Management Accounting: Role, Functions, and Techniques

This article provides an overview of management accounting, its role, and functions in decision making. It discusses various techniques and tools used for budgetary control, such as cost accounting, inventory management, and job costing systems. The article also explores the benefits and drawbacks of planning tools in financial management. The case study of Excite Entertainment Limited, a company in the entertainment industry, is used to illustrate the application of these concepts.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
TASK 1............................................................................................................................................1
TASK 2............................................................................................................................................5
TASK 3............................................................................................................................................8
TASK 4..........................................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
The management accounting is a form of accounting which is associated with gathering
and analysing of financial & non financial information about companies' transactions in order to
prepare internal reports (Aouni, McGillis and Abdulkarim, 2017). This is the main function of
MA because its objective is to helping companies' managers in decision making by providing
reliable informations. This accounting is not essentially required in companies as other
accounting methods. The objective of project report is to spreading information about role and
functions of MA in the aspect of companies operations and activities. In the project report
various types of MAS , MA reports, planning tools of budgetary control are included. For better
understanding of these tasks a company is chosen which is Excite entertainment limited that
operates in entertainment industry. This company is located in United Kingdom.
MAIN BODY
TASK 1
Section (A)
(a) Comparison between management accounting and financial accounting
Basis Management accounting Financial accounting
Legal
requirement
The management accounting is not
essential for companies to implement
in their operations. It depends on
companies' willing whether they want
to apply this accounting or not.
On contrary, the financial accounting
is essential for companies to apply in
order to produce financial statements.
Format of
presentation
In this accounting, internal reports are
prepared without any particular format.
While in financial accounting,
financial reports are prepared as
accordance to international financial
reporting standards.
Types of data
used
Under, management accounting both
types of data including monetary and
On the other hand, in financial
accounting only monetary information
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non monetary are used in reports. is included.
Different types of MAS :
(b) Cost accounting system – This is a kind of accounting system that links with companies'
financial department because it predicts possible expenses (Vann, 2016). On the basis of it,
business entities allocates their funds in various kind of activities and operations. In addition, this
accounting system is compulsory for companies to apply because of its importance for finance
department as by use of information provided by this accounting system they can focus on those
activities which are high cost consuming. Under this accounting system, various costing
techniques are included such as absorption and marginal costing. Both these techniques help in
the aspect of better decision making regards to fund management. Like the above Excite
entertainment limited company is applying this accounting system in the aspect of controlling
and reducing their expenses as accordance of standard cost.
(c) Inventory management system – It can be defined as a type of accounting system that assess
the information about companies stored material in warehouses and provides guidance to
companies' managers for effective management of inventories (Arunruangsirilert and
Chonglerttham, 2017). This is too crucial for companies because in the absence of it, business
entities can not control storage cost. Basically, the inventory management system consists
various kind of techniques such as just in time, perpetual inventory management system and
periodic inventory system. All these techniques play a significant role for companies in order to
better management of their materials. The just in time technique is important for minimising time
of manufacturing. As well as the perpetual inventory system helps in keeping inventory records
up to date. Like in the aspect of above Excite entertainment limited company, they are managing
their inventories by help of these techniques.
(d) Job costing system – This is a kind of accounting system which is related with process of
computing cost of each job involved in different business activities (Nakajima, Kimura and
Wagner, 2015). In addition, it is mainly used for those companies in which large number of
products are produced. Due to this accounting system price of each unit is being calculated
individually. The job costing system is required in companies for proper assessment of cost
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during entire manufacturing process. In the context of above respective company, Excite
entertainment limited their managers are using this accounting system in order to compute cost
of each job separately.
(e) Evaluation about how MAS and management accounting reports are aligned with
organisational process.
It is important for succession of any kind of business entity that there should be
integration of MAS and MA reports with companies process (Murthy and Rooney, 2018). For
example in above Excite entertainment limited they are applying different accounting systems
such as cost accounting system which integrates with finance department. As well as inventory
management system aligns with production department. Apart from it, their accountants are
producing various kind of reports like performance report, stock report which are linked with
their different departments. This shows that MAS and MA reports are aligned with the
companies operations.
Benefits of above mentioned MAS:
 Benefit of cost accounting system- This accounting system is useful for companies in
order to control and manage all type of expenditures effectively. In the aspect of above
Excite entertainment limited company, their managers are using this accounting system
for assessment of total expenditures that occurs in their operations.
 Benefit of inventory management system – This accounting system tracks the quantity of
stored materials in warehouses (Gomez-Conde and Lopez-Valeiras, 2018). On the basis
of it companies take their futuristic decisions effectively. Such as the above respective
company, is implementing this accounting system for reducing over purchasing
expenditures on the basis of information provided by this accounting system.
 Benefits of job costing system – The job costing system is useful for companies in
providing detailed information of each job cost that involves in different activities. For
example the Excite entertainment limited company is using this accounting system for
providing detailed information to their managers about each job.
Section B
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(a) Different types of managerial reports :
MA reports – The management accounting reports are too crucial for companies because
by help of these reports various decisions are taken correctly. These reports are produced by
collecting and analysing monetary & non monetary information about different business
transactions. The above respective company is preparing various management accounting reports
and some of them are mentioned below which are as follows :
 Cost accounting reports – In the cost accounting reports, detailed information about
various financing activities is included. These reports are useful for finance department of
any kind of business entity. This is so because by help of information provided by cost
accounting report they guides managers in preparation of strategies and plans. As well as
on the basis of these reports, managers allocates their financial resources into different
kind of business activities. Such as the accountant of above chosen company, Excite
entertainment limited prepare cost accounting report that helps their managers in
assessing total actual expenditures and take further steps accordingly.
 Account receivable ageing report – It is a type of report that is prepared by accountants
for informing to their managers about money which is due by their debtors (Porporato,
2015). Due to this report's information companies can make their plan about source of
finance because collection of debt amount acts as financial source. In the absence of
preparation of this report, companies can not manage their debt amount. Thus, this report
is beneficial for companies in order to provide information about total due amount by
their debtors. Such as in the aspect of above Excite entertainment limited company, their
accountants produce this report for evaluating their customers whose amount is due.
 Stock report – It can be defined as a kind of report which consists detailed information
about all types of inventories stored in warehouses (Brustbauer, 2016). With the help of
this report, production department can produce new products. It becomes possible under
this report information about prepared material is provided and on the basis of this
companies produce products. Such as the above Excite entertainment limited company's
accountant produce this report for better management of their equipments and gadgets.
 Performance report – In order to control and manage the performance of employees and
different activities, the performance report is prepared by companies. Under this report
information about actual outcome and estimated outcome is included which helps to
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managers in making effective comparison. For example the managers of Excite
entertainment limited company, utilise this report in order to control the performance of
various kind of activities.
(b) Characteristics of good information.
The good information system consists various kind of characteristic and some of them are
mentioned below such as :
 Accuracy – The accounting informations should be accurate in nature because as per it,
companies take crucial decisions.
 Relevancy – The accounting information should be as accordance of business
transactions because in the absence of it information will be irrelevant to use.
 Timely presentation of information – In addition, this is important that presentation of
accounting information should be on time so that decision can be taken on time.
TASK 2
Section (A)
Absorption and marginal costing method:
There are mainly two types of costing methods in order to prepare the financial
statements and some of them are mentioned below such as :
Absorption costing method – It can be defined as a kind of costing technique in which both costs
are absorbed completely for preparation of income statements. In other words under this method
fixed and variable cost are assigned as product cost (Barnard and Mostert, 2015).
Marginal costing method – Under this method, fixed cost is taken as period cost and variable
cost as unit cost. Thus, in this method both costs are not absorbed.
Contribution – This can be defined as difference between selling price and variable cost. It is
being calculated by below mentioned formula :
Contribution (C) = Sales price of each unit – Variable cost of each unit.
Particulars Amount
Selling price of each unit £40
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Less: variable cost of each unit £10
Contribution per unit £30
Break even point (in terms of units) = Fixed cost / contribution per unit
Particulars Amount (in £)
Fixed cost (A) 120000
Contribution per unit (B) 30
Break even point (in units) 4000
Thus, number of tickets will be 4000.
Section (B)
Factors that may effect above computed outcome :
 Selling price – This is an important factor that may change outcome of break even point.
It is so because if selling price will change then contribution will also change and as a
result BEP will effect (Feeney and Pierce, 2016).
 Variable cost – It is also an another factor which can effect the BEP. This is so because
any change in variable cost can lead to change in contribution as well as to break even
point.
Section (C)
Break even point in order to get desired amount of profit =BEP to attain desired profit =
Fixed cost + desired profit / contribution per unit
= 120000+90000
= 210000/30
= 7000 units
Profit of sale of 7000 units
Sales (7000*40) = 280000
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- Variable cost = 70000
Contribution = 210000
- Fixed cost = 120000
Profit = 90000
Income statement as per absorption costing:
Particulars Amount
Sales (8000*15) 120000
Less : Cost of good sold:
Opening stock (500*10)
Production (10000*10)
5000
100000
Less- Closing stock (2500*10) 25000
Absorption cost 80000
Profit 40000
Income statement as per marginal costing:
Particulars Amount
Sales (8000*15) 120000
Less: Variable cost
Opening stock (500*6)
Marginal cost of production (10000*6)
3000
60000
Less: Closing stock 15000
Marginal cost of sales 48000
Contribution 72000
Fixed cost 40000
Profit 32000
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Interpretation of data for range of business activities.
On the basis of above produced financial statements, this can be find out that value of net
profit is variant by both of the methods. Such as under absorption costing method, the net profit
is of £40000 while in marginal costing method it is of £32000. The cause of difference in profits
is way of considering fixed and non fixed in multiple manner under absorption and marginal
costing.
Management accounting techniques and produce financial statements
The role of MA techniques is very important for companies in order to prepare financial
statements (Guinea, 2016). Like in the aspect of above Excite entertainment limited company,
their income statements are prepared by help of costing techniques such as absorption and
marginal costing. It indicates that MA techniques are useful for preparation of financial
statements.
TASK 3
Benefits and drawback of various kind of planning tools used for budgetary control.
Budget – The term budget can be defined as a projection of possible income and
expenses which may occur in companies in futuristic time period. In the aspect of business
entities, role of budget is important because by help of estimated results they allocate financial
resources in different activities. The above respective company, Excite entertainment limited is
preparing various budgets which are as follows :
Sales budget – This can be defined as a kind of budget that consists detailed information about
futuristic units that a business may sale (Prowle and Lucas, 2016). In addition, this budget
includes information regards to total amount of money which can be earned by selling. Such as
the above Excite entertainment limited company is preparing this budget in order to get
information about how much quantity of units can be sold out in future and on the basis of it
their managers make further plans. This budget has some advantages and disadvantages which
are as follows :
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Advantages – This budget is helpful for making effective planning and management of financial
activities.
Disadvantage – Any error in the prediction of sales unit may lead to huge financial lose. This is
so because if companies will make production accordance of budgeted output and if sales do not
happens then it may cause to big lose.
Production budget – This is a type of budget that consists detailed information about number of
units which can be produce in a particular time period. Under it, various kind of information
about activities regarding to production such as number of units to be sold and cost which may
occur in the process of manufacturing. Same as the above mentioned budgets this has some
advantages and disadvantages such as:
Advantages – It is beneficial for companies in order to allocate funds as per the requirement of
production process.
Disadvantage – Main drawback of this budget is that it consumes too much time and cost in
order to preparation of budget.
Zero based budget – It can be defined as a kind of budget which consists information about
those activities that justified properly (Endenich and Brandau, 2017). As well as under this
budget, information of last year's budget is neglected completely. Herein, below some
advantages and disadvantages of this budget mentioned that are as follows :
Advantage – This is beneficial for companies in order to accurate estimation of total revenues
and expenses.
Disadvantage – One of the main drawback of this budget that under it, lot of time is taken as well
as time to make estimation.
Use of planning tools for preparing and forecasting of budgets:
The planning tools of budgetary control consists a vital range of budgets and each of
them has own importance for preparation of budgets (Thomson, 2017). This is so because on the
basis of information provided by the budgets companies get aware about which informations are
needed to be acquired in order to forecasting of budget. Like the above Excite entertainment
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limited company is using different types of budgets such as production budget, zero based
budget and sales budget that are benefiting them in order to preparation of budgets.
Planning tools to in order to sort out any kind of financial issues.
The planning tools of budgetary control consists various kind of budgets that play a
crucial role from overcoming any kind of financial issues. It is so because in the budgets,
information about financial activities is included that help in keeping an extra site of eye over all
projected income and expenses. On the basis of information derived from planning tools,
managers of companies can get possible alternatives in order to solve any kind of issue. Thus, it
can be formed that planning tools are useful for solving any type of financial problem which
occur in companies operations and activities.
TASK 4
Management accounting systems to respond to financial problems.
Financial governance – The term financial governance can be defined as a kind of
integrated system with financial aspects of companies which keep an extra sight of eye on
financial transactions (Fleischman and Parker, 2017). Basically, it is needed in organisations in
order to assess actual financial issue so that this can be resolved in less time period. If companies
apply this financial framework in their activities and operations then it become easy for them in
order to control financial issue which occur in their operations.
Full compliance system – This can be defined as a kind of system which is associated
with process of dealing from hose operations and activities that are related to misappropriation.
Under it, laws and regulations are applied in operations and activities so that issue can be sorted.
Basically, with the use of full compliance system companies can manage their financial
transaction in more authentic manner. Herein, below some benefits of full compliance system
are mentioned that are as follows :
 Disclosure of valuable data in order to take better decisions – This is one of the important
benefit of full disclosure system. As per it, companies can get those data which can be
helpful in the aspect of taking important decisions.
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 Beneficial for companies in realisation of mission – In addition, another role of full
disclosure system is that by use of it companies can focus on those missions which are
useful for them.
Consequences of non-compliance :
The term non compliance can be defined as a situation in which companies fail to comply
with their legal laws and regulations which create various issues in operations. Apart from it, in
some situations due to non compliance businesses shut down completely. In the aspect of above
Excite entertainment limited company, if they do not follow any kind of compliance then it may
lead to huge financial problem for them.
Monitoring systems to track variances from set targets :
In the aspect of today's business environment, way of monitoring financial performance
is best way to control financial issues (Bolt-Lee and Monte Swain, 2016). This is so because if
financial transactions and activities will be monitored in an effective manner then it becomes
easier for managers to find out exact financial issues. Eventually, the role of financial
governance is too essential for users in order to solve any kind of issues.
MAS to sort out any type of financial issue.
Under MAS a vital range of accounting systems are included such as cost accounting
system, job costing system and many more (Su and Schoch, 2015). Each of them plays an
important role to overcome from financial issues of companies. For an example, price
optimisation system is being used by companies in order to sort out the issue regards to lower
sales. As well as cost accounting system provides an important framework to manager of
companies in order to control various kind of expenditures that leads to overcoming from
financial problems.
CONCLUSION
As per the above project report it has been concluded that MAS are very useful for
companies in order to effective management of internal aspect. Under the report, a vital range of
accounting systems such as cost accounting system , job costing system are included. As well as
some accounting reports such as inventory reports, account receivable ageing report which help
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in the context of internal management are concluded. Further part of project report, includes
income statements that are prepared as per the absorption and marginal costing method. In
addition, role of financial governance for sorting financial issue of companies is also mentioned
under the project report in detailed manner.
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