Management Accounting: Principles, Techniques, and Tools

This article discusses the principles, techniques, and tools used in management accounting. It covers topics such as the role of management accounting, cost accounting, job costing, inventory management, and price optimization systems. It also includes a comparison of three planning tools used in management accounting and provides examples of income statements and cash budgets. The article is relevant for students studying management accounting in any college or university.

Management accounting

TABLE OF CONTENTS
INTRODUCTION................................................................................................................................
MAIN BODY.......................................................................................................................................
PART 1.................................................................................................................................................
Principles of management accounting.........................................................................................4
Role of management accounting and management accounting systems.....................................5
Techniques and methods used in management accounting system.............................................5
Management accounting reporting..............................................................................................8
Providing the use of techniques and methods in management accounting by presenting
calculation....................................................................................................................................9
PART 2...............................................................................................................................................
Comparison and contrasting three planning tools used in management accounting.................10
Management accounting system for responding financial problems.........................................12
CONCLUSION..................................................................................................................................
RECOMMENDATION......................................................................................................................
REFERENCES...................................................................................................................................

INTRODUCTION
Management accounting is the practice of the identification, measurement, analysation
and interpretation of the communication of the financial information that is used by the managers
for pursuing the organizational goals. In this project the selected organization is AstraZeneca is a
British-Swedish company headquartered in London. It is a pharmaceutical company that has
been tackling cancer, cardiovascular and gastrointestinal infections, and respiratory and
inflammation problems through its medications. In this project the demonstration of the
understanding of management accounting systems will be explained. This project will be able to
explain the application of range of management accounting techniques. This project will use the
planning tools for the management accounting for being able to achieve the success that is
essential. In this project the comparison of the ways in which the organization would be able to
use the management accounting has been explained.
MAIN BODY
PART 1
Principles of management accounting
The principles of the management accounting are as follows,
 This is going to be able to provide the unbiased actual data that is said to be one principle
that allows the management accounting to influence he information, reports and its
accuracy.
 It wants accuracy from every branch of the accounting that is helping the reports,
information and the documentation being more accurate towards helping the
management.
 This has been considered to be the factor that allows the business to be able to generate
the consistency that is essential for the development of the stability and consistency (8
principles of management accounting, 2021).
 It has been found to be able to have the punctuality that is essential for the management
to be able to make the best decision which are related to the accounts (Rikhardsson and
Yigitbasioglu, 2018)
 The principles of execution have been found to be the key towards the attention which
has been drawn for the management for exceptional important issues.

Role of management accounting and management accounting systems
Management accounting has the following roles,
 Preparation of monthly management accounts for the aiding of the business decision-
making.
 Presentation of the reports for the senior manager for helping the business with better
decision-making that would contribution towards their success.
 Compiling of the strategies which are going to help the business reduce the costs of the
organization (Pelz, 2019).
 Obtaining finance for projects for investments in the future.
 Advising the organization with the most effective financial implication and business
decisions.
 Development of overseeing financial system for procedures for identification of
opportunities and their improvements.
 Controlling of income and expenses within the business for ensuring the expenditure
through online methods of budgets.
The role of management accounting system includes the cooperation includes the
decision-making towards the managerial performance. This considered to be he factor that helps
the business to decision the best and the mos effective ways in which the accounting information
can be used for better decisions in the managerial aspect (Bhimani, 2020). Management
accounting system allows the business to measure the performance of its resources that can be
used further for efficiency and effectiveness. It is said to have a positive effect the managerial
performance.
Techniques and methods used in management accounting system
The different techniques and methods used in the management accounting system are,
Cost Accounting system
Cost accounting system is a framework that is used by the firms for the estimation of the
cost of their products and their profitability, analysis, inventory valuation and cost control. This
is also considered to be the method that allows in the estimation of accurate cost of the products.
It can be considered to be very critical factor for the profitable operations of the business.
Example, as the materials AstraZeneca moves from one operation to next the cost accounting
system tracks its progress and find the best ways of making it more cost effective.

Advantages
There are various form of the benefits which can be derived with the application of cost
accounting system in turn accomplishing the organizational activities in accurate manner.
 The one of the significant form of the benefit which can be derived by the company
through the application of this particular system is having ability to improve its cost
efficiency that permits taking better decision (Alabdullah, 2019).
 This can help in having reliable departmental accountability so that meeting the
appropriate performance which can allow to get greater performance by reducing
possibilities o frauds and errors.
Disadvantages
 it required the higher time for recording the transaction which tend to influence the
overall functioning of the company.
 This particular system can be founds expensive by mentioned fir that can reduce its
ability to maintain smooth processing.
Job costing system
Job costing system is the definition of the system which involves the process of
accumulating the information that is essential for the association of the costs. This sort of
information is required for submitting the cost of information that the customer undergoes for the
contract of costs which can be reimbursed (Ostaev and et.al., 2020). This sort of information is
said to be the applicable for the determination of the accuracy that is essential for the company to
estimate the system for allowing the prices to allow a reasonable profit.
Benefits
There are few benefits which can be achieved by the specific organization through the
implementation of this system which are as follows:
 This is related with having good ability to determine the overall cost so that duplication
of work eliminating and higher manufacturing efficiency can be taken into the
consideration.
 It allows to detect the prevailing lacking areas in each department which bring higher
quality performance within the specified organization.
Drawbacks

 The one of the expensive and time-consuming procedure which might lead to
uncontrollable process which can negatively influence the functioning of the company.
 There is absence of standard estimation which can influence the quality results so that
relevant processing can be derived.
Inventory management system
The inventory management system is the one that covers the combination of the different
software that is the package of tracking stock level movements. It is the system that is able to
pack and track the stock levels of stock movement that is the key solution which is considered
for the integration of a multichannel sales system. This is considered to be the factor that is able
to come across the different channels for the management accounting, This system allows the
business to develop a proper inventory management that is the key consideration for the
organization and its effectiveness. Th particular firm can receive the following mentioned pros
and cons:
Pros
 It helps in having position which avoids the situation of over or under inventory
availability which can help in meeting the market forces.
 This saves the time and money which contribute in improving the efficiency and
productivity so that good financial position can be derived.
Cons
 This require the implementation cot which can lead to create the problem of creating
complex procedure.
 The threat of sealing and fire, etc. can hamper efficiency of this procedure as it can
adversely influence the functioning of the company.
Price Optimization system
The price optimization system in the management accounting has been the part of the
mathematical program that is able to calculate the demands of the different level of prices that is
able to contribute towards the information and its costs for eh inventory. It is also said to help the
business recommend prices which would improve the profits. For example, business is able to
use it for thee optimization of their desired outputs in profit and also output.
Advantages

 the set of benefits which can be derived by having the application of price optimization
system is having ability to meet the forces by coordinating with the price which is
suitable for the company (5 advantages of price optimization, 2021).
 Price cohesion warranty is found in this which helps in gaining certain amount of the
profitability.
Disadvantages
 It is difficult to understand the corrective pricing strategy as the market keeps on
fluctuating which can hamper the efficiency of the company. The main reason behind
this is that customers views change so that keeping one price become difficult.
 There is involvement of sunk cost which does not allow to have corrective pric which
makes it unsuitable for the company.
Management accounting reporting
It is very important for the company to pay attention on having effective processing so that
significant growth and development by taking strategic decision. For becoming successful in
industry it is important for the company to pay attention on having the effective managing of all
the activities so that attaining relevant performance can be derived.
 Budget report is related with having critical measuring of the company so that generating
small businesses in the reliable manner can be done (Rikhardsson and Yigitbasioglu,
2018.). It helps in creating the grand scheme so that managing the unforeseen
circumstances in effectual pattern can be done by firm. AstraZeneca can focus on having
this report formulation which can aid in achieving the objective in reliable pattern.
 Account receivable ageing is related with having information regarding the clients
remaining balances into the specific period so that identifying bad debts so that
recovering in easy manner can be done (Schaltegger and et.al., 2022). This allows to
maintain proper liquidity position so that effective growth by fulfilling all the resources.
 Cost managerial accounting reports is associated with having the insights regarding all
the costs such as variable, fixed, et so that effective planning to manage all the expenses
can be done. It plays important role in deciding the pricing strategy so that attaining
profitability by managing all the expenses.

 Performance report is concerned with involving the information related with standard
results so that proper identification of deviation to get relevant results. It allows to
manage the overall performance of firm in standardized manner.
 Other reports include competition, market analysis, etc. reports in turn significant data to
make strategic decision in effective pattern.
Providing the use of techniques and methods in management accounting by presenting
calculation
Income statement as per the absorption costing technique
Particulars Amount
£
Amount
£
Sales ( Revenue) 800000
Less: COGS
Direct Material 200000
Direct Labour 120000
Variable Overhead 80000
Fixed Manufacturing
Overheads 150000 550000
Gross profit 250000
Less: Indirect expenses:
Other Fixed Overheads 100000 100000
Net profit 150000
On the basis of the above information it can be articulated that there is obtaining of gross
profitability of £250000 which is indicating that organization is having effective ability to fulfil
its overall expenses. In addition to this, its net profitability is £150000 that is indicating that all
the particular firm is having effective level of management of its overall expense is exerted in
effectual level of higher performance. Absorption cost techniques helps in evaluating that the
extent to which manufacturing expenses incurred of earning gross profitability. It helps
identifying the indirect expenditure so that net profitability in effective manner has been derived.
Income statement as per the marginal costing technique
Particulars Amount
£
Amount
£
Sales ( Revenue) 800000

Less: Variable Cost
Direct Material 200000
Direct Labour 120000
Variable Overhead 80000 400000
Contribution 400000
Less: Fixed Costs
Fixed Manufacturing
Overheads 150000
Other Fixed Overheads 100000 250000
Net profit 150000
From the analysis of the above formulated income statement as per the marginal income
statement it can be articulated that it is crucial for the company to pay attention on having
effective insights regarding distinct between the variable and fixed category expenses. It is
helpful in receiving the clarity of contributing which is £400000. By subtracting the fixed
expense from the contribution so that effective performance in turn effective information
regarding the net profitability that is £150000. On the basis of this it can be articulated that there
Reconciliation statement
Particulars Amount
£
Net profit as per absorption costing 150000
Less under or over absorbed fixed cost -
Net profit as per marginal costing 150000
On the basis of the reconciliation it can be mentioned that there is no change in the
profits derived from the absorption and marginal which is helpful in gaining clarity. The main
reason behind this is that there is no difference in fixed cost is found which is helpful in deriving
equal amount of net profitability from both the mentioned statement.
PART 2
Comparison and contrasting three planning tools used in management accounting
There are basically three major planning tools which are used in the management
accounting of an organization such as follows,
Cash Budget:

It has been considered to be the tool that is used for the estimation of the cash flow which
occurs in the business for helping the estimation of the flow of the week months on the yearly
basis. The company is able to use the budget for the estimation for the cash flow both inwards
and outwards in an organization (Petera and Šoljaková, 2020). The major goals of the
organization are considered to be the making the budget that determines for the forecasting the
cash which is available for the business to earn the revenues. To incur the expenses that is
suffering from the deficit or surplus is required. The company is also able to use the cash budget
for the purpose of making plans that can optimize the budgets and use them for better
investments.
Advantages
 It helps in making the cash budget in
the company for better communication
of the financial position and the
requirements of the organization.
 It is also very essential for making the
budget that is essential for the
analysation of the earned and the
remaining surplus that is faced by the
firm.
 In this budget the making of debt is
considered to be the key factor that
influence its occurrence.
Disadvantages
 There are limits to the spending power
of the organization with the use of this
method.
 The use of cash budget makes it
dangerous and theft for tracking the
movements of the cash.
 It can be said that the impact of
adopting the change in the company is
also the estimation of the eliminating
of earning and the rewards in the
company.
Zero Based Budgeting:
Zero based budgeting is mainly the process which helps in allocation of the funds for the
different activities for attaining efficiency for the ways in which the using the budget in order to
create the monitoring needs for a common need for the business. This is essential for the helps
for making the zero based budgeting due to the incurring of all the expenses for maintaining the
manager’s low expectation towards maintaining the cost of the company. Some for the main
purpose of the zero based budgeting is able to align all the strategic goals for the company its
resources. Making the annual budget that helps the preparation of an effective budget.

Advantages Disadvantages
This is also used for the budgeting method for
making for each and every activity that is
essential for the cash flow and computing for
the operational cost which helps in an
attaining for the accurate for of operations.
Utilisation of this tool is also said to be the
factor that impacts the business towards the
consumption of the process.
It is also considered to be the tool that is able
to attain the efficiency for the allocation for
the resources in the proper management.
This is also said to be the need of a large
number of employees that is said to anticipate
and make and entire budget for the business.
Activity Based Budgeting
As the planning tool it has been used for the recording and the analysation of various
business activities and also its costs. The business activities that incur the cost are very important
for attaining the efficiency of this method of budgeting (Meric and Gercil, 2018). The planning
of this tool has been said to be able to attain the more effectiveness in the reduction of the cost
for the company. It helps in creation of process that is more complex in the nature of the ways in
which the budget can be defined. Benefits of the company is the influences the factor that
influence the forecast of the budget that is essential for the creation of the analysis that is present
in the current budget.
Advantages
 This is the tool of budgeting that is
mainly helping in the evaluation of the
costs that is being involved with the
elimination of the irrelevant activity.
 The cost of the helping the business
with the competitiveness is that it
helps in the gathering of a dynamic
environment.
Disadvantages
 Utilization of this tool is also said to
be the complex factor that is essential
for the requirement in employing the
resources that gives out the multiple
activities.
 It is also the process that is essential
for the time of conserving the nature
for the employment of the wide range
of resources.

Management accounting system for responding financial problems
Benchmarking
Benchmarking is a process which is used by organization to compare products, services
or any other aspects of company with other companies (Eisert and et.al., 2020). Benchmarking
can be used by AstraZeneca to compare its financial position with other pharmaceutical
companies who are leading the industry.
Advantages
 Competitive analysis- Company can set benchmarking for the areas of improvement and
analyse financial performance in comparison to other companies. Quality of work- Company can improve its work quality by setting standards and this will
enable it to improve its financial position and mitigate problems.
Disadvantages
 Company which uses benchmarking may not be able to concentrate on their own
activities.
 Company may set higher standards which may not be achieved by it.
Key performance indicators
Key performance indicators is a process of setting quantifiable measurements which
enables overall improvement if financial performance. AstraZeneca can use KPIs to set
quantifiable measurements to compare its performance with set performance indicators.
Advantages
 KPIs help company to recognize the gaps and areas of improvements in financial
management. It enables to measure outcomes and results.
Disadvantages
 It is a time-consuming process as company needs to identify key performance indicators
which would be useful for measuring financial performance.
 It is only useful in attending short term goals, if company wants to achieve long term
goals this tool is not effective.
Variance analysis

Variance analysis is a tool used to identify quantitative difference between actual and
planned behaviour (Kolias and Arnis, 2019). AstraZeneca can use this tool to identify the gap in
actual and planned outcomes.
Advantages
 It helps company to measure performance of activities of every department which enables
company to identify key areas of improvement.
 It enables responsibility and accountability of activities of different departments. Profit planning can be done efficiently by top management.
Disadvantages
 It is a lengthy and costly process.
 It doesn't include qualitative aspects of performance.
 There may be chances of data manipulation by departmental managers to show
favourable variances.
Financial Governance
Financial governance is tool used by companies to collect, monitor, manage and control
financial information’s. AstraZeneca can use this method to track financial transactions, monitor
and control management performance, financial compliance, operations and disclosures.
Advantages
 It helps company in making effective and better financial decisions.
 It enables better control over finance and funds of company. Financial governance enables company to maximize profit and wealth through proper
monitoring and cost control.
Disadvantages
 It is a rigid process as it sets certain standards for measuring performance.
 Company may face difficulties while applying various financial controls.
Balanced scorecard
Balanced scorecard is management tool of turning organizational goals into set of
performance objectives (Aryani and Setiawan, 2020). These objectives are measured, monitored
and changed in order to ensure achievement of organizational goals.
Advantages
 It helps company to connect individual goals with organizational goals.

 It enables employees to link their objectives with organizational objectives and to
understand their responsibilities towards organizational performance and productivity.
Disadvantages
 It is a complicated procedure which takes some time and dedication to understand.
 There may be no focus on external factors and competitors.
Comparing the organization
Pfizer Inc AstraZeneca
The particular organization pay attention on
application of job costing so that identifying
the job costing which is helpful in gaining the
competitive edge by receiving reliable ability
to control process (Hiromoto, 2019).
The specific firm pay attention on having cost
accounting system that allows eliminating
irrelevant cost which is leading of impact the
functioning of organization. It helps in gaining
reliable performance in its overall processing
which ensure profitability.
The specified firm emphasize on the
application of KPIs which allows to monitor its
all financial and non monetary aspects that
helps in solving prevailing problems by taking
required actions
It concentrates on using benchmarking so that
using the relevant standards so that quality
performance achieving to solve the prevailing
lacking areas.
CONCLUSION
From the above project it can be concluded that AstraZeneca with the help of the discussed
management accounting tools is going to be very efficient in its operations. In this project
demonstration of understanding of management accounting system was given. This project was
able to discuss the tools, techniques and method for the management accounting. This project
was able to help in finding ways to resolve financial problems.
RECOMMENDATION
 It is also essential for success in the operations of dynamic market that the company is
able to prepare the cash for the budgeting.

 For attaining the availability of the resources for earning the market that can help in
better performance.
 This is also crucial for the measurement of the success for company in making the
analysis.
 Development of the outcomes from the discussed tools and techniques can provide
effective outcomes.

REFERENCES
Books and Journals
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review. Asian Journal of Accounting Perspectives. 13(1). pp.65-84.
Bhimani, A., 2020. Digital data and management accounting: why we need to rethink research
methods. Journal of Management Control. 31(1). pp.9-23.
Eisert, J. and et.al., 2020. Quantum certification and benchmarking. Nature Reviews Physics.
2(7). pp.382-390.
Hiromoto, T., 2019. Restoring the relevance of management accounting. In Management
Control Theory (pp. 273-288). Routledge.
Kolias, G. and Arnis, N., 2019. The optimal allocation of current assets using mean-variance
analysis. Accounting and Management Information Systems. 18(1). pp.50-72.
Meric, E. and Gercil, M., 2018. Usability of time driven activity based costing methods in the
budgeting process of SMEs. Business and Economics Research Journal. 9(4). pp.961-
978.
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pp.256-274.
Petera, P. and Šoljaková, L., 2020. Use of strategic management accounting techniques by
companies in the Czech Republic. Economic research-ekonomska istraživanja. 33(1).
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Richardson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of Accounting
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Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
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Online
8 principles of management accounting, 2021[Online]. Available through:
<https://accountingshare.com/principles-of-management-accounting/>
5 advantages of price optimization. 2021. [Online]. Available through:
<https://brandly360.com/en/5-advantages-of-price-optimization-that-you-need-to-
know/>