Management Accounting Importance & Practices

The assignment emphasizes the crucial role of management accounting in modern business operations. It analyzes how a well-structured management accounting system can help organizations effectively record, analyze, and interpret operational information. This leads to improved financial decision-making, identification of errors, and ultimately, enhanced business performance.

MANAGEMENT
ACCOUNTING
SYSTEM

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Examining the meaning of Management Accounting and its objectives...............................3
Description about the methods used for Management Accounting Reports..........................3
Examining the benefits of Management Accounting System and their application..............4
Evaluation about the management accounting system and management accounting reporting
integrated in organisational process. .....................................................................................5
TASK 2............................................................................................................................................5
Calculation of Net profit by applying absorption and marginal costing techniques of
Management accounting.........................................................................................................5
TASK 3............................................................................................................................................7
Advantages and disadvantages of different types of planning tools used in the budgetary
control ....................................................................................................................................7
Analysing the use different planning tools used for preparing and forecasting the budgets .9
Analysation of several planning tools for responding the issues associated with finance...10
TASK 4..........................................................................................................................................11
Comparison with the business organisation in context of solving issues by using budgetary
controlling tools ...................................................................................................................11
Examining the contribution of management accounting in achieving the organisational
sustainable success ..............................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
The management accounting is the process of preparing statistical and financial reports of
the business operational transactions and mainly concerned without the costing of their business
transactions. Management accounting refers to the process of preparing management reports and
accounts that provide accurate and statistical information of the business operation as in time
efficient manner and required by the manager for making the operational decisions. Not only
this, the management accounting pertain several techniques for the accurate recording, analysing
and for the proper ascertainment of the business operations by removing the influencing factors.
In this report, the Jupiter PLC has been taken into the account for the proper understandings of
the importance and functioning of the management accounting and its system(Christ, 2014).
TASK 1
Examining the meaning of Management Accounting and its objectives
Management accounting: It defines the way of accounting by which managers use the
informations in better way to take effective decisions for management. It helps in their
performance of management and control functions. It helps in strategic, performance and risk
management of business. It is model based accounting which helps in decision making. It is
primarily forward looking and according to the need of managers. It provides information about
the product, plant , individual and tasks. It follows some specific methodology. There are
different accounting systems as cost accounting, inventory management, job costing system,
price optimising system etc. The requirement of various management accounting system are as
follow:
determining of objectives and goals.
1. It helps in constructing various methodology and future forecasting.
2. It provides help to customers.
3. It helps in taking decisions.
4. It add increment in the the effectiveness in the business.
5. It helps in maximization
6. provides safety from trade cycle.

Description about the methods used for Management Accounting Reports
For planning, controlling and making decision management accounting report is major
tool used by managerial personnel which is purely based on data gathered through analysis of
revenue statement, cash flow statement and financial statement(Pavlatos and Kostakis, 2015).
Analysis of these data includes following methods that are used for management accounting
reports:
Cost Reports: This method mainly pointing towards prices of items. Price of item is
determined by considering price of fresh product, overheads, labour and any other cost. The
price or cost of each item is helpful for manager to make comparison of prices and selling cost.
Budget Reports: Budgets are prepared by using past year data to make future projections
to achieve targets and goals which is used while reporting . An organisation want to get its goals
and target while acting within the budgeted figures.
Execution Report: Main target in this method is execution of activities which play major
role towards achieving targets. Reporting by using this method provide a strength to
management to face future uncertain demand and additional expense which may occur.
Examining the benefits of Management Accounting System and their application
Due to inherent situations or conditions a completely efficient management accounting
system is not possible but every such system has its own advantages and benefits. The following
are the benefits of a Management Accounting System and their application :
1. Increase in capabilities: The main reason for which companies adept management
accounting is to increase capabilities which assists management to perform better.
Management accounting system enables the organisation to bring their capabilities to
increase profitability. It increases capabilities of an organisation as a whole.
2. Increase in profitability: Using capital budgeting and budgetary control under
management accounting system managers eliminates the extra pay-off and expenditure
which increases the percentage of profitability(Leitner, 2013).
3. Smoothing the decision making process: Management accounting system involving
decisions and other related activities which helps management to take decisions quickly
and accurately. Management makes a analysis report with simple explanations. In this
report management represents the key areas of financial statements. It gives powers to
management executives to make appropriate decisions for the company's improvement.

4. Significant control over business monetary funds: Management accounting smoother
the control over the variation in the monetary fund. Management accounting analyse the
flow of funds from beginning to end. Also it assists in maintaining the cash in case of any
extreme condition. It assist in removing any fraud source of funds within the company.
5. Clarity of cost: In a Business environment nowadays every organisation using
information technology on a online real time basis. In management accounting a firm also
work with the IT. This culture of IT provide clarity of funds in an organisation.
6. Helps in achieving objectives: Reporting under management accounting helps
management to achieve its objectives whether long term or short term objectives also it
highlights the weakness and strength of organisation.
7. Forecasting from past results: Management accounting system involves activities
which which provides a basis for forecasting including analysis of pas events and future
contingent an also helps in taking decision based on specific criteria.
Evaluation about the management accounting system and management accounting reporting
integrated in organisational process.
The management accounting techniques and and management accounting perform the
integral role in organisational process. As the management accounting techniques are helpful for
maintaining the proper record of the managerial operations and the managerial accounting
involves the costing, budgeting and several others information which are relevant for business
administration(Laine, Paranko and Suomala, 2012). The managerial system helps in proper
recording and analysing the managerial or the business operations hence it is necessary for the
management to communicate the useful managerial information with its internal users which is
top level authority, includes the board of directors, managing directors and the equity
shareholders etc. these managerial or business information is useful for the top level authority
for making the future needful decisions and it is also beneficial for clear transfer of information.
Thus, it is true that the management accounting system and the management accounting
reporting performs the integral part in organisational process.

TASK 2
Calculation of Net profit by applying absorption and marginal costing techniques of
Management accounting
Absorption costing: Absorption costing refers to the combination of all manufacturing
costs that are absorbed by the units produced. The costs of the finished goods in the inventory
management includes the direct material, direct labour etc. overall both the costs fixed and
variable that are associated with the production of goods and services of the organisation.
Marginal costing: Marginal Costing is a costing technique wherein the marginal cost,
i.e. variable cost is charged to units of cost, while the fixed cost for the period is completely
written off against the contribution. Moreover, Marginal costing is the ascertainment of marginal
cost and the effect on profit of changes in volume or type of output by differentiating between
fixed costs and variable cost.
The illustrative example of these two costing techniques are as follows.
(a) Absorption Costing
Calculation of production cost per unit:
Rate
Direct Material 10
Direct labour 20
Variable Production overhead 5
Fixed Overheads(100000/20000) 5
40
Absorption Costing Income Statement
Particulars Budgeted Actual
Rate Units Amount Rate Units
Amou
nt
Sales 50 16000 800000 50 16000
80000
0

Cost of goods sold
Direct Material 10 18000 180000 10 19000
19000
0
Direct labour 20 18000 360000 20 19000
38000
0
Variable Production overhead 5 18000 90000 5 19000 95000
Fixed Production overheads 5 18000 90000 5 19000 95000
Less: Closing inventory 40 2000 80000 40 3000
12000
0
Contribution 250000
25500
0
Less:Fixed Cost - -
Net Profit 250000
25500
0
(b) Marginal Costing
Calculation of production cost per unit
Rate
Direct Material 10
Direct labour 20
Variable Production overhead 5
35
Marginal Costing (Variable
Costing) Income Statement
Particulars Budgeted Actual
Rate Units Amount Rate Units Amount

Sales 50 16000 800000 50 16000 800000
Cost of goods sold
Opening inventory - - -
Direct Material 10 18000 180000 10 19000 190000
Direct labour 20 18000 360000 20 19000 380000
Variable Production overhead 5 18000 90000 5 19000 95000
Less: Closing inventory 35 2000 70000 35 3000 105000
Contribution 240000 240000
Fixed Production overheads 100000 100000
Net Profit 140000 140000
TASK 3
Advantages and disadvantages of different types of planning tools used in the budgetary control
There are three types of planning tools are used under the budgetary control process.
These planning tools used for performing the proper budgeting process. As budgeting refers to
the pre-planned set of different budgets which are prepared in order to estimate the future
expenditures and futures scenario's and contingencies. There are three budgetary control
planning tools which are as follows.
Forecasting planning tool: The forecasting means an attempt to predict future budgets
or expenditure incurred while performing the business operations in order to generate some
future revenues (Christopher, 2016). Under the budget forecasting there are two types of
forecasts namely, Judgement based and quantitative based forecasting. Under the forecasting
planning tools these two methods are used for the preparing the effective planning tool. Some of
the advantages and disadvantage of this planning tool are as follows.
Basis Advantages Disadvantages
Nature The advantage of quantitative
forecasting method is that
projections rely on strength of
Judgement forecasting is based
on the assumptions of
particular individual or the

past performance of the
business organisation like
Jupiter PLC.
group of individuals, but no
one can predicts the future
exactly.
Base of prediction/forecasting In case of quantitative
forecasting the predictions are
based on the experiences of
qualified executive and
employees.
As no one can absolutely sure
what future holds, because of
various unforeseen factors can
render a forecast useless,
regardless of the quality of the
business performance in past
records.
Scenario planning tool: The second budgetary planning tool is scenario planning tool,
which is also known as the scenario thinking, scenario analysis. This methods is used to analyse
the known facts about the future such as social, technical, economic, environmental and political
trends as these are the driving forces associated along with the business(Bromwich and Scapens,
2016). There are some advantages and disadvantages of the scenario planning tool are as follows.
Basis Advantages Disadvantages
Nature Scenario planning tool is
helpful in responsiveness,
flexibility and for competitive
analysis.
Model building requires the
professionalism and time
consuming process.
Process Low data requirements to
model of scenario analysis.
Challenging to validate the
potential scope creep in
projects.
Contingency planning tool: The contingency planning tool are used by organisations
like Jupiter PLC in order to minimize the affects of the future uncertainties and to eliminate the
chances of contingencies (Suomala and Lyly-Yrjänäinen, 2012). Some of the advantages and
disadvantages of the forecasting planning tool are as follows.
Basis Advantage Disadvantages

Nature The contingency planning
helpful diminishing the affects
of the unforeseen
contingencies occurred with
Jupiter PLC.
Contingency planning acts as
the backup plan, so it requires
the additional costs and time
for preparation.
process Minimising negative impact on
customers and suppliers in the
event of a major disaster.
Needs to constantly updated as
the number and range of
potential disasters can change
over time.
Analysing the use different planning tools used for preparing and forecasting the budgets
There are mainly three types of planning tools used for the purpose of preparation of
budgets and forecasting the budgets. The planning tools and there applications are as follows.
Forecasting planning tool: Forecasting planning tool is the techniques used by many of
business organisation like the Jupiter PLC. in process of budgeting, planning and in estimation of
future business growth. Applications of the forecasting planning tools or the organisations like
Jupiter PLC can use the Forecasting planning tool in following ways.
1. Forecasting planning tool is applicable in production planning as it ensures more
effective production scheduling, Inventory, management and reduction and optimised
transport logistics.
2. Quantitative forecasting is applicable in forecasts the future performance appraisal of the
organisation like Jupiter PLC on the basis of past and present performance records
(Myers, 2013).
Scenario planning tool: It is the form of the strategic planning method used by the
organisations in order to make the long term flexible effective planning tool. This methods
analysis the known facts about the future such as social, technical, economic, environmental and
political trends as these are the driving forces associated along with the business. The
organisations like Jupiter PLC can use the scenario planning tool in following ways.

1. The scenario planning tool is the set of scenarios of future which creates the scenarios of
understanding of the different issues important for the future of the organisation , helps in
preparing plans for the future issues (Malmmose, 2015).
2. The scenario planning used by the organisation like Jupiter PLC, for dual purpose of
increasing the knowledge of future of business environment and influencing factors also
it is beneficial in eliminating the several issues of various departments. Not only this it
helps the management for taking efficiently and productive decision regarding to
company for up coming time period.
Contingency planning tool: As everyone knows that the future is uncertain and in order
to meet the future uncertainties and occurrence of the contingencies the contingency planning
tool used by the organisations such as Jupiter PLC for the purpose of preparing effective
budgetary planning process. besides this, The organisations like Jupiter PLC can use the
contingency planning tool in following ways.
1. The contingency planning applicable in case of occurrence of unforeseen liability while
conducting the business operations. Unforeseen/ contingent liability if occurs in great
amount then it affects the operations of the organisation badly.
2. The Contingency planning mainly applied for the smooth functioning of the business
operations without affecting by unforeseen events like natural disasters and any other
contingent event(Stead and Stead, 2017).
Analysation of several planning tools for responding the issues associated with finance
The organisations like Jupiter PLC sometimes faces types issues that are associated with
the financial situation of the organisation and are called the financial issues. The budgetary
control tools like forecasting, scenario, contingency tools helps in proper analysation of the
future issues which can leads to financial problem and also helps in minimising the affects of
financial issues by using the methods of Benchmarking, Financial governance and Key
performance indicator.

TASK 4
Comparison with the business organisation in context of solving issues by using budgetary
controlling tools
The financial issues are the problem of several organisations like Jupiter PLC and the
financial issues can be eliminating by using the two techniques which are as follows.
Key performance Indicators: It is the technique or method used in order to measure the
performance of the employees. The organisations like the Jupiter PLC can also use this method
in measuring the performance of the organisations as well as can measure and compares the past
and current organisational targets or objectives. It will diminishes the unplanned expanses that
may arises while conducting the operational activities (Simkin, Norman and Rose, 2014). Also
by appropriate method of performance appraisal of employees helps in better productions as well
as better outcomes this reduces the chances of the financial shortage. Besides this, this method is
helpful in removing the complexity of business performance indications as good indications
depicts the potential growth which shows the strong financial position of the business.
Benchmarking: the benchmarking is the method used by the organisations like Jupiter
PLC in order to measure the performance of the products and services in market or in
comparison with the products and services of other competitive firms of the same products line
businesses (Welford, 2016). This method focuses on the improvement of the internal functioning
of the organisation specially in case of the quality of the products and services with the main
motive of the making internal possibility of enhancing improvement. it provides the comparison
of the business entity with the other organisation and helping to improve it.
Financial Governance: it is also the technique of management accounting which is
effective in solving the financial issues of the organisation as this technique focuses on
controlling the financial information of the business entity. So by controlling and analysing the
financial information of the company, it becomes easy to find out the possible financial errors
associated with the company(Nobes, 2014)
There is the comparative analysis of the Jupiter PLC and the Everyjoy enterprises which
is also the competitive entity of same product line. The comparative statement shows the how the
business entities responds the financial issues by adapting the techniques of the management
accounting system.

Jupiter plc. Ever joy enterprises
In company that is involved in manufacturing
method use inventory management system. As
it records inventory that will be ascertain
opening and closing cost .
It is construction organisation which involves
in construction process uses job costing
system as it boost efficiency if price of every
project and job will be determined. Some
technologies are used in this. It take resource
from other firm that bring effectualness.
Financial indicators are proper tools so that
they handle and control price in company
which cause major issues. As there are scarcity
of resources and they required to placed for
alternative use.
Some financial risk like improper budgeting
which will be resolve by using the budgetary
system reports in industry. It help to trace
record of expenses and income.
Examining the contribution of management accounting in achieving the organisational
sustainable success
The management accounting helps the management of the organisation like Jupiter PLC,
in managing the proper record of the4 managerial transactions and also provides the effective
and ascertaining techniques as well as methods for analysing and ascertaining the managerial
performance of the business entity. Besides this, the management accounting helps eliminating
the financial issues also. By supporting in this manner the management accounting ensures the
business organisational success by promoting the performance of the organisation.
CONCLUSION
From the above report it has been concluded that the business organisation and its
management truly needs the management accounting and system. For the proper recording and
analysation of the managerial operations in order to remove the financial issues and mainly in
order to find out the errors and for the proper ascertainment of the management performance as
well as the proper ascertainment of the business entity. Overall the management accounting is
the branch of accounting which is engages with the business operational information recording,

analysation and with the ascertainment for the proper records of the accounting books and for the
better ascertainment of the financial performance of the business entity,.