Management Accounting: Principles, Techniques, and Budgetary Tools

This report discusses the principles and importance of management accounting, different techniques used for it, and the advantages and disadvantages of budgetary tools. It also covers financial problems faced by companies and the use of key performance indicators and benchmarking. The report is based on a medium-sized enterprise in the manufacturing sector named Eastern Engineering Co. Ltd.

Unit 5 Assessment

TABLE OF CONTENT
INTRODUCTION ..........................................................................................................................4
TASK 1............................................................................................................................................4
1. The principles of management accounting..............................................................................4
2. Different techniques and methods used for management accounting reporting......................7
3. The advantages and disadvantages of the budgetary tools......................................................8
4. Financial problems ................................................................................................................10
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is a systematic process and method used by firms for
maintaining and preparing reports effectively about the operations of business that can help
managers make long term and short decisions to achieve success and goals. The present report
will be based on a medium-sized enterprise in the manufacturing sector named as eastern
engineering co. Ltd. The study will provide detailed information about principles of management
accounting and its importance and also different techniques used for it. Furthermore, it will
compare about how organization are adapting management systems to respond to financial
problems.
TASK 1
Management accounting
With the help of management accounting company can easily measure and interpret
about the financial goals and communicate effectively with each team members to share
information which is much-needed.
1. The principles of management accounting
The major purpose of management accounting is to enhance profitability and increase
performance of the business by minimizing losses which is beneficial for the growth of firm
Control at source accounting control costs which are incurred during the
business transactions and also firm can know
about repairs, raw material and maintenance
(Rikhardsson and Yigitbasioglu, 2018).
Accounting for inflation This accounting keep track on rate of inflation
to highlights the real value of the money (Pelz,
2019).
.
Different types of management accounting systems
Cost accounting system
It is a system used by firms who are especially work in a heavy flow in order to estimate
the products costs for cost control, profitability analysis, value and inventory valuation

(Maheshwari, Maheshwari and Maheshwari, 2021). The major role of cost accounting system is
to cut down the cost of the business activities to make company stable and achieve profit margins
so that they can easily make good market position.
Advantages Disadvantages
 By using this method company can
improve profit maximization.
 By having this method Firm can reduce
usage of excess transactions expenses
and minimize wastage.
 It is very expensive system among all
other system.
 Sometimes the results are misleading
which can create issues for company.
Job costing system
Job costing system is used by company to keep eye on cost of material plus related things
from it which are being utilized during course of the job and offer detailed data about overall
business activities (Pelz, 2019).
Advantages Disadvantages
 With the help of this method, company
can improve employee performance
and set benchmarks as well.
 It can help to monitor costs throughout
the process of manufacturing.
 In this system overheads are totally
based upon estimations.
 This system sometimes create conflict
between workers of firm because of
overload management work and heavy
paperwork.
Inventory management system
By having this system properly any business can keep track and proper record on goods
throughout their entire supply chain (Rikhardsson and Yigitbasioglu, 2018). By having this
method, they can get detailed data about inventory management methods and tools Eastern
engineering co. Ltd. used ERP method across selling channels in the firm.
Advantages Disadvantages
 This system improve profitability of the
company as with the help of inventory
tool company can save time and reduce
 This system requires large amount of
investment as solutions can be

workload.
 The manager can increase efficiency
and productivity which can increase
customer retention.
expensive in nature.
 If not managed effectively than it can
lead to poor control over excess stock
and inventory, goods.
Management accounting systems
 With the help of this system, managers and top level management team of the firm can
make important business related decisions.
 They can control unnecessary expenses by knowing where all the money goes and many
control over unnecessary expenses.
 This system can make comparison between actual expenses and evaluate all the
information related to finance.
 With the help of this important systems company’s managers can make operational
decisions so that they can understand every operational efficiency made during the
business activities (Rikhardsson and Yigitbasioglu, 2018).
 Along with its team manager of company can make investment long term decisions to
increase profitability and ensure the procedure of the system is integrated into the
organisational culture.

2. Different techniques and methods used for management accounting reporting
Management accounting report is basically used by company to make planning,
measuring performance and take important decision-making process effectively.
Cash report- It is the most important report prepared by the firm to know about the cash
inflows and outflows so that important decisions can be made (Pelz, 2019). The major aim of this
report is to provide detailed information about financial activity experienced throughout the
month and year.
Advantages
The major benefit of preparing this report is to help in comparing the cash budgets of the
company's past assessment with the current one. With the help of this report, Eastern engineering
Co. Ltd can easily assess the future requirements of the cash whether they have enough cash or
not.
By preparing this report, firm can get accurate information about the transactions related
to cash in the business which is beneficial for planning and coordination.
Disadvantages-
Despite, giving accurate information, cash report also have disadvantage which includes
sometime it may provide a misleading picture of loner term profitability which can create issues
as manager are not able to make decisions.
Budget report- This report is prepared by company to get information about actual
performance and can easily make comparison of the profitability of firm.
Advantages
The major advantage of preparing this report is: with the help of this report managers can
easily find out errors and mistakes and also make necessary changes (Maheshwari, Maheshwari
and Maheshwari, 2021). If any mistake or error has been found out by managers they
immediately take action without delay. Hence, it is said that with the help of budget report,
company's budget can be revised.
Disadvantages
The major drawback of this report is: it is a time-consuming process as it required time to
prepare company's budget. If budget is prepared and well-designed then company can avoid

unnecessary expenditure. If department of the firm does not achieve its budgeted results
effectively, then they blame each other and it can create dispute between employees.
Accounts receivable ageing report- By using this method, company can keep eye and
track the invoice balances that are unpaid. Eastern engineering co. Ltd. can helps themselves by
identifying invoices and keep track on slow payment customers or any stakeholders.
Advantages
firm can structure its work related to operational budget. Having this manager can get
idea about the balance customer owe company against the duration which is outstanding. In
short, it will provide highlight about money that is outstanding, determine the financial health of
firm's customers and money due by clients to firm.
Disadvantages
If this report is not prepared effectively by the management team then this weak
accounting report can cause challenging situations like allocating payment incorrectly and errors
on invoices and bills which is not beneficial for financial decisions making process. If the eastern
engineering co. Ltd adopts poor communication method with its customers then it can create
issues. So, it is essential to keep track of all the times and maintain healthy information flow.
3. The advantages and disadvantages of the budgetary tools.
Cash budget- The company needs to focus on this budget in order to understand detailed
information about cash. They can know about where all the money goes and received. It means
they need to know whether they have enough cash or not for future requirements and to continue
operating over the time frame.
Advantages-
If the company properly maintain this cash budget, then they can avoid debt which is
really beneficial for its performance. By using this budget, firm can easily become more
resourceful. Hence, it is said that with the help of cash budget manager can keep track on every
penny they spend, and they received with their cash flow statement and budget report (Reuther
and et.al., 2019).
Disadvantages-
The major drawback of this budget is it limits company's spending power as they are not
able to spend more than they have set budget (Hiebl and Richter, 2018). Nowadays, many
businesses have stopped accepting cash for certain activities. Hence, if the businesses only

utilizing cash budget they may find it challenging to access some of the major services which
only need online payment and this can impact overall productivity.
zero based budget- it is the method used by company in which all expenses must be clearly
mentioned. In other words, the major focus of this budget is starts at zero or from scratch. With
the help of this budget, eastern engineering co. Ltd. can easily tackle lower costs in the firm.
Advantages-
The major advantages of this budget is focused operation and lower costs which is
beneficial for generating revenues (Hiebl and Richter, 2018).
Disadvantages-
the company needs to give more time and cost in this budget because a new budget is
developed each period, hence they have to make more efforts and contribution. In addition to
this, ZBB budgeting may reward short term perspective by allocating more resources with the
highest revenues in the firm which requires more attention.
Activity based Budget
It a system used by company in order to analyse and record activities that lead to
company's costs (Asiaei and et.al., 2022). With the help of this budget, the cited organization can
predict costs and follow steps such as identifying cost drivers, estimate the cost per unit and total
units projecting and also to make decisions.
Advantages-
By using this budget, company can identify cost incurring activities and calculate the
cost per unit and keep track on expenses. Plus, they can also evaluate how many units are
occurring and what more improvement is needed. This budget helps the company to find out
ways to reduce cost of production and increase efficiency related to it. In order to improve
efficiencies, eastern engineering co. Ltd. Cut costs and eliminate waste with the help of this
method.
Disadvantages-
This budgeting could be considered as the most complicated budget by most of the
companies. Because of this, they will have to purchase some type of software which is used in
activity based budgeting (Johnstone, 2020). So, this budgeting is quite expensive in nature as
eastern engineering co. Ltd. Needs to pay for licences and purchase expensive software to

manage budgets. Plus, they need to provide training on this budgeting software and guide
employees about how to use it.
4. financial problems
Key performance indicators
With the help of KPIs company can measure its progress and success and set their desired
target accordingly (Bortoluzzi, de Souza and Furlan, 2021). They keep track on financial
requirements, expenses, revenues and customer satisfaction.
Advantages Disadvantages
 It saves business expenses
 Align company's sales and marketing
performance (Jetter, Eimecke and Rese,
2018)
 It requires lots of time and efforts to get
information.
 Too many KPIs can create confusion
Benchmarking
This process measure company' services and products and compare business performance
metrics to best practices from its competitors.
Advantages Disadvantages
 With the help of this method company
can improve its internal operations
 it can decrease costs by improving
efficiency.
 Sometimes it is impossible to make
comparison with other brands.
 Sometimes only one types of
benchmarking is set by firm which
doesn't meet organizational goals
(Reuther and et.al., 2019).
Comparative analysis:
Eastern engineering co. Ltd Smith brothers Ltd.
It provides services to industrial machinery and
textile related solutions. It uses key
performance indicators to measure customer
The company provides services related to
renewable energy and uses benchmarking to
measure the overall position of the company.

satisfaction level and retention rate. The manager set benchmark to create a deeper
understanding and forms relationship with the
competition.

CONCLUSION
To conclude, by evaluating the study it has been concluded that firm is maintaining its
cash budget, and management systems and its report properly in order to achieve success and
evaluated their cash inflows and outflows. In addition to this, it has been summarized that by
using comparative analysis, firm is using key performance indicator to measure success.

REFERENCES
Books and Journals
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.
Pelz, M., 2019. Can management accounting be helpful for young and small companies?
Systematic review of a paradox. International Journal of Management Reviews. 21(2).
pp.256-274.
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.
Johnstone, L., 2020. A systematic analysis of environmental management systems in SMEs:
Possible research directions from a management accounting and control stance. Journal
of Cleaner Production. 244. p.118802.
Maheshwari, S. N., Maheshwari, S. K. and Maheshwari, M. S. K., 2021. Principles of
Management Accounting. Sultan Chand & Sons.
Asiaei, K. and et.al., 2022. Green intellectual capital and environmental management accounting:
Natural resource orchestration in favor of environmental performance. Business
Strategy and the Environment. 31(1). pp.76-93.
Bortoluzzi, M., de Souza, C. C. and Furlan, M., 2021. Bibliometric analysis of renewable energy
types using key performance indicators and multicriteria decision models. Renewable
and Sustainable Energy Reviews. 143. p.110958.
Jetter, J., Eimecke, J. and Rese, A., 2018. Augmented reality tools for industrial applications:
What are potential key performance indicators and who benefits?. Computers in Human
Behavior. 87. pp.18-33.
Reuther, A. and et.al., 2019, September. Survey and benchmarking of machine learning
accelerators. In 2019 IEEE high performance extreme computing conference
(HPEC) (pp. 1-9). IEEE.
Online