Unit 5 Management Accounting: Principles, Techniques, and Financial Performance

This report discusses the principles and techniques of management accounting, including budgetary control, capital budgeting, and trend analysis. It also highlights the importance of accurate financial statements and cash flow management in improving financial performance. The report provides a comprehensive understanding of management accounting and its significance in improving the financial performance of a company.

Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
Part A Management Accounting............................................................................................3
Part B Preparation of financial statements, including income statement...............................6
TASK 2............................................................................................................................................7
Part A Describe advantages and disadvantages of various types of planning tools tat are used
in budgetary control................................................................................................................7
Part B Adaptation of management accounting system in order to financial performance.....9
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
The below prepared report includes the importance of principles of management accounting
and fulfil the requirement of management accounting with the help of management
accounting tools or techniques. It include the roles and responsibilities of management
accounting system. There are various techniques of management accounting are discussed
below with its importances (Căpușneanu and et.al., 2020). This report also tells about the
merits and demerits of management accounting system and this will assist company to opt
best suitable management technique to deal with finance related issues. It work as a guide to
the company JM runs to provide best suitable alternative for smoothly running business
operations. According to the given case study financial statements of the company JM runs
are prepared which include income statement and also computed absorption and marginal
costing per units. Planning tools of budgetary controls are also discussed with its advantage
and disadvantages. Problems arising by the time of implementing management accounting
are also explained.
TASK 1
Part A Management Accounting
1. Brief discussion on the principles of management accounting.
Management accounting refers to the presentation of financial data of a company that
help internal management in order to make business decisions. Presentation of financial
information will future modified by the management to achieve particular objective of the
company (Dressler and Rachfall, 2020). Management accounting include several facts of
accounting that includes budgeting, forecasting and different financial analysis.
Principles of management accounting refers to the rules and regulation or necessary
guidelines that have to be followed by management while reporting the financial information.
These principles are helpful for the company to improve quality of financial information that is
prepared by managerial department. It bring effectiveness and efficiency in future plans and it is
essential for maximising future profits. Accounting principles are issued by the Financial
Accounting Standard Board and they have to strictly followed by all companies.
2. Roles and duties of managerial accounting and managerial accounting system.

Managerial accounting system involve in Collecting, investigating, summarising and
presenting information about financial activities of a company (Grasso and Tyson, 2021). These
reports are generally prepared by the managers of the company rather than any external. The
roles and duties of managerial accounting are discussed below:
 Target costing: Managerial accounting provide assistance to the company in order to
launch new product by analysing its the future cost. It also compare the actual cost by
budgeted cost levels and present report in front of management that helps in decision
making.
 Inventory valuation: This system help in measuring the cost of good sold or direct costs
and available stock levels and also take part in distribution of finance among various
overheads.
 Trend analysis: It review the various cost trends to analyse the fluctuation in the trend
lines from the long term pattern and also find out the reason behind these fluctuation and
report to the management.
 Transaction analysis: If there is any fluctuation found in cost tread lines than a
management professional go deeper to analyse individual transaction or financial activity
in context to find out reasons behind this situation. Individual examination of financial
transaction provide better understanding and clear view of fluctuation.
3. Analysing methods used in management accounting within an firm and importance of
management accounting techniques.
Following are the methods used in management accounting:
 Capital budgeting: When a company wants to invest in capital assets, it has to analyse
future benefits of the project (Hadi, Abed and Kadim, 2018). This method help Tesco plc
to make decision about weather to invest in the project or not. This helps a manager to
determine the best possible investment in order to generate higher returns or maximise
growth of the company. Accounting management uses capital budgeting method to
calculate investment returns.
 Constraints analysis technique: This method helps Tesco plc to find out obstruction in the
operations process. Its main motive is to measure and optimise the obstruction without
analysing whole process. There are many obstruction comes in a grocery company to
supply better quality product in lesser cost.

Following are the importance of management accounting techniques:
 Planning and Forecasting: Managerial techniques involve in planning and forecasting
process in order to estimate the economical directions of the Tesco plc in the upcoming
time period. It help in planning to increase revenue and decrease the cost incurred in the
operations (Hanif, 2019). It involve in creation of capital budgets which improve the
value of the company and these techniques also improve future profitability of the Tesco
plc.
 Investment decisions: managerial technique are helpful in creating cost analysis in order
to launch new project and also provide current report of the past projects. It also help in
tracing financial activities of the projects. These techniques ensure that the budgeted
investment is completed on time and also being profitable to organisation.
4. Critically analysis of management accounting:
Management accounting is a specific part of accounting that help in decision making by
presenting relevant accounting information.
Advantages of management accounting:
 Improve business efficiency: The main motive of managerial accounting is to improve
overall performance of the company. Management accounting using various techniques
or methods to measure the performance of the company and it also find out the deviation
or obstetrical comes in the operations (Himick, Johed and Pelger, 2022). It suggestion the
corrective measures to overcome from these deviations and improve productivity.
 Simplify Financial statements: Managerial accounting involve in the summarisation of
financial statements and prepare reports and present in front of management that help in
better decision making and provide better understanding. It suggest measure to reduce
cost and increase company probability.
Disadvantage of Management Accounting:
 Cost consuming and dependency: The set up of a management accounting department
require big expenditure as they require a management professional that can not bearable
for small enterprise. It is mostly depend on the financial and costs accounting for several
information (Vesty and et.al., 2022). If information is not provided by relevant
department than they face many challenges.

 Lack of specific procedure: There is no proper formate or rules and principles which
followed by management. Without proper process the provided information may
incorrect. It does not have specific plan and only transfer data to management. It can not
substitute the presence of management (Holtkemper, 2020).
Part B Preparation of financial statements, including income statement.
Computation of marginal costing per shirt
Marginal costing cost per unit (2021)
Direct Labour cost 5
Direct material cost 5
variable expenses 3
Total cost per unit 13
JW runs, forecasted income statements for the year ended 2021 Marginal costing
Sales (350000*15) 5250000
Cost of sales
Opening stock (90000*5) 450000
production (include all the production costs)
Direct labour (90000*5) 450000
direct material (90000*5) 450000
variable expenses (90000*3) 270000
Less- Closing stock (200000*5) -1000000 -620000
Cost of sales (opening stock + production -closing stock)
Contribution 267000
Less- Administrative overhead -10500
Fixed production cost per annum -120000
Net Profit before tax 4232500
Absorption costing cost per unit (2021)
Direct Labour cost 5
Direct material cost 5
variable expenses 3

Fixed indirect production cost 17
Total cost per unit 30
JW runs, forecasted income statements for the year ended 2021 using Absorption
costing
Sales (350000*15) 52500000
Cost of sales (opening stock + production -
closing stock)
Opening stock (90000*5) 450000
production (include all the production costs)
Direct labour (90000*5 450000
direct material (90000*5 450000
variable expenses (90000*3) 270000
Fixed production cost per annum 100000
Less- Closing stock (200000*5) -1000000
Cost of sales (opening stock + production -
clossing stock) -620000
Gross Profit 1,67,000
Less- Administrative overhead -11000
Net Profit before tax 1,56,000
TASK 2
Part A Describe advantages and disadvantages of various types of planning tools tat are used in
budgetary control.
Budgetary control: It refers to the proper management of income generaed and expenses
incurred in a particular budget during its life cycle. It is helpful in planning companies revenue
and expenditures which aim to double the company's assets and financials. It track the whole
activities of budget during its cycle (Kılıç, 2020). It also suggest corrective measure if any
divination found.
Some planning tools that are helpful in budgetary control are discussed below:
 Financial budget : It provide help to Tesco plc to have opinion in advance about the
budgets that they have opt for effective running of business operations. It involve in

management of generated returns with the support of short as well as long term operation
of the business(Lahann, Scheid and Fettke, 2019). It is important for the company to
having idea of profits generated during the period, what have to be borrowed and how
much is to be spend
Advantages Disadvantages
1. It is helpful in creation of plan according to
the future assumptions and also provide
support in order to carry out financial
activities.
1. It is based on assumption so it may not able
to handle future uncertainties, resulting it may
lead to grow expenses and loss of financial
resources.
 Operating budget : Operating budget refers to the budget that include income and
expenditure that generated by business in day to day business activities of Tesco plc. It
Involve costs related to goods sales and revenue earns by these activities (Mihaela and
et.al., 2019).
Advantages Disadvantages
It improve the daily operations of the company
and also fill the communication gap between
the employees and other professionals of the
company. It allocated the cost needed in day
to day operations. It also increase the
performance of the employees.
It is a time consuming process due to
recording day to day work activities, it might
be difficult for the company. Company can
suffer huge losses due to improper allocation
of resources and losses are harder to recover
near in future.
 Master budget : It refers to the budget that includes how much a firm plans to create and
how much it spend over a period of time. It is a combination of small budgets that has
been prepared by the company's different departments . Master budget includes cash
forecast, financial plans and other financial statements. A master budget is presented in a
month or quarterly formate or cover a fiscal year. It helps Tesco plc in preparation of
various budgets and also provide necessary measure to achieve specific goal and
objective (Mohr, Raudla and Douglas, 2018). It is a important planing tool which help in
operating activities in efficiently manner. It provide an overview to firm of its finances
and help to improve financial position of the company.
Advantages Disadvantages

It provide motivation to the employee to do
their work more effectively and efficiently. It
helps in comparing actual performance with
the budgeted one and find deviations in the
performance of the employees, suggest
corrective measures to solve deviations. It
contribute in order to improve growth of the
firm and also enhance job satisfaction.
Due to various categories and numbers in the
master budget, it is difficult to understand.
Master budget includes incomes and expenses
statements of the firm so it is extensive if a
business have many employees in different
department (Saputra and Wardi, 2021). There
is a massive lack of specificity. It is not
valuable because employee may not include
actual sales so the actual performance also
differ from budgeted performance.
Part B Adaptation of management accounting system in order to financial performance.
The management accounting system that applied by JM runs
 Benchmarking: It refers to the business operation that differentiate the product and
services at the marketplace from its competitors (Naji, 2021). It give clear view about the
deficiencies of the product or business in the market. JM runs opt this techniques to
improve quality of the product and also helpful in operating activities in well manner.
 Key Performance Indicators: These key factors provide clear view about the company
performance and its operational performance. It compare the actual performance with the
budget performance to find out deviations. These indicators are important in order to
measure company growth and employee contribution in a particular period of time
(Otley, 2019).
Discussing financial problems occur while adopting management accounting:
 lack of finance: Financial resources are important for the business to regulate business
operations. Finance take places in every part of company and it provide support to
expand and grow business. If there is shortage of funds than it create a big problem for
the JM runes.
 Inaccurate cash flow management: Management of cash is very important aspect of a
business. If there is mismanagement in cash inflows and outflow than JM runs can suffer

big problem and also damage the liquidity position of the company (Saleh, Jawabreh and
Abu-Eker, 2021).
 More debts: debts refers to the money borrowed by the comply to meet specific object or
expansion purpose. JM runs more depended on the long term debts because of shortage
of funds then it may take firm towards bankruptcy.
CONCLUSION
From the above prepared report it can be concluded that management accounting plays an
important role that help a business to work more effectively in order to manage its operations.
Management accounting help to improve financial position of the company by making better
decisions. It help in planning process and provide important information to the stakeholders or
investors. Management accounting techniques are helpful in analysing and comparing future
performance with the actual performance in order to find out any obstruction in the operations.
Budgetary control is an important aspect of managing various budgetary funds and costs that
increase the chances of success of any budget on time. KPI and benchmarking helps to measure
the performance of business and also states that where the business lack behind. Management
accounting system is an important aspect of a successful business.

REFERENCES
Books and Journals
Căpușneanu, S. and et.al., 2020. Environmental Management Accounting: A Business
Perspective on the Policies, Analyses, and Benefits of Its Implementation.
In Management Accounting Standards for Sustainable Business Practices (pp. 27-51).
IGI Global.
Dressler, S. and Rachfall, T., 2020. Improved learning performance based on a flipped classroom
concept—A case study based on the course introduction to management accounting for
business engineers. In Flipped Classrooms with Diverse Learners (pp. 183-201).
Springer, Singapore.
Grasso, L.P. and Tyson, T., 2021. Management Accounting Systems and Performance
Measurement at Lean Companies. Management Accounting Quarterly. 22(3).
Hadi, A.M., Abed, A.R. and Kadim, H.O., 2018. The role of forensic accounting and its
relationship with taxation system in Iraq. Academy of Accounting and Financial Studies
Journal. 22(4), pp.1-10.
Hanif, M., 2019. Modern Cost and Management Accounting. McGraw-Hill Education.
Himick, D., Johed, G. and Pelger, C., 2022. Qualitative research on financial accounting–an
emerging field. Qualitative Research in Accounting & Management, (ahead-of-print).
Holtkemper, O., 2020. Digitization of the Management Accounting Function: A Case Study
Analysis on Manufacturing Companies. Springer Nature.
Kılıç, B.İ., 2020. The effects of big data on forensic accounting practices and education.
In Contemporary issues in audit management and forensic accounting. Emerald
Publishing Limited.
Lahann, J., Scheid, M. and Fettke, P., 2019, July. Utilizing machine learning techniques to reveal
vat compliance violations in accounting data. In 2019 IEEE 21st Conference on
Business Informatics (CBI) (Vol. 1, pp. 1-10). IEEE.
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MEASURING AND PILOTING THE OVERALL PERFORMANCE. Annals of the
University of Oradea, Economic Science Series, 28(2).
Mohr, Z.T., Raudla, R. and Douglas, J.W., 2018. Is Cost Accounting Used with Other NPM
Practices? Evidence from European Countries. Public Performance & Management
Review. 41(4), pp.696-722.
Naji, A.F., 2021. The extent to which e-learning techniques contribute to improving the level of
accounting education (Graphic Tablet as a proposed technology): exploratory study at
University of Fallujah. Tikrit Journal of Administration and Economics Sciences. 17(55
part 2).
Otley, D.T., 2019. The Contingency Theory Of Management Accounting. Achievement And
Prognosis. Management Control Theory. 5(4), p.305.
Saleh, M.M.A., Jawabreh, O. and Abu-Eker, E.F.M., 2021. Factors of applying creative
accounting and its impact on the quality of financial statements in Jordanian hotels,
sustainable practices. Journal of Sustainable Finance & Investment. pp.1-17.
Saputra, A.T. and Wardi, Y., 2021, November. The Influence of Transformational Leadership
and Organizational Commitments on Employee Performance in Uptd Samsat Padang.
In Seventh Padang International Conference On Economics Education, Economics,

Business and Management, Accounting and Entrepreneurship (PICEEBA 2021) (pp.
425-432). Atlantis Press.
Vesty, G. and et.al., 2022. Accounting, valuing and investing in health care: dealing with
outdated accounting models. Meditari Accountancy Research.