;
Types Explanation
FIFO; first in first out the company used to sale its
first purchase items
LIFO last in first out, the company focuses on
clearing the last purchase item at first