Management Accounting: Essential Requirements, Methods, and Planning Techniques for Budgetary Control

This report explains the role and principle of management accounting and its systems, including different types of management accounting systems. It also covers different methods that are exploited for the purposes of management accounting reporting, and how to estimate costs by utilising proper techniques of cost analysis to prepare an income statement using marginal and absorption costs. Additionally, it explains the benefits and drawbacks of different kinds of planning techniques utilised for budgetary control. The report is based on Rite Track, a leader in aggregate sales and support solutions for the semiconductor industry.

Management
accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
P1 Explain management accounting and also provide essential requirements of different types
of management accounting system.............................................................................................3
P2. Different methods that are exploited for the purposes of management accounting
reporting......................................................................................................................................4
P3 Estimate costs by utilising proper techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................6
P4 Explain the benefits and drawbacks of different kinds of planning techniques utilised for
budgetary control........................................................................................................................9
P5. Comparing how organisations adapts management accounting systems to respond to
financial problems.....................................................................................................................12
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is a concept which is preferred by each and every organisation
in order to make a number of reports by accessing the financial information of the organisation.
Rite Track was established in year 1993, it is a leader in aggregate sales and support solutions for
the semiconductor industry's most popular mature production coat and develop tools and water
carrier inspection systems. By initiating best practices and performing with honesty Rite Track
try to accomplish duties towards the environment, providing dependable and innovative
commodities that represents commitment of Rite Track towards wastage, energy saving ,
reduction in level of noise and purify air (Alsaid and Mutiganda, 2020). The report consists of
two parts. The first part includes the role and principle of management accounting and its
systems which are explained in detail using the techniques and method of marginal and
absorption costing. Further, the part is summed up by describing the integration and benefits of it
in the entity. The second part takes into consideration the different planning tools. Also the
financial problems of Rite Track are discussed in the following report.
MAIN BODY
P1 Explain management accounting and also provide essential requirements of different types of
management accounting system.
Management Accounting
It is also defined as managerial accounting. It is a method of accounting that helps in
creation of statements, reports and documents or papers that assist management in the procedure
of decision making which are incidental to the performance of entity. It is basically used for
internal operations of an enterprise. It helps the management to execute all its functions
including planning, organizing, staffing, directing and controlling (Aslanertik and Yardımcı,
2019).
Functions of management accounting and its systems
It defines to an procedure that generally focuses about perceiving and estimating
stratified goals to refer individual monetary and non-monetary information to superior
governing authority of a business concern. Administrators can utilise this data for preparing
various financial plans and execution of reports. The executive accounting is certainly have more
unexpected content as compared to organised summaries of budget. Important difference

between them is that the first one is ready in association with inner cycles on the contrast the last
one is brought up for outsiders such as investors. It usually help in anticipating future patterns
and revenues of business operation which also suggests in making plans incidental to to expense.
The accounting framework is a method of controlling and effecting workers like
different costs which are basically for fulfilling initial goals. Mandatory execution of the
accounting framework in Rite Track is advantageous as it supply's different experiences which
assist in directing and organising processes (Booth, 2018).
Some Management accounting systems are as follows:
 Cost accounting model is a important strategy which helps company in evaluating
product cost for performing beneficial examination and evaluation of stock. It is
advantageous for Rite Track as it helps in identification of items that are beneficial for
workings of business. This system in addition of these also help accountants of
foundation in preparing fiscal report. It contains job request and cycle costing strategies.
 Stock administration system is conscious about valuing and accounting variations in
stock at any stage of organisation. Rite Track incorporates this model to grow its deals
and upsurge net revenues. Stock of business are of three kinds, to be specific, unrefined
element, ongoing work and acquired commodities. Its action is generally needed in
entities to upsurge functional capability and duration of business projects. It aid Rite
Track in diversifying direct costs associated with acquisition and troughing away
personalisation. It also helps organisations in holding additional stock which assist in
occurrence of insufficiency (Bourmistrov, Grossi and Haldma, 2019).
 Cost streamlining system is a numerical model which helps an entity in falling down and
estimating how request differ with respect to the modification in stage of value of item
or administration. Data gathered by this model is accumulated with cost and stock at
suggestions of costs that recommends in further growth of the productivity. Rite Track
involves this system for gathering data about the trends of market, demands of consumer
and tendency to carry out its operations effectively.
 Job costing model is a procedure of gathering various data about subsequent and
disjoining cost with selected work or task. It needs to occupy differential data in terms of
direct material, cost and upward. Rite Track involves this system in order to determine
quality of its estimating system which helps in providing estimations of items of cost. It

also helps organisation in creation of a reasonable benefits. Initial requirement of this
model is an entity is constant observation of creation process which helps with
recognition of challenges and making adaption in order to attempt not to hamper any
circumstances (Datar and Rajan, 2018).
P2. Different methods that are exploited for the purposes of management accounting reporting.
It is utilised for designing, controlling, decision making intention and evaluation of
performance. These reports are constantly prepared through the accounting and auditing period
according to requirements. The results of management accounting is in form of periodic reports
for the entity's department executives and CEO. For example, existing generation of sales
revenue, the existing position or situation of the organisation's accounts payable and accounts
receivables etc. Management reporting looks in the business in a more detailed way and shows
results from various sections. Despite on focusing on the whole organisation, management
reports focuses on a particular job, department or team.
Techniques utilised for management accounting reporting are:
Performance report: It can be termed as a detailed report which estimates outcomes of
particular workings which is related to the growth of organisation at any given point of time.
Management accountants of Rite Track, making best utilisation of budgets for making
comparison between actual expenses with incomes which are reliable on budgeted variables and
them list or updating information on grounds of performance of report. When a report is made,
executives design the demand of its future for customers and the need of a product in market and
in accordance of that modifications in prices are being made (Eaton, Grenier and Layman,
2019).
Cost report: While operating in Rite Track, management accounting analysis a number
of costs of manufacturing goods. On this basis, cost report is prepared in Rite track as it
examines all labour costs, raw material along with any type of additional cost in accordance to
sustain reporting of management accounting. The entire data is then adequately merged with the
cost report. And therefore, the method helps in monitoring and planning profit margins.
Budget report: This particular method plays a vital role in management accounting in
Rite Track for communicating as it focuses on preparation and diverging the budgets with
various departments of organisation. The report of budget emphasis on execution of Rite Track,

firm and is conserved in an entity. Report represents executives the manner to rearrange terms
with suppliers and marketer, better worker incentives and cutting down the cost on goods.
Directors also work for increasing the demand in sales and declining the expenses which leads to
saving of money (Heiling, 2020).
Inventory management report: It is an abstract of unfinished stock and information of
such amount of stock is accessible, products that are sold the most and quickest, category
performance etc. joined to status altogether with presentation of goods. For beneficial
development of Rite Track, it is important for management inventory level in sufficient and
ideally manner as possible. It is capability of purchase manager of the organisation to confirm
that correct stock levels are consistent for producing and marketing of various kinds of goods.
The informatory method that records all types of agreements which are incidental to
modification of inventory to various sections and their end results.
P3 Estimate costs by utilising proper techniques of cost analysis to prepare an income statement
using marginal and absorption costs.
Cost: It can be determined as an amount which can be paid despite of getting product or service.
In accordance with business, cost is estimation of money with sources, risk acquired,
opportunities forgone, materials, consumption of time and utilities in producing with product
delivery or any services. For analysing cost of preparation of income statement, financial
analysts uses various types of techniques and methods.
Absorption Costing: In this technique, managers uses a method for preparing external financial
as well as recording of income tax also. Analysing of techniques incidental to cost acquires all
cost which is associated with production or selling a product (Heinzelmann, 2018).
Profit and loss as per absorption costing method:
Cost per unit -Absorption costing approach
2020 2021
Absorption cost per
unit(B) Absorption cost per unit (C)
Direct Labour cost £ 11 Direct Labour cost £ 11
Direct material cost £ 17 Direct material cost £ 17

variable expenses £ 7 variable expenses £ 7
Fixed indirect
production cost £ 24 Fixed indirect production cost £ 20
(Fixed cost per annum/production units
2020)
(Fixed cost per annum/production units
2021)
Total cost per unit £ 59 Total cost per unit £ 55
Income statement for year 2020 and 2021:
Profitability statement using absorption costing method
2020 2021
Particulars
Sales 4000 * 95 380000 4500 * 95 427500
COGS (opening
stock + purchase -
less closing stock)
Opening stock 1500 * 59 =
88500
1000 * 59 = 59000
Production
Direct labour 3500 * 11 =
38500
4200 * 11
= 46200
Direct material 3500 * 17 =
59500
4200 * 17
= 71400
Variable expenses 3500 * 7 = 24500 4200 * 7
= 29400
Fixed production
cost per annum
3500 * 24 =
84000
4200 * 20
= 84000
Less: closing
stock
1000 * 59 =
59000
236000 700 * 55
= 38500
251500

GP 144000 176000
Less:
Administrative
overhead
11000 11000
Net Profit 133000 165000
Marginal costing: The cost analyse technique in which fixed costs of period and variable
cost are forced on units, cost are changed in complete manner in opposed to offering is referred
as to marginal costing. This method is used for analysing conditions wherein break even point is
equals with fixed costs. It implied additional costs that are part in production of extra output
units (Kenno and Free, 2018).
Profit and loss as per marginal costing method:
Calculation of opening and closing inventory units
2020 2021
Opening stock 1,500.00 1000
production 3,500.00 4,200.00
sales 4,000.00 4,500.00
closing stock
(Closing stock = opening
stock + production – Sales ) 1000 700
Cost per unit -Marginal costing approach
2020/2021
Marginal cost per unit (A)
Direct Labour cost £ 11
Direct material cost £ 17
variable expenses £ 7
Total cost per unit £ 35
Income statement for year 2020:
Sales (4000 X 95) 380000

Cost of sales (opening stock + production -clossing
stock)
Opening stock (1500 x 35) 52500
production (include all the production costs)
Direct labour (3500 x11) 38500
direct material (3500*17) 59500
variable expenses (3500*7) 24500
Less- Closing stock (1000*35) 35000
Cost of sales (opening stock + production -closing
stock) 140000
Contribution 240000
Less- Administrative overhead 11000
Fixed production cost per annum 85000
Net Profit before tax 144000
Income statement for year 2021:
Sales (4500 X 95) 427500
Cost of sales (opening stock + production -clossing
stock)
Opening stock (1000*35) 35000
production (include all the production costs)
Direct labour (4200*11) 46200
direct material (4200*17) 71400

variable expenses (4200*7) 29400
Less- Closing stock (700*35) 24500
Cost of sales (opening stock + production -clossing
stock) 157500
Contribution 270000
Less- Administrative overhead 11000
Fixed production cost per annum 85000
Net Profit before tax 174000
P4 Explain the benefits and drawbacks of different kinds of planning techniques utilised for
budgetary control.
Budgetary control process
The finance department of the entity integrates a variety of budgets for various
activities. On recommendation of which it takes corrective and directive actions for the
organisation. A responsibility centres are recognised for a operational unit which is accompanied
by a team leader who is held accountable. In other words it is a method where actual outcomes
compared with budgeted outcomes (Kroos, Schabus and Verbeeten, 2022).
. There are various of techniques, methods, planning instruments, utilised in budgetary control
which can impact the outcome in economical and effective workings of a organisation. There are
many advantages and disadvantages which are associated with budgetary control which helps the
organisation to grow, prosper and which can also generate obstacles in the path. Budgetary
control is the usage of actual expenditure with some stages which are rigidly implemented in the
organisation. Planning instruments are the instruments which gives estimations and following up
the workings for executing a particular plan or project. Administrators of Rite Track are utilising
different types of planning techniques for the proper control of the budgeting system. Certain
planning tools are discussed below:
 Zero based budgeting: Zero based budgeting is a techniques which discusses causes of
the expenses which are occurred in an accounting year. It is utilised by Rite Track for

analysing the best possible utilisation of resources allocated at different places. There are
some advantages and disadvantages for Rite Track:
Advantage Disadvantages
This technique helps Rite Track in considering
the fields which assists in generation of profits
and the operational activities in which it is
used. This supply's a better, transparent and
more reliable information for determining the
operations of organisation and examining of
business performance that would helps in
management of the budgets and have a
adequate control over them.
It is considered as a difficult, time consuming
and an costly procedure. It is determined as
difficult project to elaborated the utilisation of
expenses and generation of profit in budgets.
Any deduction in the profit margin or revenue
of the organisation can impact the brand image
of the organisation (Meiryani, Susanto and
Warganegara, 2019).
 Operating budget: It can be determined as a budget which is according to all the
operating incomes and activities incidental to expense as well. Executives of Rite Track
this budget for supervising and controlling expense incidental to activities in association
to business. It also helps in prediction of challenges which are related to future
occurrence, expenses and take precautionary course of actions in advance. There are three
major factors of operating budget which can be referred as revenue, variable costs, fixed
costs (O’Dwyer, 2021). There are certain merits and demerits for Rite Track:
Merits Demerits
It can have a advantageous outcome in
Rite Track for estimating costs and
management on expenses of the
business operational activities for
achieving the main objective of
company in the long period of time.
This technique can helps in making the
best available chances to expand
It is not reliable for Rite Track as it do not promotes
any help for evaluating the difference between
standard and actual costs. This technique is not
considered appropriate and is not flexible in nature and
operations. Variations cannot be made in policies
which are made during the year.

business.
 Capital budgeting: It is a technique acknowledged by an organisation for the
consideration and evaluation of ability for important projects and investments. For
example, planning for investing a huge amount in machinery and new technique for long
term success of operations of organisation. This method helps Rite Group in
investigating and choosing advantageous decisions for achieving long term success of
entity (Pattnaik, Kumar and Burton, 2021). Its benefits and drawbacks in relation to
Rite Track are:
Benefits Drawbacks
It is beneficial for Rite Track as it leads to
better knowing of risk and its impacts of the
investment decisions. It assist the business to
choose the best investment element in a
aggressive market to stay in lead from its
competitors. It also restricts the management to
over and under investing.
It is not recommended for Rite Track as there is
long term investment decision and which is not
good approach. If the decision are taken in
wrong way than it can impact the organisation
in and duration of the business in long span.
Managerial accountants of Rite Track utilises various planning techniques for the
preparation and prediction of various budgets. The organisation utilises zero based, capital and
operating budget methods for analysing the affectivity of business operations. Zero based
budgeting is utilised by Rite Track for distribution of revenue and profit to particular
expenditure. It can be used in an organisation by determining which functions should take place
and the way of performing those operations. Decision makers of company utilises capital
budgeting for making correct decisions related to a project or investment. This can be considered
in an entity by finding and estimating potential opportunities. Operating budgeting is used by
Rite Track for maintaining a track of revenue as well as expenses and also assists in assessment
of financial performance of business. This can be prepared in an organisation through making a
comparison between the actual and pre determined costs (Ritsri and Meeprom, 2020).

P5. Comparing how organisations adapts management accounting systems to respond to
financial problems
Financial problems: It can be considered as a situation in which an entity becomes
unable to accomplish its objectives and pay off its liabilities and expenses on time for both long
and short run. For instance, reduction in the cash flows for performing functions of entity in an
effective manner. Some financial problems incidental to Rite Track are as followed:
Lack of finance: Finance is considered as the most important or can be said blood for
organisations, which insures functional affectivity. Without the adequate accessibility of finance,
an organisation cannot think of its enlargement and further growth. Even insufficient finance
can generate problems in daily operations of Rite Track (Shafati, Valiyan and Abdoli, 2020).
Mismanagement of cash flow: This technique can results Rite track towards the path of
unskilfulness and diversification of activities in different sections. Improper management of cash
flow can leads in confusion and fault in reporting of functions of organisation. It is a essential
financial issue which seriously impacts performance of business.
Excessive Debts: It can generate a huge financial challenge to entity. Highly indebtedness of
finance can results in restricting Rite Track in maintaining its short as well as long run liabilities
and even creates a situation of bankruptcy. This financial issue can also create obstacle in
meeting daily operations of an organisation (Skouloudis, Malesios and Dimitrakopoulos,
2019).
Approaches of management accounting utilised by Rite Track are as follows:
1. Financial governance: This involves the policies and procedures that helps an entity in
keeping track of financial transactions and events, performance of management and
monitoring of various functions. Ineffectiveness of this technique restricts Rite Track in
analysing and collecting adequate data regarding the financial transactions. Risk can be
recognised at a faster pace as compared to its competitors if this approach is implemented
in an effective way.
2. Key performance pointers: This shows the set of quantifiable methods that helps an
enterprise in estimation of its overall performance. These are traced by automatic
software's and various analytical methods. It is beneficial for Rite Track as it helps in for
of organisations objectives and also estimates execution in operations.

3. Benchmarking: It is expressed as an technique of making comparison between products,
services and strategies of company those organisations who are determined as leaders in
the industry. Rite Track utilises this technique in their workings as it assists in reducing
performance gaps which leads to identification of areas which are required to have
modifications in them (Valiyan, Abdoli and Karimi, 2018).
Comparison of different entities for applying management accounting system in resolving
a number of financial issues.
Basis of difference Rite Track Reval Continuing Care
Financial problems Rite Track can be seen facing
some problems related to
working capital. The daily
activities cannot be performed
on time without availability of
adequate finance.
Reval Continuing Care is
observed facing issue of
excess cash outflows which
leads to a situation where the
organisation becomes unable
to pay off its debts and
expenditure on given time.
Management accounting
approaches
Rite Track acquires the method
of benchmarking to make a
responsive approach towards
its financial issues. This
technique of management
accounting aids in
measurement of performance
of organisation effectively in
respect of its competitors.
Reval Continuing Care uses
key performance pointers to
examine its past performance
and make a comparison
between past and present
performance. This assists in
evaluation and identification
of differences between the
two.
Management accounting
systems
Rite Track uses cost
accounting system to distribute
procurement cost among
various products. This aids in
increased revenue and profit
Reval Continuing Care uses
inventory management
technique to manage its
different workings in
organisation. Effectiveness of

generation (Williams, 2021). this application assist in
handling its financial issues in
an effective and efficient way.
CONCLUSION
The above prepared report concludes a brief discussion of Rite Track, the meaning of
management accounting and need of various kinds of man accounting systems in Rite Track. It
also consists of different techniques used in the process of management accounting reporting. It
also discloses the techniques of cost analysis like marginal costing and absorption costing used in
the preparation of income statement. The following report also contains the benefit and
drawbacks of different types of planning tools applied in budgetary control. It also represents a
comparison on the way organisations adopts management accounting systems to overcome
financial problems.

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