Management Accounting Principles, Techniques and Budgetary Tools

This report explains the principles and importance of management accounting, different techniques and methods of management accounting reporting with examples, advantages and disadvantages of budgetary tools, and comparison between organizations adapting management systems to respond financial problems. The subject is management accounting and the course code is not mentioned. The report is relevant for students studying management accounting in any college or university. Get study material, solved assignments, essays and dissertations on Desklib.

Unit 5 Assessment

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Explaining the principles of management and its importance to integrate management
accounting system........................................................................................................................3
Explaining different techniques and methods of management accounting reporting with
examples......................................................................................................................................5
Advantages and disadvantages of budgetary tools......................................................................6
Comparing organizations adapting management systems to respond financial system..............7
CONCLUSION ...............................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Management accounting refers to the process that helps in preparing the reports of the
business operations and also help the managers to make the long and short term decisions. The
current assignment is based on the Eastern Engineering Co. Ltd. Which is the medium-sized
enterprise manufacturing sector. The report will outline the principles of management accounting
and its importance. Further this report will evaluate about the different techniques and methods
used for management accounting. This report will also outline the advantages and disadvantages
of budgetary tools and comparison between two organizations in adapting management systems
to respond financial problems.
MAIN BODY
Explaining the principles of management and its importance to integrate management accounting
system
Cost accounting system: The cost accounting system is the tool that is used by the
organization in order to estimate the cost of the products in order to analyse profits, valuing the
inventory and controlling the cost. It is very difficult for the organization to estimate the actual
cost of profit and to have good business operations (Rikhardsson and Yigitbasioglu, 2018). The
organization must know that the products they are producing is profitable or not. The cost system
helps the company to estimate the value of the material in the inventory, work in progress and
the good ready to sale.
Advantages Disadvantage
 Eliminates the wastes, losses and
the inefficiencies.
 It helps the company to have cost
reduction.
 In this only past performance is
recorded.
 The costs used to fluctuate
according the market conditions.
Job costing system: Job costing system refers to the principle which used to design in
order to track the cost of the individual projects and jobs. This system basically involves the

direct and indirect cost and focus on the three categories that is labour, material and overheads.
This is the best and precise way of costing that the cited organization can use in order to track the
costs and revenue that is associated with the particular project (Burritt and et.al., 2019). The
company must analyse the comparison between the different accounting principle and adopt the
best one.
Advantages Disadvantage
Profitability of the job can be determined
individually.
Enables the organization to make the
reliable estimation about monetary values.
The overheads are based on the estimation.
It faces difficulty to manage the difficulties
in the organization.
Inventory management system: An inventory management system refers to the system
that helps the organization to track the goods throughout by the supply chain, that is from
production to the sales. This management system helps the company to know about the
components that is needed to create in order to assemble the final product. By this management
the organization will able to know how much stock left in the inventory and have the proper
availability of the stock. The main aim of the inventory management system to ensure that there
are enough goods and material there in order to meet the demands without having the overstock
or the excess inventory in the organization.
Advantages Disadvantage
It helps the organization to have the proper
work by improving the efficiency and
productivity.
It is very hard and complex to have the
management of the inventory.
It is expensive and time-consuming process
of management.
These management accounting systems are important as it helps the company to make the
good decision- making in the company. This is used in the short and long term decisions which
involves the financial health of the company. Managerial accounting helps the managers in order
to have the operations decisions which helps the organization to increase its operational
efficiency. This will also help the organization to make the long term decisions for the doing the

investment. By having the management accounting systems manages and have the continuous
impoverishment in the development and integration of the cost management system.
Explaining different techniques and methods of management accounting reporting with examples
Cost Report: Cost reporting is defined as the process that is used to inform the clients
about the reporting of cost that will be occurred in order to complete the project. It is basically
the summary of the information and this report offers the managers the capacity in order to
realize the cost prices of the things (Bhimani, 2020). The cost report used to have summarization
of the production and the cost activity within the department for reporting the organization. This
report will help the Eastern Engineering Co. Ltd. To have the proper structure of the costs in
order to do the proper report of the costs.
Advantages: It helps the organization to adapt the cost properly and helps in easy
monitoring and controlling of the labour cost.
Disadvantage: It is more costly and it takes lots of time to make the cash report of the
organization.
Budget Report: The budget report refers to the internal report that is used by the
management in order to compare the estimated budgets with the actual goals received over the
period. It includes the budgeted amounts, transactions done and the budgeted balances that helps
the company to know and compare about the made budget with the actual achieved performance.
The main purpose of the budgeting report is to understand that how close the company is by
comparing the actual financial numbers with the actual prepared budget.
Advantage: By preparing the budget report it helps the organization to know about the
expenses that will be occurred over the period. This makes the organization to be prepared for
the emergencies.
Disadvantage: In order t make the budget report it is takes the lots of time and it is very
complex process. It used to create the rigidity by making the budget and this used to create the
problem as well.
Inventory Report: The inventory report is the type of report which used to include the
summary of the retailer's stock available in the inventory. By making the inventory report it will
help the organization to know about the existing stock left in the inventory (Alabdullah, 2019).
Eastern Engineering Co. Ltd. Must make the inventory report and segregate the list of every item

they used to produce. This will help them to know about the list of items that are existing in the
stock.
Advantage: By making the inventory report it helps the organization to track the
performance of the existing products, reduces the risks and helps in avoiding the unavailable
stock .
Disadvantage: As nowadays the company uses the software in order to manage the
inventory which is very time –consuming and quite expensive in order to prepare the inventory
report.
Advantages and disadvantages of budgetary tools
Cash budget: Cash budget is the estimation of the flow id cash in the business over the
period (Eisert and et.al., 2020). The advantages and disadvantages are as follows:
Advantage: By making the cash budget it will help the organization to avoid the debt and
manage the resources by allocating the resources. This budget helps the company to reduce the
expenditures and to control the cost.
Disadvantages: By making the cash budget it creates the danger of theft and eliminates
the rewards. This used to limit the money in order to do extra expenditure. By this company not
do any innovation in order to promote its business activities.
Zero based- budgeting: It is the process that used to allocate the funding based on the
program efficiency and necessity.
Advantages: By having the zero based budgeting it helps the company to built on the cost
benefit analysis and helps in prioritizing the resource allocation efficiency (Gunarathne, Lee and
Hitigala Kaluarachchilage, 2021). This also helps in the business process management and
strengthen the strategic growth and transparency.
Disadvantages: The drawback of this budgetary tool is that it can be complex and
expensive as well. If the Organization is having the unpredictable income than this budgeting
method is not possible to use.
Activity Based- budgeting: Activity based budgeting is the system that used to records,
research and used to analyse the activities that leads to costs for the company (Hiebl and Richter,
2018). The advantages and disadvantages of ABB are as follows:

Advantages: This budgeting method used to eliminate the sort of the unnecessary
activities and helps the cited organization to save the costs. By save the costs it helps the
organization to have good production of goods and services.
Disadvantages: The major disadvantages of ABB is that it is more costly and it takes lots
of time to implement as compare to other methods of budgeting. It is very complex process and
takes the lots of resources in order to implement this budget.
Comparing organizations adapting management systems to respond financial system
Benchmarking: Benchmarking refers to the practice that helps the organization to have
the comparing business process and the performance metrics. This will help the company to give
their best practices from the other organizations. The benchmarking dimensions basically
includes quality, cost and time.
Advantages: This management system improves the internal operations and helps the
company to have good respond with the financial system.
Disadvantages: By using this system it creates the hindrance in order to measure the
effectiveness of the company.
Key Performance Indicators: The key performance indicators are the indicators of
achieving the progress in order to have the good results. This used to provide the strategic and
operational improvement in order to create the analytical basis to have the best decision- making
(falih Chichan and Alabdullah, 2021).
Advantage: The benefit of using this indicator is to have the evidence of achieving the
progress towards the desired goals. By this the company will be having good respond to the
financial systems.
Disadvantage: In order to measure the KPI it used to take the lots of time which used to
have delays in the other working.
Variance Analysis: The variance analysis refers to the study of the deviations of the
actual behaviour with the forecasted behaviour in order to have the budgeting and management
accounting. By this, the organization will able to know about the deviations between the actual
planned with the previous planned behaviour while making the budget (Alami and ElMaraghy,
2020). The variance analysis helps the company to know that where they are lacking and due to
this the business performance is impacted. This will make the organization to know about the
financial stability and helps them to have the good respond to the company.

Advantage: This will help the organization to know about the deviations between the
actual planned with the previous planned behaviour while making the budget.
Disadvantage: The drawback is that the organization may not have the proper budget and
which causes financial dis-balances in the company.
Comparing the Eastern Engineering Co. Ltd. With
Eastern Engineering Co. Ltd. Southern Business Technologies
The company uses Key Performance Indicators
in order to manage and cope up with the
financial problems. By using this tool it will
help the organization to know about the
differences in the planned behaviour with the
actual behaviour. The KPI this the company
will able to make the good decisions and this
will help them to have the extra benefits to the
company.
The another business that is the Southern
Business Technologies that is using the bench
marking management tool in order to have
good respond to the contingent financial
problems. The organization uses this tool in
order to know about the competitors and their
profitability in the market. By utilizing this
management tool it will help the company will
able to know about its competitors and have the
best practices in the internal organization
(Hasyim and Jabid, 2019.). Further this
management tool must be properly used by the
organization else it will provide the hindrance
in order to measure the effectiveness of the
company.
CONCLUSION
From the above report it is concluded about the principles of management accounting and
its importance with examples. Further this report has evaluated about the different techniques
and methods used for management accounting with examples. This report has also described
about the advantages and disadvantages of budgetary tools and comparison between two
organizations in adapting management systems to respond financial problems.

REFERENCES
Books and Journals
Alabdullah, T. T. Y., 2019. Management accounting and service companies' performance:
Research in emerging economies. Australasian Accounting, Business and Finance
Journal. 13(4). pp.100-118.
Alami, D. and ElMaraghy, W., 2020. Traditional and activity based aggregate job costing
model. Procedia Cirp. 93. pp.610-615.
Bhimani, A., 2020. Digital data and management accounting: why we need to rethink research
methods. Journal of Management Control. 31(1). pp.9-23.
Burritt, R. L. and et.al., 2019. Diffusion of environmental management accounting for cleaner
production: Evidence from some case studies. Journal of Cleaner Production. 224.
pp.479-491.
Eisert, J. and et.al., 2020. Quantum certification and benchmarking. Nature Reviews
Physics. 2(7). pp.382-390.
falih Chichan, H. and Alabdullah, T. T. Y., 2021. Does Environmental Management Accounting
Matter in Promoting Sustainable Development? A study in Iraq. Journal of Accounting
Science. 5(2). pp.114-126.
Gunarathne, A. N., Lee, K. H. and Hitigala Kaluarachchilage, P. K., 2021. Institutional
pressures, environmental management strategy, and organizational performance: The
role of environmental management accounting. Business Strategy and the Environment.
30(2). pp.825-839.
Hasyim, A. and Jabid, A., 2019. Does cost accounting system contributes in supply chain
operations?. Uncertain Supply Chain Management. 7(2). pp.157-168.
Hiebl, M. R. and Richter, J. F., 2018. Response rates in management accounting survey
research. Journal of Management Accounting Research. 30(2). pp.59-79.
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.