Management Accounting: Types, Requirements, and Benefits

Management accounting

Define management accounting and discuss its types and
essential requirements in organisation
◦ Management accounting is quite useful for organisation as it helps it to have internal control in
organisation itself.
◦ The management accounting information is required by management to improve its performance, if
deviations exist in organisation.
◦ It is an essential requirement to managers so that they may take quick and timely decisions for
betterment of company.
◦ This will help organisation internally vibrant and will become capable of performing competitive in
market.
◦ Management accounting provides accurate and timely information about financial statements. It also
provides statistical data to provide support to managers to take enhanced and better decisions for the
company.
◦ Zylla Company also uses management accounting information to improve upon its working to be
competitive in market.

Cont◦ Inventory management system-
◦ It is the ongoing process, which deals with moving parts and products into and out of company location.
Zylla company also manages effective inventory management as it clarifies company that what amount of inventory is
needed and how it can manage to get the products timely produced and made available to final consumers.
◦ Company manages their inventory on daily basis as they place new order for products and ship ordered goods to
customers. It is however important that business leaders gain grasp of everything involved in inventory management
process (Burritt, Schaltegger and Zvezdov, 2011).
◦ This will give them useful insight, no wastage of stocks will be done, and no additional cost will be incurred. Thus,
they can find out ways to solve inventory management challenges by finding appropriate solutions for company to
flourish in bets possible way.
◦ Cost accounting-
◦ Cost accounting is the important phenomenon in organisation. It measures and controls cost in the
organization which helps them to keep a watch over its expenses and no additional expenditure is incurred.
◦ It also provides measures to control. Estimating accurate cost is required so as to arrive at profitable operations. Firm
must know which products are profitable and which are not.
◦ This can be ascertained by calculating correct cost of it. Further products costing system helps in calculating and
estimating closing value of materials inventory WIP (Work in Progress) and finished goods for purpose of preparation
of financial statements for organisation. It has been divided in two parts such as process costing and activity based
costing.
◦

Cont
◦ Process costing is cost accounting system that accumulate manufacturing expenses separately for each
process held in production of goods.
◦ It is more appropriate for products whose production is assigned into different departments and cost flow
from one department to another department. Example, process involved in oil refineries and chemicals
products.
◦ Activity based costing involves calculation of activity rates and application of overhead expenses to
products based on their respective activity usage.
◦ Job costing-
◦ Job costing is the process, which involves accumulating information about costs associated
with specific production or service job. This information is quite helpful in order to submit cost
information to customer’s under contract where expenses are reimbursed (Caglio and Ditillo, 2012).
◦ This information is also helpful for determining accuracy and transparency of company estimating
system regarding allocation of job to factors of production, which should be able to quote price to allow
reasonable profit to organization.
◦ It involves three type of information such as direct materials, direct labour and overhead involved in
carrying out effective production by company.

Cont
◦ Price optimisation-
◦ This method is based on mathematical models to calculate how demand varies at
different price level and then resultant data combined with information on costs and stock
levels to recommend that amount of price, which will improve and provide more profits to
firm in effectual manner.
◦ This is done because if prices are too high, customers will not purchase and if prices are too
low, then firm will not earn profits. As such, price optimisation is used to improve upon
profits to company. So, formula of price optimisation is based on overall demand for product
in market, level of competition.
◦ Finding perfect balance between the price and profit is essential part of this system.
◦ This will provide clarity to business on how much price is to be quoted to gain more profits by
analysing demand for the product in market and determine level of competition from rivals.
◦ As such, this technique is quite useful for Zylla Company to target high profits in effectual
manner.

Discuss different methods used for management accounting reporting
◦ Segmental report:
◦ It is the report of operating segments of company in disclosures accompanying in its financial statements. It is
required for public held entities and not for the private ones for its use.
◦ Creditors and investors regarding financial strength of operating departments of company use segment reporting. Zylla
Company prepares this report for providing information to them in effective way as by relying on this report, they can make
decisions regarding company.
◦ Segment report includes information like factors used to identify reportable segments, types of products sold by each
segment, revenues and indirect expense, depreciation and amortisation. It also includes information such as material expense
items, income tax expense, non-cash items and profit or loss incurred.
◦ As such, this all type of information is helpful for analysing strength of financial position of company for investors and
creditors for enhanced decision making.
◦ Performance report:
◦ This report is detailed statement that measures results of some activity in terms of its success over a specific time
(Christ and Burritt, 2013). For example, company regarding employee’s performance in accomplishing tasks may produce
annual report.
◦ Alternatively, such report might help management assess success of project or product and how well budgetary constraints are
adhered to. The actual results are compared with budgeted standards obtained under some conditional assumptions over same
period.
◦ Variations from such budget or standards are known as variance and may be favourable or unfavourable depending upon
higher or lower measurements relative to the standards.
◦ Thus, corrective action are taken if any deviations are occurred in performance of various parameter such as employees
performance report or other such thing which provides business to improve and attain stated objectives in effectual manner.