Management Accounting and its Essential Requirements

This document provides an introduction to management accounting and its essential requirements. It discusses different types of management accounting systems and their benefits and disadvantages. It also explores methods used for management accounting reporting and calculating costs using suitable methods of cost examination to make an income statement using marginal and absorption costs.

Management
Accounting

Table of Contents
INTRODUCTION......................................................................................................................3
MAIN BODY.............................................................................................................................3
TASK1.......................................................................................................................................3
P1 Management accounting and its essential requirements of different types of
management accounting systems...........................................................................................3
P2 Methods used for management accounting reporting.......................................................5
TASK2.......................................................................................................................................7
P3 Calculating costs using suitable methods of cost examination to make an income
statement using marginal and absorption costs................................................................7
TASK 3......................................................................................................................................9
P4: Benefits and disadvantage of various tools of planning..................................................9
TASK 4....................................................................................................................................11
P5: Compare how organisations are managing the function of management accounting to
deal with different financial problems & issues...................................................................11
CONCLUSION........................................................................................................................12
REFERNCES...........................................................................................................................13

INTRODUCTION
Management accounting can be defined as in that part of organisation which is
directly related to managing the provisions of the accounting information system and help the
stakeholders in identifying the current financial position of the organisation by managing
different kind of accounts. In relation to the current report, Tesco is the chosen organisation.
It is a British multinational retail organisation which is selling products used in the global
world. Tesco is operating in more than 13 countries within the retail industry since 1919.
Under the current report, there is a discussion about the management accounting and the
requirements of different kind of management accounting system within the organisation
where the explanation related to method used for management accounting will also be
considered (Gibassier, 2017). There is also use of practical illustrations to define the
absorption and fixed cost implemented by the organisation. In the end of the report, there is a
discussion about the advantages and disadvantages of various budgetary control tools as well
as comparison between management systems to respond different financial problems by
using two organisations.
MAIN BODY
TASK1
P1 Management accounting and its essential requirements of different types of management
accounting systems
Management accounting can be defined as a process within organization which is
related to identification and valuation of different accounts to determine the financial position
of the company as well as use the information for management of finance. In relation to the
organization, management accounting can be defining as system which provides a particular
process to the organization for recording its different accounts to identify its current position
for achieving the goals and objectives.
According to institute of management accounting "Management accounting is that
field of management which is related to Management of financial and cost accounts of the
organization which help the management in taking different decisions related to planning and
increasing the performance of the organization (Armitage, , Webb, and Glynn,, 201). This
system is directly associated with the current position of the organization because it provide
the analysis of financial accounting system of the firm which are prime standard for
determining the financial position of the organization in the current market. Management

accounting can also use and system which is related to controlling and monitoring the cost of
different products and services offered by the organization and various activities which are
involved in process of business”.
In relation to Tesco, there are ample of benefits to organization by using the management
function which are discussed below:
Profit maximization: management accounting is helpful to the organization in
maximizing the profits because it is related to management of cost the organization which it
implements on different kind of activities. With help of management of cost organization
and easily identify with actual amount of profit as a financial position of the company within
market.
Efficiency booster: Management accounting also acts as a tool to increase the
efficiency of employees within the organization as well as other resources of the firm. This is
because management accounting helps in identification of various cost involved which
directly related to evaluation of the performance of different individuals and their roles. This
will increase the efficiency of individuals while working on a job because they can identify
their performance and can use the tools of management accounting in management of cost
(Kihn. and Näsi, , 2017).
Various systems that are used in management accounting
Price optimization system: under the system of management accounting or
organization use a calculation instrument which is directly related to managing the
performance of accounting system within the organization to identify the response of
customer behavior and use this customer behavior for managing the prices of the product
offered by organization (Sugahara, , Daidj and Ushio, 2017). It is the best suitable method for
the organization like Tesco, because It helped the firm in determining the price of the product
identification of their actual cost and expenditure which is involved while producing the
products and services. Major objective behind this system is to increase the profitability of
the organization by using appropriate pricing strategies and structure for the products and
services offered by the firm within the market.
Inventory management system: Inventory management system is also important
part in the marketing accounting system which is related to focusing on the organization
product by managing inventory and classifying the inventory in finished, unfinished and

processing goods. Under this system, organization used to manage the inventory by the help
of software and hardware. This software involved pre-determined processes for managing the
inventory where various kind of methods like FIFO, LIFO and many more used by the
organization to manage the inventory with inventory management system.
Cost accounting system: Cost accounting system can be defined as in that part of
management accounting which is directly related to identification of the overall cost of the
product identification of various factors and cost involved within the manufacturing of the
product (Maas, , Schaltegger and Crutzen, 2016). It is mandatory part for the organization to
adopt a cost accounting system within the firm so that it can identify the overall
manufacturing cost by using different kind of cost like operating cost, absorption cost,
variable cost, fixed cost and many more. Management accounting style includes different
kind of diagram charts. It includes sales chart marginal cost chart and other which help in
identification of cost related to the product and manage the performance by identification of
cost involved.
Job costing system: It is that type of costing system which include identification of
the overall cost and expenses which are incurred by the organization on a particular job.
These expenses are related to development of products and services in relation to a particular
activity. These activities include sales of product, purchase of products and many other
operations within the organization. It act as an important system within the management
accounting of organization because there are various industries like manufacturing in process
which are highly dependent on the job costing system. In relation to the system of job
costing, organization used to identify the cost involved in a particular activity so that it can
decide the pricing of the product by managing the compensation to labors and other factors
involved in the activity. This method can be used by the Tesco in identification of actual
profits by determination of revenues and expenses on products and services offered by the
organization according to the particular job (Quattrone, 2016). It can be analyzed from
above mentioned information there are different kind of functions performed under the
management accounting system. It can also see that management accounting is a great impact
on the organization show a firm must use a proper system within the management accounting
to manage its accounts and identify the actual position within the market.
P2 Methods used for management accounting reporting
Management accounting reporting

Accounting reports can be defined as a crucial part of the organisation which healthy
form in framing a complete picture of the business performance. In relation to the
organisation, it is mandatory for the organisation to produce valid accounting reports in every
quarter so that it can identify the current position of the business. Accounting reports can be
defined as a financial status of the business which is directly related to presentation of the
data over a specific period of time (Holopainen, Niskanen and Rissanen, 2019). These
reports are based on financial information from the accounting records which can be used by
the organisation and filled with the data related to transactions operational cost product
profitability and regional sales. these reports are essential for the organisation as well as
manager so that they can take business decisions in an effective way by identifying the
current position of the business. There are different kind of accounting reports which are
discussed below:
Budget report: Budget report can be defined as in most fundamental report within
the organisation which is included under the managerial accounting system. Reports are
essential for the business owners to understand and control the cost on the overall enterprises.
This is because these reports provide the data related to unified organisation or several
departments in an appropriate manner where the decision-making can be facilitated. Under
budget reports, there is evaluation of expenses in prior years so that it can become possible to
estimate t yearhe overall budget for particular year. This is also useful to the organisation in
cutting the cost the placing a proper budget to a particular department and identification of
each and every aspect of a department by evaluation of their cost.
Account receivable aging report: These are also essential accounting reports to the
organisation specially deals in credit (Abernethy, and Wallis, 2019). This type of report is
generally useful to the organisation in identification of the credit customers where it provide
the overview of the balance according to the age. This report helps organisation in dividing
with credit customer in separate categories which are classified as 30, 60 and 90 day’s credit
period. Organisation to manage the credit policies so that it can manage account receivable
ageing report in an appropriate we identify the late payment from the customers and charged
interest according to the requirements and period of late payment.
Job cost report: It include that kind of reports which are directly related to providing
the side by side view of total cost implemented in a single project compared to the total
expected revenue from the project. it is important report in relation to the organisation

performing within the retail industry because It helped the leaders in evaluating the
profitability of a particular project and taking decision according to it. It help in optimising
the resources by identification of the the profitability within the operation where organisation
can take decisions related to continuation or closure of the operation on the basis of job cost
reports (Hutaibat, and Alhatabat,, 2019).
Inventory and manufacturing report: In relation to these reports get include
physical product specially those manufactured with no fault tolerance. These reports are
important to the organisation in identification of inventory and manufacturing process where
it helps in centralising the data of inventory cost labour and other forms of overheads which
are involved with the process of production. It helps the organisation in identification of
production processes for providing raw data as well as manage the assembly of machineries
so that management can get knowledge about different aspects of a process related to
inventory and manufacturing of products and services (Joshiand Li, 2016).
It can be evaluated from the above that there are various kind of accounting reports
which can be used by the organisation for managing its functions as well as identification of
opportunities within the market. It can be seen that budget reports account receivable aging
reports and job costing reports can be used in identification of appropriate cost and using the
tools and techniques for achievement of objectives.
TASK2
P3 Calculating costs using suitable methods of cost examination to make an income statement
using marginal and absorption costs
Income statement: Income statement can we define a document which is related to financial
position of the organization in a particular period of time. it shows how the revenues of the
organization are transformed in the net income and net profit by adjusting overall expenses.
Main purpose of income statement within the organization is to show the manager and the
investors about the financial position of the organization in relation to profit and loss during
particular period. it is necessary for the organization to perform separate income statement
which credit ability of the firm within the market and its financial position to attract the
investor (Collis, and Hussey, 2017)
Absorption cost: Absorption cost can be defined as in that kind of cost which includes
the full cost of manufacturing for a particular service within the organization. It is not only

the cost of materials and Labor but also include the manufacturing overhead whether the
fixed or variable (Van der Stede, 2017). The cost of each cost center can be direct or indirect
where the direct costs can be easily identified within the individual cost centers but indirect
cost cannot be identified easily within a cost center. This is the reason behind using the
concept of absorption cause which distributes the overhead among the departments in an
appropriate way for identification of a particular cost which is absorbed by a particular
department.

TASK 3
P4: Benefits and disadvantage of various tools of planning
Budget: Budget can be defined as a statement which carries the estimation of cost,
revenue, sales, profitability and expenses that is used for a specified time period. It is very

helpful for a organisation to ensure its timely internal management and to measure the
performance according to set standards (Cuzdriorean, 2017). Budgetary control is a
technique that can be used for the purpose of determination of sales accordance to some
budgeted figures but the time period is specified. After which the actual calculation is made
to understand these figures in context of a organisation.
There are some specific tools that are used for the purpose of budgetary planning:
Flexible budget: This is a tool that is used in case of budgetary control so that
activities can be easily managed according to the requirement of organisation. Innovation
drinks can also use this for the purpose of monitoring their sales as compared to the standard
sales that is desired by the organisation for a specific time period.
Benefits: It is used for determining the required level of production. According to sales of a
specific period future prediction can be done. Organisation has a motive to minimise the
inventory cost.
Limitation: There is need of highly trained staff so that there can be proper management of
work according to future requirements (Kumarasiri, and Jubb, 2016). Flexible budget is not
financially viable to organisations as there is need of high monetary compensation that has to
be paid to trained staff.
Master budget: It consist lower level of budget, in this divisional budget is summed
in one budget that is combined in one single department. This consists of financial planning,
cash flow forecasting, budgeted statements. In innocent drinks this type of budget has to be
prepared for a time of one financial year.
Benefits: This budget is the summary of management information. It is reflecting the whole
expense and associated revenue of each department. It summarises all the budgets together so
there is no need to maintain separate budgets.
Limitation: It is difficult to upgrade to budget so there comes a need to make timely changes
that can help in meeting the overall budget requirements. There is need to timely make
Changes as the requirement are changing very fast this can affect the overall procurer of
financial management in a organisation like innocent drinks.

TASK 4
P5: Compare how organisations are managing the function of management accounting to
deal with different financial problems & issues
Financial issues are related to limited supply of financial resources. There are issues
that can happen because of misrepresentation, default of financial managers or sometimes
financial departments. Some of the financial issues are mentioned below:
High expense: There are some situations where Innocent drinks have to make lot of
promotion while they are launching some new products (Alsharari, and Youssef, 2017). They
have to distribute their free samples so that people can realise its taste and then purchase.
Financial governance: This is a method that can be adopted by organisations for the purpose
of gathering of the necessary information. It helps in enhancing the authenticity of financial
information so that further decision can be made on this basis. This helps in fast decision
making so that no opportunity can be lost.
Benchmarking: It is a approach that can be adopted by organisation to work according to
certain specified standards. This is a very effective tool that can help in setting benchmarks
and then working according to such pre set benchmarks.
For the Purpose of analysing two organisations on based below discussed is the
differentiation table that will help in analysing some of the aspect that are different in two
organisations who are operating at similar level and are part of same industry.
Basis Innocent drinks Mars drinks
Innocent drinks are dealing in
juices, smoothies that are sold
in coffee shops, supermarkets.
All its functions are managed
by brands such as Coca cola.
Marks is having speciality in
coffee beverage. They are
having presence in France,
UK, Canada, America.
Issues There has been a Huge decline
in revenue since quarter
ending in march 2020 because
of the situations of COVID-19
as people are not preferring
There is no meeting up of the
set sales targets.

outside eatables
(McLaren, Appleyard and
Mitchell, 2016).
Management accounting It is a branch of cost
accounting which is used for
cost ascertainment like fixed
cost calculation. This help in
taking benefits of economies
of scale as when fixed cost is
spread overall large quantities
of production then it leads to
reduction in its elements and
taking benefits of variable
cost.
The financial department of
Mars drinks has adopted the
inventory management system
to maintain the cost of
inventory.
CONCLUSION
It can be concluded from the above-mentioned report that management accounting is an
essential part of the organisation because it was elected in identification of different kind of
cost which is involved by the organisation in production services. It can be seen that Tesco
can use different kind of management accounting which help form in profit maximization as
well as increasing the efficiency. There are different kind of systems like price optimisation
system, inventory management system, cost accounting system and job costing system which
is mandatory for the firm to achieve a separate image within the market by using proper
costing techniques. It is also analysed that management accounting reporting is also essential
for the firm which include different kind of reports for increasing efficiency and working
within the firm in an appropriate manner

REFERNCES
Books & Journal
McLaren, J., Appleyard, T. and Mitchell, F., 2016. The rise and fall of management
accounting systems: A case study investigation of EVA™. The British Accounting
Review, 48(3), pp.341-358.
Alsharari, N.M. and Youssef, M.A.E.A., 2017. Management accounting change and the
implementation of GFMIS: a Jordanian case study. Asian Review of Accounting.
Kumarasiri, J. and Jubb, C., 2016. Carbon emission risks and management accounting:
Australian evidence. Accounting Research Journal.
Cuzdriorean, D.D., 2017. The use of management accounting practices by Romanian small
and medium-sized enterprises: A field study. Journal of Accounting and Management
Information Systems, 16(2), pp.291-312.
Gibassier, D., 2017. From écobilan to LCA: The elite’s institutional work in the creation of
an environmental management accounting tool. Critical Perspectives on
Accounting, 42, pp.36-58.
Armitage, H.M., Webb, A. and Glynn, J., 2016. The use of management accounting
techniques by small and medium‐sized enterprises: a field study of Canadian and
Australian practice. Accounting Perspectives, 15(1), pp.31-69.
Kihn, L.A. and Näsi, S., 2017. Emerging diversity in management accounting
research. Journal of accounting & organizational change.
Sugahara, S., Daidj, N. and Ushio, S., 2017. Value Creation in Management Accounting and
Strategic Management: An Integrated Approach. John Wiley & Sons.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability
assessment, management accounting, control, and reporting. Journal of Cleaner
Production, 136, pp.237-248.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research, 31, pp.118-122.

Holopainen, R.M., Niskanen, M. and Rissanen, S., 2019. Management Accounting and
Profitability in Private Healthcare SMEs. International Journal of Public and Private
Perspectives on Healthcare, Culture, and the Environment (IJPPPHCE), 3(1), pp.28-
44.
Abernethy, M.A. and Wallis, M.S., 2019. Critique on the “manager effects” research and
implications for management accounting research. Journal of Management Accounting
Research, 31(1), pp.3-40.
Hutaibat, K. and Alhatabat, Z., 2019. Management accounting practices’ adoption in UK
universities. Journal of Further and Higher Education, pp.1-15.
Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International
Higher Education.
Joshi, S. and Li, Y., 2016. What is corporate sustainability and how do firms practice it? A
management accounting research perspective. Journal of Management Accounting
Research, 28(2), pp.1-11.
Van der Stede, W.A., 2017. “Global” management accounting research: some
reflections. Journal of International Accounting Research, 16(2), pp.1-8.