Management Accounting for Decision Making

This assignment delves into the crucial role of management accounting in facilitating effective decision-making within organizations. Students will examine various management accounting concepts, systems, and techniques, exploring how they contribute to informed strategic choices. The analysis will encompass cost management, budgeting, performance measurement, and the impact of these practices on organizational success.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1 ...........................................................................................................................................3
P1 Explain management accounting and its types.................................................................3
P2 Different types of management accounting reports..........................................................5
M 1 benefits of management accounting system...................................................................6
D1: Critical evaluation of accounting reporting system ........................................................6
TASK 2............................................................................................................................................7
P3 Explain the difference between the two management accounting techniques..................7
M2 Application of range of management accounting tool.....................................................9
D2 Financial report and interpretation of the data................................................................10
TASK 3..........................................................................................................................................10
P4 Benefit and limitations of budgets and how they are helpful in planning......................10
M3 Different planning tools.................................................................................................11
D3 Evaluation of manner in which planning tools solves the financial issues....................12
TASK 4..........................................................................................................................................12
P5 Comparing among two different organisations accounting system ...............................12
M4 Analysing the financial problems .................................................................................15
CONCLUSION .............................................................................................................................15
REFERENCES .............................................................................................................................16

INTRODUCTION
Management accounting means a concept which means the process of preparing report
and accounts that are responsible to provide accurate and timely financial and statistical
information that are required by the managers to make day to day and short term decisions.
Management accounting plays an important role in organization because it generates monthly or
weekly reports for an organization. Management accountant of company is responsible to
comply all the rules regarding accounting systems (Financial information and decision making,
2016). There are different types of management accounting systems. Also, different methods
used for management accounting reporting which has been used by company. Concept of
budgetary control is also discussed in the report. There are various advantages and disadvantages
of budgetary control. a good management system involves a responsibility to manage a wide
variety of critical management accounting information using management accounting system and
techniques such as cost volume profit analysis, marginal costing and absorption costing to
produce relevant management report for informed decision making. Management accounting
techniques should be adopted with effective knowledge and analysis. Management accounting
has functions like; budgetary control, performance indicators and variances. also, there are
different advantages and disadvantages of budgetary control.
TASK 1
P1 Explain management accounting and its types
Administration bookkeeping is a term which implies it is a calling that includes
cooperating in administration basic leadership, conceiving arranging and execution
administration frameworks and furthermore giving aptitude in money related revealing and
control to help administration in the detailing and usage of an association's procedure. It stretches
out to 3 essential regions:
Strategic management: Vital administration in this, it is mindful to propel the part of the
administration bookkeeper as a vital accomplice in the association (Hansen and Otley, 2003).
Performance management: Execution administration it includes to build up the act of
basic leadership of business and furthermore deals with the execution of the association.

Risk management: Hazard administration structure for rehearses and furthermore it
distinguishes, measures, oversees and report dangers to the accomplishment of the targets of an
association.
The individual who is in charge of readiness and introduction of budgetary and other choice
arranged data in such an approach to help administration in plan of strategies is known as
administration bookkeeper. Administration bookkeeping is in charge of giving point by point and
disaggregated data about items, singular exercises, divisions, plants, operations and errands. it
doesn't centers around the organization all in all. Administration bookkeeping is in charge of
administration of the business group and furthermore report connections and obligation to the
company's back association. There are diverse sorts of administrative bookkeeping frameworks
that are utilized by the organization in particular;
 Cost accounting system: It is a structure utilized by organizations to gauge the
cost of their items for benefit examination, stock assessment and cost control. As,
assessing the exact expenses of items is basic for gainful operations,so a firm
should think about which results of the organization are productive for and which
ones are not (Harris and Mongiello, 2012). It can be just discovered when it has
the right cost has been evaluated of the item.
This is critical kind of administration bookkeeping framework since cost bookkeeping
framework encourages the organization to gauge the end estimation of materials stock, work in
advance and completed products.
This is important type of management accounting system because cost accounting system
helps the company to estimate the closing value of materials inventory, work in progress and
finished goods.
▪ Inventory management system – it is the continuous procedure of moving parts
and items into and out of an organization's areas. Administration of organizations
deals with their stock once a day as they put in new requests for items requested
by clients and ship requests to the clients.
It is important for the company because the company, for solving an issue of proper inventory
management. The companies turned to software that can help them keep tracking regarding all
their inventory, orders, vendors and more. All inventory are compiled in the software so that it
would be easy for them to keep a eye check on their inventory.

▪ Job – costing system- An occupation costing framework includes the way toward
gathering data about the expenses related with particular creation or
administration work. This data might be required to give data with respect to
expenses to clients, under an agreement where costs are repaid. It is additionally
valuable for deciding the precision of organization's assessing framework.
P2 Different types of management accounting reports
There are different types of management accounting reports which the company uses for
establishing managerial accounting system in company. Management accounting mainly focuses
internally on information received through financially accounting. Managerial accounting is used
for planning, controlling and decision making. There are many types of management accounting
reports that include:
 Cost reports: it is the tool which the company uses for calculating costs of items
produced. This report is consist of raw product costs, overhead, labour and any additional
costs into consideration. Then, the totals are divided by amounts of products produced.
All of this information is summarised in cost report of company. However, this report
allows managers of company to see the costs prices of goods versus selling prices. It
helps the managers to plan and also control profit margin (Nikbakht and et.al., 2006). It
also includes job costs report which shows expenses for a specific product. They are
compared with the estimate of revenue so that company would be able to evaluate the job
's profitability. It identifies higher earning areas of the business of company namely, so
that it can focus its efforts there instead of wasting time and money on jobs with low
profit margin. Job cost reports are also used to analyse expenses while the project is in
progress so managers of company can correct areas of waste before the costs escalate.
 Budget report- it is an another report which has been used by company to enable the
managerial accounting reporting in the said organization. it helps the small business
owners to analyse their company's performance and in case if the business of company is
comparatively big, then managers analyse the performance of their department and also
control costs (Nobanee, Abdullatif and AlHajjar, 2011). The estimated budget for the
particular time is is based on the actual expenses. Budget report can also be used for the
providing incentives to employees. In this case some of the funds budgeted may be given
out up as bonuses to employees of the company.

 Performance reports- performance report can be used as another managerial reporting
method as it is used to compare actual expenditures and revenues to budgeted amounts.
The differences calculated are analysed at the time when new budgets and all information
regarding these amounts is listed on a performance report. These reports are calculated
every year. It helps the manager of company to plan for future demand in production and
also in case of cost increases (Shim and Siegel, 2008).
M 1 benefits of management accounting system
There are many benefits of management accounting system to the company. Business
owners can design management accounting systems according to their company and its
operations. management operations has several benefits to the company. The benefits are as
follows: Reduce expenses - management accounting system can help in reducing the operational
expenses. Management accountant use management accounting information to review the
costs of economic resources and other business operations (Kaplan and Atkinson, 2015).
With the help of this, business owners also assess the quality on the economic resources
used to produce goods and services. Improve cash flow- budgets are he major parts of management accounting system. To
have a financial road map for future business expenditures, many business owners often
use budgets .management accountant will go through these information to create a master
budget for the entire company.
1. Business decisions- management accounting helps in improving business decisions of the
company as it provides quantitative analyses for various decisions opportunities. Top
management of business reviews each opportunity through the prism of quantitative
analysis to ensure that they have clear information relating to business.
From the above accounting system its has been found that productive and efficiency of
the cited company are major aspect. So, it can help the company to minimise their operational
expenses. It also help to reviews the total cost of economic resources and other business
activities. The major advantages in this system that provided effective tool for decision making.
D1: Critical evaluation of accounting reporting system
In an organisation, accounting system is said to be major aspect that need to be use in
appropriate manner so that more effective results can be drawn. In the opinion of Horngren and

et. al., (2005) an positive strategies can be made so that cited company would be able to manage
their financial transactions. As overall goodwill and profitability is depend upon the type of
reporting system used by the company. Job costing and inventory systems are the most effective
reporting system an organisation should have.
TASK 2
P3 Explain the difference between the two management accounting techniques.
Management accounting is the process of identifying, analysing, recording and presenting
financial information so that internal management use it for planning decision making and
control of a company. There are two management techniques that are as follows:
Income statement in case of marginal costing method:
Particulars Amount Amount
Sales 21000
Less: Cost of goods sold 6600
Gross profit 14400
Less: Variable Expenses
Variable production overheads 1200
Variable sales overheads 600
Total variable expenses 1800
Net profit 12600
Income statement in case of absorption method of costing:
Particulars Amount Amount

Sales 21000
Less: Cost of goods sold 6600
Gross profit 14400
Less: Variable Expenses
Variable production overheads 1200
Variable sales overheads 600
Total variable expenses 1800
Less: Fixed Expenses
Production overhead 2000
Administrative cost 700
Selling cost 600
Total fixed expenses 3300
Total expenses 5100
Net profit 9300
From the calculation carried above it can be interpreted that output in both marginal
costing as well as absorption costing differentiate to a greater extent. The major difference exists
in the process of making calculation. In case of marginal costing fixed cost is not taken into
account. However in case of absorption costing total fixed expenses are being taken into account.
This is considered as major point of difference among both the methods. In the process of
marginal costing the net profit is 12600 that is higher in comparison with the net profit that has
occurred by the means of absorption costing method that is 9300.

The methods of management accounting that is marginal as well as absorption costing
can be differentiated on the basis of several points. These have been enumerated in the manner as
below: Meaning: The concept of marginal costing is regarded as the tool that assist in making
determination of the total cost involved in production. In contrast to this absorption
costing is referred to as the apportionment of the total costs to cost centre for the sake of
assessing the total cost involves in product. Cost recognition: Under marginal costing the variable cost is regarded as the cost of the
product whereas period costs is considered as the fixed one. On the other hand in case of
absorption costing both fixed as well as variable costs is regarded as cost of product. Classification of the overheads: In case of marginal costing the overheads are being
classified into fixed as well as variable. On the other hand in absorption costing
categorization of overhead is being done on the basis of production, administration as
well as selling and distribution. Profitability: Within the method of marginal costing the profitability is being measured
by the means of profit-volume ratio (Bromwich and Bhimani, 2005). In contrast to this in
case of absorption costing because of inclusion of the fixed cost the profitability is
influenced to a significant level. Cost per unit: Under marginal costing the variances within the opening as well as closing
stock does not affect the cost per unit related with the output. In contrast to this under
absorption costing the variances within the opening as well as closing stock influence
cost per unit.
 Cost data: In case of marginal costing it is presented towards outlining total contribution
of every product. In contrary to this under absorption costing the data of cost is being
demonstrated in conventional manner.
M2 Application of range of management accounting tool
Management accounting makes use various methods in order to comply with its
responsibilities and duties related with the management. This is comprised of tools that are
enumerated in the manner as below:
Financial statement analysis: Financial statements is regarded as the indicator of the two
important factors that is comprised of profitability as well as financial effectiveness. Analysis

and interpretation of the financial statement enables towards fuller diagnosis in relation with the
profitability and the firm's financial soundness (Hansen, Mowen and Guan, 2007). Analysis is
regarded as the methodical classification of the provided data within financial statements. The
categorization that is methodical enables towards making comparison of the several inter-
connected figures with one another. Interpretation provides explanation in relation with the
meaning and significance of the information.
Funds flow analysis: It is considered as the essential tool for the management accountant.
It reveals the alterations within the working capital position to a greater extent. This is comprised
of the sources from where the working capital is being gained as well as the purpose for which it
has been utilized (Zimmerman and Yahya-Zadeh, 2011). It is effective revealing the alterations
that are taking place beside the balance sheet.
Cash flow analysis: It makes determination of the sources as well as application in
relation with the cash. This is being prepared based upon the actual or the information estimated.
It makes determination of the alterations within the position of cash from a particular period to
another. A cash flow or cash budget that is projected one assist the management in determining
the amount of cash that exists towards meeting the obligation for trading creditors, payment of
loan from bank and paying dividend to the holders of shares.
Standard costing: Costing is being carried out in order to prepare and make use of
standard costing, their comparison with actual costs as well as analysis of the variance. It makes
disclosure of the cost of deviations from the standards. It possess the aim towards making
assessment of the product cost, procedure or operation in standard operating conditions.
Budgetary control: It is considered as important management tool that can be used by Morrison
in order to control costs and increase the profitability to a significant level. It assist in making
comparison of the present performance with the pre planned performance (Ahrens and Chapman,
2007). Thus it results in bringing improvements in the deviations that have emerged.
Management reporting: It is considered as the organized method of offering every manager with
whole data. This includes the data that is required by him in order to make decisions in an
effective manner. It has effectiveness in developing understanding as well as stimulating the
actions to a greater extent.
D2 Financial report and interpretation of the data
This is being covered in P3 part.

TASK 3
P4 Benefit and limitations of budgets and how they are helpful in planning
Budgetary control is a tool which a cited company may use in management of their
business operation. It set the perfect plan for the future ability that a company would be planning
to reach. The actual and standard cost which are incurred during that particular time period.
There are certain objectives of budgetary control which are mentioned underneath:
 To plan the future forecasting of total sales and Net profit-volume of the company.
 The main purpose of this budgetary control is to minimise the losses and control extra
costs.
 The overall decision is based on the budget plan designed by the cited company.
There are many advantages and disadvantages of budgetary control :
Advantages:
 It is said to be identified plan which is used to target the future of the company growth.
Planning tools enable the management to determines goals and objectives of company so
as budget can be prepared accordingly.
 It also secures better coordination among various departments (Macintosh and Quattrone,
2010).
 It help to control extra cost which are incurred on the production of products.
 Budgetary control also facilitate centralized control with centralised activity.
 It enables the company to run its operations smoothly as, everything has been planned
and provided in advance.
Limitation:
 Budgets are more complex as it takes so much time.
 Budgets are not able to overcome the small losses and costs of a company (Chapman,
2005).
 It is based on total uncertainty.
 Also, some of the decision are delayed because of inappropriate budget plan.
M3 Different planning tools
There is presence of several tools that can be used for the purpose of planning in
management accounting. This is comprised of following:

 Budgets
 Cost-volume-profit analysis
 Product costing
In order to get positive outcome from the business operations of an organisation. It is
important to create a perfect plan to achieve aims and objectives. The overall stability of the
company is depend upon the extra cost which are incurred during production process should be
control. As because company would get cost advantages over its products which help the cited
company's to obtain positive results.
D3 Evaluation of manner in which planning tools solves the financial issues Budgets: It is considered as the most significant tool of planning. It is effective in
directing the management and assist them in making decision in an effective manner. Cost-volume-profit analysis: It can be used by Morrison when it is planning for
expansion. It is powerful tool that presents the amount of sales that firms needs to make
in order avoid the situation of loss (Ax and Bjørnenak, 2005).
 Product costing: This is suitable tool which assist in making planning regarding the
product cost.
TASK 4
P5 Comparing among two different organisations accounting system
The accounting system of an organization plays important role which assists corporation
like Morrisons to carry out all operation or costing related techniques in an effectual manner.
According to the given case scenario, in case Morrisons face any issue related to accounting
problem then it would be possible to adopt necessary account practices so as to ensure the
certainty and secure the good position of the business in the marketplace with the increased rate
of return. The major role of management accountant is to perform series of task for the purpose
of greater level of financial security of the business along with handling all related mater. This
proves to be effective for successful operation of the same along with its aim to create
competitive edge in the marketplace (Modell, 2005). At this juncture, varied practices are
followed in order to address the financial issues. For example, operational control system is
applied in Morrisons whereby management of corporation effectively ensure to total quality
management for the sake of better production activities. It can also be done with the help of

suitable procedure such as helping financial department to evaluate the tradeoff between cost and
quality. This in turn corporation can effectively put efforts to create its long run growth in the
marketplace (Ward, 2012). Furthermore, daily income statement is also analysed by the business
in order to take the on-the-spot decision and find the out the errors on right time. This enables
corporation to have control over costing and support all operation activities effectively so as to
produce valid outcome for the business.
Moreover, business can effectively ensure the link between different activities such as
process of quality, cost and time so that accordingly financial issues can be addressed in a more
effectively manner. At this juncture, it is becomes important to shed light on continuous
improvement. Here, the concept of decentralizing financial information motives play important
role for the purpose of continuous improvement with the equal contribution towards quality and
efficiency. In this manner, management accounting system for small organization like Iceland
supermarket might be different to manage their cost related issues (Scapens, 2006). However,
financial problems might also occur due to following different rules and regulation for entire
business.
Here, financial problem can easily be addressed by using management accounting
system. It is because such kind of system effective support corporation in different management
functions such as planning, organizing, controlling as well as decision making. This is the on-
going procedure under which problem is identified for the purpose of searching for the solutions.
It facilitates to create competitive edge of the business in the marketplace as all related parties
contribute toward organizational success. At this juncture, searched alternatives are evaluated on
the ground of appropriate criteria. For example, in case financial statements are having issue
related to higher cost and higher number of unrecorded transaction then respective department
follow suitable strategy (Cadez and Guilding, 2008). After that best solution is selected on the
basis of existing evaluation so as to enable corporation address the issue effectively and
implement the right strategy on right time. Moreover, the strategy communicated with all related
members and with their consent it is implemented at workplace. The procedures do not ends
here, management of both corporations like Iceland supermarket and Morrisons ensures to report
the taken action on the basis of goals and objectives. For example, Morrisons has target the
reduce the cost and increase the sales turnover. Hence, necessary changes will be made
accordingly and issues faced in financial statements are addressed in a most effective manner. It

would be effective for business to meet expectations of all related parties and provide them good
environment.
Therefore, appropriate strategies are applied for corporation to ensure well being in the
marketplace for conducting entire business activities effectively and bring necessary changes in
all of its management accounting strategies. Here, it becomes important to shed light on issues
which are faced in management accounting system. In this manner, corporation can effectively
deliver good quality of services so as to meet the expectations of all related parties in a most
effective manner (Davila and Foster, 2005). Hence, decision making procedure is followed for
addressing the issues of financial problems. However, the problem can be related to costing and
other related aspects. It enables company to put efforts towards creating well being in the
marketplace and resolve all financial issues effectively. There are several planning tools of
accounting which assists corporation to address the issue related to financial problem and take
suitable action to complete the same. At this juncture, different planning tools can be applied for
the purpose of solving financial problems. For example, financial planning can be used under
which budgetary control is applied. This aids to reduce the financial burden and support
corporation to control all little expenses and raise the income in an effectual manner (Abdel-
Kader and Luther, 2008). Apart from this, financial statement analysis also plays important role
which enables corporation to assess the proportion of profit and loss in order to derive valid
outcome and increase overall rate of return in the marketplace. In addition to this, marginal,
revaluation and standing costing are used by the corporation so that accordingly it becomes easy
to keep record of all related expenses and support business to achieve the target related to
increasing the rate of return. It can be critically evaluated that some time historical cost is also
applied in the field of finance which in turn corporation assess the pricing strategy in order to
accomplish long as well as short term objectives effectively.
In relation to overcome financial problems in an organisation a company need to analyse
its financial issues which arises during reporting of financial transaction. As it affect the
profitability and goodwill of the company directly. So it should be considered as one of the
important aspect. There are so many systems which a cited company should use to overcome its
financial issues. Such as balance scorecard is the best system which a used to analysed the
financial as well as non financial issues. There are so many tools a cited company do have:

 KPI: It stands Key performance indicators which are used by the company to manage
and control the performance of the employees and its efficiency.
 Benchmarking: Another financial resolving techniques which is used to set a range in
front of other company's in order to identify its current position and make plan
accordingly.
 Financial governance: The other one is financial governance which is directly
associated with the legal laws and act according to the set policies which are made in the
context of financial issues.
Morrison 4COM
The financial tools used in order to analyse the
variances under the production process so that
difference can be identified.
The major reason to evaluated the financial
issues so that it can not affect the productivity
of the company.
Key performance indicators are used under this
company on weakly, monthly or yearly basis.
Regular evaluation of each member
performances.
M4 Analysing the financial problems
The companies can respond the financial problems by using appropriate accounting
policies. However, respective department must be aware of necessary changes so the same can
be implemented at workplace for betterment of all related operational activities. Here, it might
also be possible that corporation provide training to accounting manager in accordance with
demand of all departments.
CONCLUSION
It can be concluded from the present report that there is greater importance of
management accounting in taking varied business decisions. In addition to this there are several
tools of planning under management accounting which firm can use in order to survive in the
market.

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