Management Accounting: Principles, Techniques, and Tools

This report discusses the principles, techniques, and tools of management accounting and their role in Trak Global Group. It covers topics such as principles of management accounting, role of management accounting system, techniques and methods of management accounting, and advantages and disadvantages of different management accounting tools. The report also includes a comparison of different tools and recommendations for sustainable enterprise.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................3
Part-1................................................................................................................................................3
Principles of Management Accounting.......................................................................................3
Role of management accounting system.....................................................................................5
The techniques and methods of management accounting and presenting income statement
using variable costing..................................................................................................................6
Integration of management accounting within the organisation.................................................8
Advantages of function to the enterprises...................................................................................8
Conclusion...................................................................................................................................9
Part-2................................................................................................................................................9
Comparison, advantage and disadvantage of management accounting tools ............................9
Effectiveness of management accounting in dealing with financial problems.........................12
Recommendations for sustainable enterprise............................................................................12
Conclusion.....................................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting plays an important role in the enterprise. It is the application of the
principles of accounting and financial management to create, protect, preserve and increase value
for the stakeholders of for profit and not for profit enterprises in the public and private sectors. It
is the integral part of management function. It provides the information for organising,
controlling, planning and decision making. It helps in allocation of cost to products and
inventories for both external and internal users. The management accounting department sets the
budget and standards for a particular period and these are compared with the assigned and
ascertained cost. All the activities is done to control costs. Management accounting is also
known as management information system. The first part of the report discussed about the
management accounting principles of Trak Global Group which is situated in UK and also
discuss about the different methods that are used in management accounting reporting. The
second part of the report discussed the effective planning tools of management accounting. In
this part also explain the advantages and disadvantages of budgetary control (Abou Taleb and
et.al, 2021).
Part-1
It helps of internal management to improve the aim of the organisation, internal business
activities, consumer value and capacity utilisation in the best manner. The two management
accounting principles that help community and consumers. It is also known as branch
accounting. These principles help the management to implement the activities of the
organisation. The objective of the principles to provide the high quality information for decision
making (Boyle and et.al, 2020). The organisation can be successful only when an enterprise will
have strong management principles. It provides both financial and non financial information of
management. These principles explain the values, qualities and features of enterprise. There are
many standards that are followed with the management accounting principles. These principles
helps in organisation to conduct the activities with efficiently and effective manner.
Principles of Management Accounting
There are serval principles that explain the function of enterprise. Some management
accounting principles that are followed by Trak Global group they are as follow:

1. Designing and compiling- The information should always in accurate and simple manner.
It provides the relevant information which is help in past, present and future for decision
making. The information presents in such manner that helps in organisation successful.
The information can be modified in according to management need (Dazevedo and et.al,
2020).
2. Management by exception- This principle is used when presenting the information to
management. There are two techniques are used in management accounting such as
budgetary control and standard costing. Under this techniques the actual results are
compared with budgeted results, if any deviations find out then budget prepared again.
The management takes time to review the action.
3. Control- The enterprise should control those activities that are not necessary in the
business. It is the best principle to control the cost. The overall performance of
employees, material store details and utilisation of services such as light, repairs, machine
and maintenance are prepared in that manner provides qualitative and qualitative
information. This manner can control over workers, materials and devices of service.
4. Accounting for inflation- If the company earns profit unless introduce capital then it can
be said, it is not actual profit of the enterprises. The money value is not stable. It is very
necessary to introduce the capital by the owners because it is the actual money through
revaluation accounting. The success of the business can be judge through rate of
inflation.
5. Return of investment- It is also known as return on capital employed. It shows the
efficiency of the enterprises. It always calculated in real terms of money.
6. Utility- The forms and schedule related to management accounting should always long
that provides all the information top the management accountant.
7. Integration- All the information should be integrated so that they used with effectively
manner and accounting services provides less cost (Egan and Agyemang, 2022).
8. Absorption of overhead costs- The cost of the overhead should be absorbed on
predetermined basis. The costs of overhead include such as indirect materials, labour and
expenses. The absorption cost brings the best results in the enterprise.
9. Utilisation of resources- The available assets need to be efficaciously used. The reason is
that a few resources are available in plenty simplest in reason and some other resources

are to be had in scarcity throughout the 12 months. Therefore, the control accounting
system should be make certain proper usage of to be had aid.
10. Controllable and uncontrollable costs- The two types of cost can be defined in
management accounting. To use of management accounting techniques can control the
controllable costs (Gheidi and Gord, 2018).
Role of management accounting system
The management accounting plays many role but the important role of management
accounting helps to take decision within the enterprises( Trak Global Group). It is also known as
cost accounting. It analysing the information and helps in achieving the organisation objective.
Management accounting and control accountants may be in a position to have a extensive affect
upon the movements and strategies of companies. The embryonic affect comes the weight of
making sure that management accounting facts is communicated in a accountable style. The
management accountant's function is a accountable one that could have direct results on people
both within and outside of the agency (Healy and et.al, 2018). There are various role of
management accounting as follow:
• It provides the information to conduct day to day activities. With the help of management
accounting the accountant perform the following functions such as planning, controlling
and staffing.
• Management accounting works on the actual data. The management accounting takes the
decision such as purchase and stock will also beneficial. It provides the accurate
information of future cash flow. The data of cash flow can be based on the actual data of
the organisation.
• It compares the current and historical data and determines which acquirer and seller is
beneficial for the enterprises. To improve the company performance, the management
accountant uses relevant costs analysis because it makes better plan for future expenses.
• The company can successful when it provides the goods and services on the basis of
consumer needs. The company can analysed data of consumers based on some points like
age, gender, location and education level. The customer factors are different in every
organisation because all the customers have not same profile.
• It helps in make or buy evaluation. In manufacturing sector have a big amount of data
available that management accounting focuses all the stage of production. Some

enterprises perform all activities within the enterprises but some enterprises may use
resources from third party.
The techniques and methods of management accounting and presenting income statement using
variable costing
There are different types of techniques that adopted by an enterprises to determine the cost of the
product and services (Heiling, 2020). The management accounting techniques are as follow:
• Financial planning- It determines the financial activities which are necessary to achieve
the trading goals. It decides both short term and long term financial plans and policies.
The policies determine the minium amount of capital required and fund flow statements.
• Analysis of financial position: It determines the financial position of the company. It
evaluates the company has sufficient fund to pay its debts. These financial results help to
take decision of stakeholders, creditors and customers.
• Historical cost: It provides the past information related to process and department so that
enterprise can compare the cost with standard cost, The comparison helps the
management for the forecast planning.
• Standard costing- This cost represents the standard cost with efficient way, compares the
actual data with standard data, calculate of variance to known the reasons and take the
action. This process helps in to control the cost.
• Budgetary control- The enterprises use various technique of budgetary control for
controlling of business activities. It is important tools in manufacturing industry.
There are two basic concept that defines the income statement they are as follow:
Marginal costing- It is the incremental cost of production which arise due to one unit increase in
the production quantity. The variable costs have direct relationship with volume of output and
fixed costs remain constant irrespective of volume and production. Hence marginal cost
represents the total variable cost attributable to one unit (Ionescu, 2021).
Income statement under Marginal costing
Particulars September($) October($)
Profit as per absorption costing
Turnover 800000 600000
Less:Cost of good sold
Direct material cost 150000 120000

Direct labour cost
Fixed overhead
100000
150000
150000
100000
Gross profit 400000 230000
Absorption costing- It is the practice of charging all costs, both variable and fixed to operations,
processes or product. Under this method the classification of expense is based on functional basis
whereas in marginal costing it is based on the nature of expenses. The fixed expenses are
distributed over products on absorption costing basis that is based on a pre-determined level of
output. The fixed expenses are constant, such a method of recovery will lead to over or under
recovery of expense depending on the actual output being greater or lesser than the estimated
used for recovery (Kenno and Free, 2018).
Income statement under Absorption costing
Particulars September($) October($)
Profit as per absorption costing
Sales 800000 600000
Less- Cost of sales
Direct material
Direct labour
fixed overhead
150000
100000
150000
120000
150000
100000
Less- closing stock 50000
Gross profit 400000 180000
Less- under absorption 0 50000
Profit 400000 110000
On the above reports show true and fair data and it helps the management to take best decision.
The absorption costing and management cost are two different concepts. In management
accounting the closing stock is excluded for determining profit of the company. The marginal
costing represents true profit of the company because it does not include the under and over
absorption cost. The variable costing provides various information but it does not frame the
accounting data as per IFRS and GAAP (Li, 2018). The following benefits of variable costing
are help in management accounting:
1. Planning- It determines the forecast sales,production and costs. The future sale helps in
determining the amount of material required, labour and overhead. It analysis the actual

cost of production. Variable cost statement are used in short term planning and
controlling the activities which is unuseful for the company.
2. Managerial decision making- the cost can be divided into different parts such as variable
cost, fixed cost, semi variable cost and semi fixed cost. To use of variable costing
techniques company can determined the forecast cost and sales for various activities and
relevant cost technique are also used in variable costing, the absorption costing does not
provide cost and revenue related information (Macintosh and et.al, 2019).
3. Product pricing decision- In compare to absorption costing, variable costing provides
strategies for pricing decision. It provides the best price of the product that company can
achieve the maximum profit. A higher price decreases the revenue but lesser price
increase the sales revenue so that price of the product should always an optimum.
4. Cost control- The cost should be divided into two parts such as fixed and variable
because separate cost helps in determining the standard and budget. All the cost of
production can be control within the enterprises but they do not control at the same level
of management.
Integration of management accounting within the organisation
The Trak Global Group can not ignore the management accounting function because it
helps in controlling the cost and achieving the profit of the company. The four phase of
management accounting can explain the whole function of the organisation such as integration,
integration planning, implementation options and review. In the dynamic environment these help
in maintain the quality of the product. After review the function of management accounting it
can be concluded it the management accounting plays an vital role in the manufacturing industry.
It provides various tools and techniques that helps in controlling the unnecessary cost incurred in
production (Malik and et.al, 2021).
Advantages of function to the enterprises
• Stock management system- It helps in maintain the optimum inventory , track the
location of goods, bring new stock and manage warehouse expense such as shipping and
packing. It also ensures the goods available in the stock.
• Cost bookkeeping system- It is also known as product costing system. It is used to
analysis the cost of product. The two cost accounting system helps in determining the
cost such as job order costing and the process costing (Peysakhova, 2018).

Conclusion
In the above report, management accounting plays an important role in Trak Global
group. It provides important information to the manager for decision making. The tools and
techniques are used by management accountant to control the activities within the organisation.
There is no fixed structure for prepare the account. It includes different types of accounting. It
helps in decreasing unnecessary expenses which are incurred in production cost and increasing
the profit of the company. In the above report, also discuss about the types of managerial
accounting that helps in identified of fixed and variable costs. Cash flow techniques help in
identifying the cash impact of business.
Part-2
Comparison, advantage and disadvantage of management accounting tools
There are many management accounting tools that helps in Trak Global Group for
survive in long term but in this report analysed of three management accounting tools they are as
follow:
Analysis of Financial Statements-It is the important tool of management accounting. The
company collects information from balance sheet, profit and loss account, cash flow statement
and fund flow statement. The financial performance of the company can also evaluate through
calculate financial ratios (Rogulenko and et.al, 2020).
Advantages Disadvantages
It analysis how much company generate revenue from selling
of its products. The sales of every year may change, but
financial planners help in identify the pattern to maintain the
sale.
The information of financial
statement is based on market
trends, it does not provide
accurate information of
company data.
It shows budget for future planning. The company prepares
budget to analysis how much money spend to launching a new
product.
It analysis of the company at
the year end. It does not show
the company is doing better or
worse than the year before.
Cash flow statements analysis company has sufficient fund to
pay its expense. It also analysis the expenses and revenue of
It includes various estimation
such as provision of doubtful

the future. debts, provision for
deprecation and contingency
reserve.
The financial statements provides useful information to the
shareholder so that they can understand and assess the
company financial performance such as sales, revenue and
expenses.
If the inflation rate increases
then value of assets and
liabilities will show
inordinately low so that it can
not possible to adjust the
inflation in ling term assets.
Budgetary control- It can be defined as establishment of budgets relating to the responsibilities
of executives to the requirement of a policy and the continuous comparison of actual with
budgeted results. It is the method of management control and accounting in which all the
operations are forecasted and planned in advance to the extent possible and the actual results
compared with the budgeted results (Shaffer and et.al, 2020). The advantages and disadvantages
of budgetary control are as follow:
Advantages Disadvantages
To use of budgetary control technique the
management of a enterprise to conduct its
activities with effectively manner.
Budgets are based on the estimations that are
based on the condition prevalent or expected at
the time of budget is established. It requires
change of the plan if the conditions change.
It is strong and powerful instrument that helps
in controlling the expenditure. It provides the
tool for evaluating the performance of
individual and departments.
It can not implemented automatically. Some
basic steps are followed to implement the
budget. It requires proper time and attention of
management.
It evaluates the deviations of actual results and
budgeted results and communicated with
management.
It is very expensive budget because before the
preparation of budget different steps are
followed so that small organisation can not
prepare the budget. It consumes variable
resources for this purpose hence it is an
expensive process.
It makes future policy with the help of current It is only a managerial tool and must be

trends. intelligently applied for management to get
benefited. It is not suitable for good
management.
Decision making- It is very important tool for the business because there are number of decision
which is taken by the management such as to acquire the fixed assets, choose of best alternative,
calculation of price of product and to conduct the business activity (Shen and et.al, 2020).
It gives various information before taking any
action of business activities. There are many
people engaged in decision making process.
Every person gives own view to handle the
situation.
It is very expensive project because many
people are involved in decision making
process. It requires huge amount to collect the
information from various people.
It involves many person that are worked in
enterprise. This activity does not carry by
single person. All members are gives their own
view in the enterprise, they are free to present
their creative ideas without any boundations.
It is very time taken process. It includes
various stages to followed to take the best
decision for the company. The company
coordinates of different group to take ideas. To
complete all these things it takes time and may
delay in taking best action.
Organisation are able to take different ideas
through group discussion. Every people looks
problem in different views. The organisation
have various idea to choose it, it selects best
idea for the better results.
All the peoples do not treated the same for
decision making process. Some peoples try to
control the full activities of the organisation.
Person differ in knowledge and experience
dealing with situations.
Group discussion gives equal right to share his
ideas. Decision are not based on imposed but
they are arise with the participation.
In decision making process the responsibilities
do not clear rather than individual decision. In
group decision all peoples are involved but
responsibilities are not clear define.

Effectiveness of management accounting in dealing with financial problems
Every organisation face the financial problems, it is not matter whether the size of the entity and
profit or non profit oriented. To overcome the problems the organisation adopts some
management accounting tools and techniques which are discussed above. Every enterprises does
not have sufficient fund to continue the business then management accounting helps in arrange
the fund. The Trak group uses the management accounting tools and arrange the fund to conduct
the business (Toosi and et.al, 2019). To understand the management accounting and it impact the
following case studies are discussed about:
During COVID-19 the demand of telecommunication services has increased so that company
was increased the production but company has faces some crisis situation such as cash and
employees. To solve this problem the Trak Global Group use management accounting technique
like cash flow analysis to arrange the fund.
The professional service company such as Deloitte that has faces the problem of cyber attack in
2017, where the hackers found the personal details of clients and employees. The company used
the tools of management accounting and reduced the manipulation in the company.
Recommendations for sustainable enterprise
Trak Global Group uses many policies and strategies to survive the business and maximisation of
profit. There are different ways to sustain the business such as clean energy adopting, corporate
social responsibility technique and using sustainable materials.
• If company want to maintain sustainability, it is need to established the strategies to show
the organisation objectives.
• Company should give the time of employees for training so that they can reduce the
wastage and improve the work environment (Yang and et.al, 2020).
Conclusion
In the above report discuss about the planning tools of management accounting such as
analysis of financial statements, budgetary control and decision making techniques. It helps
maintain the business activities within the enterprises. If company conducts business activities in
better manner then company can survive till long term. The management accounting is the best
tool for decision making process. It focuses in the modern business. The budgetary control

technique help in making of forecast budget and compares the actual cost with standard cost if
the cost exceed with the budgeted then company revised the plan.

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