Management Accounting: Essential Requirements, Cost Calculation, Planning Tools and Advantages

This report discusses the practice of management accounting, its purpose, and how it helps managers make effective decisions. It covers the essential requirements of management accounting systems, different methods for cost calculation, advantages and disadvantages of different planning tools, and their use for budgetary control. The report is written from the perspective of ASDA, an international retail organization. The subject is management accounting, and the course code and name, and university are not mentioned.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1 ..........................................................................................................................................4
Management accounting and essential requirements of management accounting system..........4
Different methods and their use for management accounting reporting......................................5
TASK 2............................................................................................................................................6
Calculation of cost with use of appropriate techniques for formulation of income-statement....6
TASK 3............................................................................................................................................9
Advantages and disadvantages of different planning tools with their use for budgetary control9
TASK 4..........................................................................................................................................11
Management accounting systems and their respond towards financial issue............................11
CONCLUSION..............................................................................................................................12
REFERENCES .............................................................................................................................13

INTRODUCTION
The practice of identifying, analysing, measuring and communicating financial
information to managers for accomplish of organisation goals and objectives according to
decided strategy and policy is known as management accounting. The primary purpose of
management accounting is to assist and cognisant internal management for make and induce
effective and informed decisions. Along with this management accounting helps to deliver and
encompasses right facts and figures related with business operation metrics and this aids
management to take appropriate and right decisions for organisation (Cleary, 2015). This report
is written from the perspective of ASDA which is a international retail organisation. Further,
report assist to understand about management accounting and essential requirements of various
types of management accounting system. Along with this different planning tools and accounting
methods for management accounting will also included in the report. In the last, report will
highlights on advantages and disadvantages of different planning tools used for budgetary
control.

TASK 1
Management accounting and essential requirements of management accounting system
Financial manager utilise the process of management accounting as this aids them to
collect and deliver accurate as well as reliable information which is used by the managers for
control routine operations in an organised manner. Along with this management accounting also
helps to translate and convert the financial data into effective information which helps manager
for formulate effective decision-making.
Management accounting system and their essential requirements in the organisation
The main role of management accounting system is to formulate an appropriate
framework for the organisation and this helps manager for formulate proper financial reports and
accounting system in order to make sound and right decisions (Cv and et. al., 2020). Some types
of management accounting systems are mention as below:
COST-ACCOUNTING SYSTEM
This also refers to the product costing system and it helps to formulate appropriate
framework that helps to estimate and analyse future cost of the business that incurred for
manufacture products and services. ASDA utilise management accounting system because it
helps to analyse future cost and profitability of business.
 Cost-accounting system is essential required by the management of ASDA because it
help to analyse the cost of overall inventory cost which is offered by the management in
their stores to customers.
 Another essential requirement of cost-accounting is that this helps management for
allocate all resources within the budget through including all types of cost such as
overhead, fixed and variable cost.
JOB-COSTING
The job-costing method is to determine overall cost of manufacturing and it means that
cost of each single manufactured unit is included under job-costing systems (Fiondella and et.
al., 2016). Management accounting method helps to generate effective decisions so by involving
each separate cost in manufacturing this is easy for ASDA to formulate right and appropriate
budget.

 ASDA is a retail organisation so most of their functions are engaged in delivery of
products to customers so job costing method is essentially required by management
because this helps to undertake all cost factors of business.
 To manage inventory in large quantity is one of the most complex task because this will
mismatch the cost. Therefore, with engage of job-costing method this is easy for
management to analyse overall cost of business.
INVENTORY MANAGEMENT SYSTEM
The term inventory management system helps an organisation for monitor and maintain
the constant number of products such as raw-materials, resources, etc. especially, all those which
are engaged in company offerings. Moreover, effective inventory management system helps to
reduce operational cost of business through reducing the number of wastage from business
operations.
 Inventory management is essentially required by ASDA as this is one of the ideal
method which helps to maintain and retain all inventories through monitor all stocks
number on regular basis (Fleischman and McLean, 2020). It also helps to identify
shortfall of products which are at finishing stage in store.
 Inventory management system generate long term results by retain and earn profits more
as compare to previous amount and this is because it control the waste of inventory.
Different methods and their use for management accounting reporting
Management accounting report are generated with the motive of supporting internal
management of the organisation to formulate right and effective decisions for business.
Management accounting include both financial and non-financial transactions which take place
among the organisation to analyse and understand all economic as well as non-economic
activities in future (Grishanova, Tatarinova and Kirina, 2016). Moreover, this is crucial for
respective organisation for formulate right reports and this helps management to accomplish all
objectives of company in a proper manner.
 Budget reports- This report is formulated by organisation for each department and this
helps manager for analyse and complete all work with decided number of expenses. In
simple terms, budget report is formulated to perform all work according to decided cost.
Also, this report set organisation performance standards and all of them are achieved
through decided amount of expenses. Moreover, manager formulate the budget report in

the end of financial year after measure of overall company performance. The budget
report also helps ASDA to utilise all monetary resources in a proper manner.
 Account Receivable Report- The account receivable report is prepared for analyse and
evaluate the number of debtors which business have in existing period. ASDA generate
account receivable report because this helps to monitor and track the number of debtors
that not paid the amount on the due dates. Further, account receivable report track the
amount of bad and doubtful debts of business which helps company for collect the
pending sum of money in upcoming period.
 Job cost report- The job cost report estimate all information related with company and
this helps for analyse total revenue and cost which is incurred for formulate the products.
This also assist internal management to estimate overall profitability of business which is
earned from a particular job function (Hoozée and Mitchell, 2018). Also, job cost report
compare total revenue with total cost which is generate for manufacture the particular
product. Moreover, manage also select those project which require less investment and
generate better outcomes from report.
Use of accounting method in management reporting
COST REDUCTION- Management accounting reports aid an organisation for formulate
appropriate policies as well as strategies that helps the business to complete their work according
to decided-budget. Along with this by formulate of appropriate cost-system this is easy for
organisation to solve overall problems if they take place in future by manage cost of business.
DECISION-MAKING- Internal management perform an important role in decision-
making process so with induce of appropriate accounting method all financial transactions take
place in organisation in an appropriate manner especially, with those aspect that match with
current market transactions of business (Ismail, Isa and Mia, 2018).
TASK 2
Calculation of cost with use of appropriate techniques for formulation of income-statement
COST- ASDA invest an amount in their business process for delivery products to the
customers and this amount is recognised as cost. Moreover, with analyse of cost, ASDA
management or financial department decide price of products by add nominal number of profits
in operational cost of business.

MARGINAL COSTING- This cost occurs when an organisation decide for add the
production units. Usually, marginal cost refers to the additional cost when company decided for
produce one additional unit. The marginal cost of production include variable cost of
manufacturing system and it not involve the fixed cost in marginal costing. Also, this is
important for management to produce additional products until their revenue is high than
marginal costing (Joshi and Li, 2016).
Marginal costing method -
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 * 16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
ABSORPTION COSTING- Most of the organisation utilise the absorption costing
system because it include the actual cost systems which incurred at the time of production. This
governs that fixed as well as variable both cost are included in absorption costing system.
Absorption costing method -
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975

Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
a. The number of products to be sold to break even
Break-Even:
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. The break even point in terms of sales revenue
sales per unit 40
variable costs VC = DM + DL 28
contribution 12
fixed costs 6000
Profit volume ratio PVR = Contribution /
sales * 100 30.00%
BEP in sales 20000
c. The number of products that need to be sold to make profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000

Contribution per unit 12
Sales 1333.33
d. The margin of safety if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
In the last, by use of management accounting system specifically through utilise of marginal
costing and absorption costing this is easy for management to calculate the net income and
profits for business. With calcualte of the net income that is based on the marginal and
absorption costing methods helps for engage all cost which is related with business.
TASK 3
Advantages and disadvantages of different planning tools with their use for budgetary control
Internal management of ASDA formulate various or different types of budgets in order to
perform all task in an efficient manner. Moreover, budget which are prepared by the respective
organisation include master budget, operational budget and cash-flow budget etc. Types and
description of this budgets are mention as follow:
OPERATIONAL BUDGET- The operational budget of an organisation engage cost as
well as revenue which is used to perform day-to-day operations (Laguecir, Kern and Kharoubi,
2020). Moreover, cost are considered by financial department includes both administration and
overhead cost which is required by the management for ascertain in the company.
Advantage- One of the major budget for an organisation of operational budget is to cover cost
and revenue which is used to complete business operations. Moreover, this helps to minimise
expenditures by manage and control organisational operational cost.
Disadvantage- Operations performed by ASDA at a large level and due to this is a time-
consuming process because budget are prepare within a detailed information.
CASH FLOW BUDGET- This type of budget helps an organisation to manage and
control overall cash which inflow and outflow within business projects. It also helps to prepare

and determine daily cost of the enterprise functions or operations. ASDA generate and induce
cash flow budget because this helps to manage daily cash-requirements of organisation in an
organised manner. It also results that all sources is managed according to the capacity of
repayment.
Advantage- The main benefit of cash flow budget is to maintain sufficient or enough amount of
cash within organisation so that business operations will not impacted in the future (Messner,
2016).
Disadvantage- Inflow and outflow of cash take place in business in frequent intervals and it
refers large number of transactions take place within organisation and due to this it is not
possible to record all monetary amounts at same time.
FIXED BUDGET- In the initial period of financial year ASDA and other organisation
formulate fixed budget and as per their name they are fixed in nature. Moreover, fixed budget are
complex because they are rigid in nature and due to this it is not possible to modify them.
Therefore, due to no modifications financial plan are complex to formulate and it create
complexity for business to follow them for a whole-year.
Advantage- With fixed budget small business or organisation is able to maximise their profits
because it not generate expenses.
Disadvantage- The only drawback of fixed-budget is that they are not able to modify as per
needs of managers. Due to this large organisation not focus or invest their time in preparation of
fixed-budget.
MASTER BUDGET- It is formulated by the managers for forecast the total amount of
future sales, production level, engage of capital investment, etc. in order to execute and complete
all business operations in an accurate manner (Novas, Alves and Sousa, 2017). The main purpose
for formulate master budget is to decide appropriate performance standards that helps to
complete all work in an effective manner.
Advantage- This type of budget aids an organisation for determine overall cost which is related
with production process.
Disadvantage- Master budget are designed to complete the specific production process and due
to this reliability and accuracy of other departments is not improved.
VALUE-PRICING SYSTEM

Full cost pricing- According to the full cost pricing system all production cost which is
directly related with manufacturing of products such as purchase of direct material,
transportation cost, labour cost, etc. is included by the management.
Cost plus pricing- This pricing method is considered all the incurred cost and it include
indirect as well as direct cost both. ASDA use cost plus pricing because this engage overhead
related cost also in business.
Marginal cost pricing- As per marginal cost strategy all prices of products and services
is determined as this relates with basis of cost (Padovani, Orelli and Young, 2014). On the other
side, incurred cost of production add additional units for products and this helps for include
variable cost of production.
Evaluation of tools to overcome from the financial problems
An organisation utilise different methods and techniques which is useful for control the
budgets related with business. Along with this by forecasting of the financial factors through use
of different tools it is easy for management to generate strategy which aids to overcome from
monetary related issue. The reason to utilise the financial tools is that they helps business to
decide and set some specific standards that helps to perform work within future. It also leads
management to set right direction which maximise and enhance profitability of business.
TASK 4
Management accounting systems and their respond towards financial issue
KPI- Key performance indicators is considered as one of the most effective tool and this
is used for measure the company performance. Also, this helps to compare the actual
performance of workforce and departments with the expected outcomes. Actual performance of
all departments are compared through pre-specified standards of business. Internal management
of organisation also analyse all variations and performance and this helps to identify those places
which are required to rectify. In the last, with use of KPI evaluation of all stages success factors
and capability is calculated to identify their performance in business objectives.
BALANCE SCORECARD APPROACH- The balance card approach is utilised by the
respective organisation to align all activities of business according to the decided policies and
objectives of business. The main purpose of balance card approach is to coordinate and evaluate

all activities and also it helps workforce to organise training sessions. This aids workforce to
perform the task and their job-role in an effective and systematic manner.
Perspectives of management accounting system to overcome from financial issue are mention as
follow:
Stakeholder and customers- The obligation of each organisation is to operate and perform their
work or operations in a competitive market (Pan and et. al., 2017). So this is important for
business to offer and deliver good-quality of products and this is possible only if management
maintain better relations with the engaged stakeholders because they supply raw-materials and
finished products to ASDA.
FINANCIAL- One of the main motive related with each organisation is to obtain better financial
position within the industry or business. Along with this the financial position is achieved by
management when manager of organisation allocate all funds to all departments in a systematic
manner.
With formulate of appropriate plans this is easy for the management to deal with those
issue that generate problems for manage and control monetary amounts for business. The main
role of plan is to solve the issue in a systematic manner and this is also used by management for
manage changes related with business policies. This results that all financial issue are resolved
within minimum time and it helps for implement right and appropriate strategy to control cost of
business operations.
CONCLUSION
From the basis of above report, this is concluded that management accounting perform a
crucial role for the internal organisation by assist management to formulate right and effective
decisions for business. Along with this management accounting methods generate policies which
helps to design right and appropriate financial strategy for business through analyse the current
trends of market. The project also discuss about various budgets which assist manager to set right
performance standards for business. Further, report also conclude the information related with
management report and it include budget report, account receivable report, etc. In the last,
absorption and marginal costing method which is used to prepare the profit and loss account for
business is also learned through this report. Along with this discussion about management
accounting methods is also included and this helps the organisation to overcome from financial
problems of business.

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