Management Accounting Practices and Tools

This assignment report discusses the importance of management accounting in maintaining a company's financial stability. It highlights the need for effective management to make decisions and plans that influence business operations. The report also covers two costing methods (marginal and absorption) and different budgetary control tools, such as KPIs and Balance scorecards, which are essential for competing with rivals in an efficient manner. The document provides a comprehensive overview of management accounting practices and tools, making it a valuable resource for students and professionals.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Different types of accounting system and their essential requirements................................1
P2: Various accounting reporting systems..................................................................................2
M1: Benefits of management accounting systems......................................................................4
D1: Critically evaluate accounting system reporting..................................................................4
TASK 2............................................................................................................................................5
P3: Calculation of cost using techniques and preparation of statement of profit and loss..........5
M2: Different types of management accounting techniques.......................................................7
D2: Interpretation........................................................................................................................7
TASK 3............................................................................................................................................7
P4: Advantages and Disadvantages of different types of planning tools....................................7
M3: Application of planning tools for forecasting preparing and analysing budgets.................9
D3: Evaluation to deal with planning tools used in resolving financial problems....................10
TASK 4..........................................................................................................................................10
P5: Various measures to resolve financial problems................................................................10
M4: Analysing management accounting techniques.................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Accounting refers to the process of recording and summarising business transactions take
place on daily basis so as to identify the actual financial position of an organisation. For this,
management are formed which are held liable to prepare financial statement on annual basis so
that the stakeholders are able to know whether they feel secure about receiving return on their
investment on pre-determined time period. The present assignment is based on Zylla, a UK-
based company which deals in multiple products. The project report includes different types of
accounting systems along with the essential requirements. In addition with this, various reporting
systems which help in bringing out relevant information about company is also covered under
this report. Along with this, discussion about marginal and absorption costing methods are also
given in the present report. Different planning tools which are used in budgetary control are also
described in this report. All other aspects are also briefly explained under this project report with
the context of Zylla (Boyns and Edwards, 2013.).
TASK 1
P1: Different types of accounting system and their essential requirements
It is essential for every organisation to maintain their accounting and financial documents
on regular basis in order to identify their actual financial stability. For this, the accounting
manager is liable to prepare financial statements with the help of using different accounting tools
and systems. Maintaining accounting information about an organisation help management in
making an effective decisions and suitable plans for the betterment of an organisation. There are
different accounting systems such as cost accounting system, price optimisation system,
inventory management system etc. which facilitate accounting manager to know actual position
of company. Thus, using management accounting systems gives various beneficial advantages to
company which are given as below:
Increase in efficiency: Managing accounting systems helps in identifying the
effectiveness of each business activity due to which the manager can able to take further action
in order to enhance efficiency if any deviation found.
Measurement of performance: Identification of employees performance through
analysing their actual performance with standard help management to improve skills and
knowledge of low skilled employees.
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Effective management control: It plays an important role in managing business activities
in an effective and efficient manner through analysing th financial documents.
Types of accounting system:
Price optimisation system: Such type of accounting system help management of Zylla in
determining the buying behaviour of customers towards purchasing company’s products and
services. Through such system, the manager are able to set prices for their products and services
which maximises the interest and satisfaction level of customers. This will enable management
to guide their employees about utilisation of cost in executing different business activities in an
efficient manner so that they can afford to sell products at an effective prices to the targeted
customers. Therefore, using such system will directly help company in increasing sales figure
and revenue (Dillard and Roslender, 2011).
Cost accounting system: Using such system help management of Zylla in determining
the total cost incurred in execution of different business activities. The main objective of using
such cost accounting system is to reduce cost of operation through utilising available resources at
an optimum manner. For this, the management need to first forecast the effectiveness of business
activity and accordingly make decision regarding investing cost which help them in achieving
better possible outcomes in near future.
Inventory management system: This accounting system help management in analysing
the inventory level the company have at present so that further decision can be taken regarding
placing order of inventory if shortage found. For this, the storekeeper should required to given
relevant information about overall bills, record of invoices or other inventory related transactions
so that the manager of company will able to decide what amount of inventory the company
required to meet market needs and demands.
Job costing system: Using such system help management in assigning total cost to
produce particular product or group of products with an expectation of getting profitable
outcome in near future. The information provided through such system help management in
suggesting where the cost are compensate in order to produce profitable products in more
quantity (Lavia López and Hiebl, 2014).
P2: Various accounting reporting systems
A report is such a document which is prepared by the management of different
department in order to provide actual position of business activity so that further actions and
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decision are made in order to achieve profitable outcomes. Getting information from different
department help accounting manager of Zylla to prepare financial reports such as profit & loss
accounts, balance sheet, cash flow statement etc. so that true and fair financial position of an
organisation are easily identified. As the stakeholders of Zylla are playing an important role in
the growth and success of an organisation thus it must required for company to present their
financial information towards them in order to make ensure to them about providing maximum
return on their investment. Preparing financial reports can easily attracts investors which makes
strong financial position of company. Thus, it is essential for an organisation to prepare financial
reports on annual basis (Luft and Shields, 2010.).
Zylla can achieve growth and success in competitive market when their management are
able to make an effective decision and plans and it can be possible on;y when they have
sufficient information about company which can be obtained through having documents of
financial reports. There are many reporting systems which are helpful in identifying and
analysing accountability of an organisation. Such systems are briefly descried as below:
Performance report: It is an essential report which help management in determining the
performance of each and every department of Zylla through comparing actual performance with
standard. For this, the management are able to find out the difficulties and deviations which
restricts department to achieve its desired target within given time frame. This will help
management in allocating resources to department on the basis of their requirement with an
expectation of getting profitable outcomes from them. Thus, taking support from all departments,
an organisation can able to achieve its desired goals and objectives.
Account receivable report: Such type of reports communicate the information about the
list of unpaid debtors to the management with a hope of getting recovery of unpaid amount from
them on specific period of time. It is an essential document which is prepared with an objective
of identifying the debtors who are not paid yet to company for the products and services they buy
from the company. This will forces the company to change their credit policies in order to
protect themselves from any such situations as it will make badly impact on the financial
position of company (Morales and Lambert,2013).
Inventory management report: Such type of reports are maintained with the purpose of
identifying the inventory level the company have at present so that the managers are able to
make an effective decisions regarding placing order of required stock to suppliers in order to
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meet customer’s needs and requirements on time. For this, the management of Zylla may use
different techniques such as EOQ, ABC costing and inventory management ratio etc. Thus it is
essential to prepare such report in order to ensure all departments of company about having
sufficient amount of inventory.
Job cost report: Such report are prepared with a motive of tracking total cost and
expenses which are invested in producing particular product or group of products. It provides
relevant information about the materials and resources required to use in production process so
that the manager can able to arrange resources within limited period of time. For this, the
management of Zylla are required to first identify the effectiveness of produced products and
services and on the basis of which make decision regarding investing amount on producing such
products and services. This will help in achieving better possible outcomes in near future
(Parker, 2012).
M1: Benefits of management accounting systems
There are various accounting systems such as job costing or price optimisation system
which help an organisation to make an effective decisions and plans for their betterment. For
example, cost accounting system helps in determining the total cost incurred in the process of
production which help management in identifying the efficiency and profitability of company.
Thus, it is essential for accounting manager to maintain cost accounts so as to identify the area
where the cost has been allocated. Due to this, the profitable products are identified which forces
the company to invest more on such profitable areas in order to achieve better possible outcomes
in near future.
D1: Critically evaluate accounting system reporting
There are various reporting system which includes inventory management report, account
receivable report etc. which help management of Zylla to identify the actual financial position of
company. For example, Account receivable report contains the information about the list of
unpaid debtors which forces management to take strict actions in order to recover unpaid amount
as soon as possible. Inventory management report is also more helpful in maintaining desired
level of inventory in order to meet market needs and demands.
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TASK 2
P3: Calculation of cost using techniques and preparation of statement of profit and loss
Cost: It refers to the amount value which is invested by Zylla in the production process
so as to manufacture quality products and services for their targeted customers. Cost is essential
to execute each business activity in an effective and efficient manner. Thus, it requires
management to analyse the cost incurred in the process of producing products and accordingly
set prices for their products after adding some profit margin in it. There are mainly two costing
methods which help in calculating net profits of company. The description of such costing
method are given as below:
Marginal costing: It is the cost invested in the production process in order to
manufacture additional unit of output. This, it is an additional cost which are incurred after
producing decided quantity of products. Under this method, the variable cost are considered
while calculation whereas fixed cost are ignored due to which the profit margin may reduced.
Absorption costing: It is the method which determines the actual cost incurred in
production process as it includes both variable and fixed cost. Due to addition of both variable
and fixed cost, the profit may increased due to which mostly company uses such method in order
to make calculation regarding finding out net profits.
Absorption 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
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Net profit 17500
Marginal 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
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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 37.50%
M2: Different types of management accounting techniques
The techniques of management accounting includes marginal and absorption costing
method which help management in calculating the net income or the profitability of company.
While using marginal costing method, only variable cost are considered whereas fixed are
ignored which decreases the benefit profit of company. By using such costing method, the
company able to increase profitability. Whereas using absorption method, the profit margin
increases due to considering fixed and variable cost. The management of Zylla need to
considered all such aspects and accordingly make decisions regarding adoption of costing
methods. It help company to identify its actual financial position after analysis all cost incurred I
execution of business activities.
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D2: Interpretation
As per the above calculations, it has been clearly observed that an organisation can
achieve profit on their sales if the manufacture products more than 500 units as at this point an
organisation achieves break event point where company neither earn profit or loss. Zylla ned to
sell at minimum of 1334 units in order to earn a profit on the total sales of 10000. with the use
of these techniques the organisation can easily determine the profits of the company.
TASK 3
P4: Advantages and Disadvantages of different types of planning tools
Budget: It is the part of planning for execution of business activities in an effective and
efficient manner. The manager of Zylla need to first forecast the future expenses and outcomes
and accordingly prepare budget in which more preference will be given to such activity that
brings more profitable outcomes to company. It is like complete framework of execution of
business operations for particular period of time. Basically budget is prepared for maximum for 5
years (Quinn, 2014).
Types of Budget:
Cash budget: It is an estimation of cash inflows and outflows made by business during a
financial accounting year. It is more helpful in assessing whether the company are having
enough cash to operate. Therefore, the management of Zylla should adopt such planning tool as
well in order to identify their monetary situations so that further decisions of executing business
activities are taken more effectively.
Master budget: It is considered as an effective and expensive financial tool that
documents expected future sales, productions levels, purchase, future expenses incurred, capital
investment etc. It is more useful for Zyllla to make an effective long term decisions through
forecasting the situations. It assist organisation to reach a targetted level within allotted time
frame which indirectly support them in achieving competitive advantage in market.
Budgetary control: It is considered as an effective technique of controlling cost incurred
in execution of business activities through planning, organising and monitoring the performance
of employees of an organisation. In this, the actual desired target are matched with standard
performance so that deviation are found. It enable management of Zylla to make further actions
in order to overcome from such deviations.
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Process of budgetary control
Research with concern managers: In the first step, the managers of different
departments meet together and discusses about the requirements related to the activities of their
departments. This is the stage of identification of needs to achieve profitable outcomes.
Determination of effective assumptions: After discussing, the managers of different
departments which includes production, finance, marketing etc. make assumptions regarding the
cost incurred in future business activities.
Set organisational data for budget to achieve goals: In this step, the managers of
different departments combined informations and assemble it in order to set target which are
required to be achieved in future (Vaivio and Sirén, 2010).
Measurement of information with actual: In this step, the managers compares the actual
performance with desired in order to find out the effectiveness of business activity so that if any
deviations are identified then it can be resolves as quickly as possible.
Review analysis: This is the final step at which the managers reviews all above steps and
analyse them in order to make ensure about getting profitable outcomes in near future.
Planning tools: In every organisation, planning refers to an administration tools which is
made with an objective of achieving desired goals ad objectives. There are different types of
planning tools to control budget which are briefly determined as below along with their merits
and demerits:
Forecasting tools: It is such a planning tool which help managers to forecast the project
activities in order to determine the cost that will be incurred so that decision of arrangement and
allocation of cost are taken in advance. To forecast, the management of Zylla need to make
research about the market trends and accordingly prepare budget for the production of products
and services which are more in demand. The management also required to consider other factors
as well such as consumer behaviour, advance technologies, strategies implemented by retailers
and manufacturers, legislation and state of economy. Thus, after estimating all aspects in
advance, the managers are more capable to prepare budgets in an effective and efficient manner. Advantages: It is an effective tool which help in estimating cost incurred in production
process due to which an effective decision can be made regarding allocation of cost to
specific business activity.
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 Disadvantage: As such tool is based on the assumption which sometimes may not be
correct due to which the business activities may not bring profitable outcome as per the
expectations.
Scenario analysis tools: Such tool help management of Zylla in reacting to the situations
which may occur due to uncertainties and complexities. For this, the management are required to
make suitable plans as quickly as possible so as to cope up with immediate situations. This tool
can be helpful in the case of grabbing competitive opportunities in order to compete with their
rivals in an effective and efficient manner (Ward, 2012). Merit: It is helpful in preparing budgets in the case of emergencies where the typical
situations arises due to uncertainties. This will help Zylla in grabbing competitive
opportunities so as to move ahead than their rivals.
 Demerit: Sometimes due to lack of time, it may difficult for the management to make an
effective decision and policies which brings either negative results as well.
Contingency planning tools: It is such type of planning which is mainly made with an
objective of tackling the influencing factors which may affects the business activities either in
negative or positive way. This required contingency plan which are essential to be formulated by
management in order to deal with critical situations. Merit: It help company in gaining competitive advantage through dealing with
influencing factors in more effective way.
 Demerit: It is difficult for management to predict future due to which the accuracy of
decisions and plans are low.
M3: Application of planning tools for forecasting preparing and analysing budgets
There are different planning tools which help company in controlling budget thus
required to apply within an organisation through following ways:
Budgeting: Once an organisation decided to make future plans, there is need to decide
that how such pre-determined plans has been implemented in profitable way. For this, prediction
are required to made related to the expenses incurred in production process. Therefore, Zylla
need to use the tools of forecasting in an effective manner.
Cash flow forecasting: It is considered as more productive in nature. Cash flow
forecasting help owners of the company to analyse the trough and peaks in the business cycle.
This will cause certain risks which will be resolved with the assistance of contingency plans.
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D3: Evaluation to deal with planning tools used in resolving financial problems
There are various financial tools and techniques which includes Key Performance
Indicators (KPI), Balance scorecard approach, Benchmarking etc. which help management in
resolving financial issues in an effective and efficient manner. For example, Key Performance
Indicator help management in identifying the high and low performer through comparing their
actual performance with standard. Thus it help management in assigning roles and
responsibilities to the employees on the basis of their previous performance.
TASK 4
P5: Various measures to resolve financial problems
An organisation can achieve its desired goals and objectives only when it has attained
strong financial position in market. For this, the management are liable to maintain financial
position through preventing financial issues by adopting financial tools and techniques. It
directly affects the growth and stability of company due which their existence may also comes in
danger.
Therefore, it is required for management to adopt suitable financial tools and techniques
which are given as below:
Key performance Indicators (KPI): KPI is an effective tool which help in measuring
the performance of employees and departments through comparing their actual with standard
performance so that deviations are easily identified due to which the management are more
capable to implement corrective actions and plans to overcome such deviations. The internal
management of company are liable to analyse the variations in the performance so as to rectify
the errors or issues which restricts company to achieve growth and success in competitive
market. KPI tool can be used at various stages of organisation for the purpose of evaluating the
success and potential of company so as to achieve desired goals and objectives within pre-
determined period of time (Budgetary Control, 2017).
Balance scorecard approach: Such approach is useful to adopt by company in order to
allocate business activities according to the plans and policies of an organisation so that each
activity can be executed in an expected manner. It can be possible through providing training
programs to their employees with an objective of making them more capable to perform allotted
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roles and responsibilities in an effective and efficient manner. Balance Scorecard approach
consists of four perspectives which are given as below:
Financial: It is related with financial stability of company which need to be maintained
in order to sustain in market among their rivals in an effective and efficient manner. For this, it is
essential to utilise available resources in an optimum manner so that profitable outcome can be
received which strong the financial position of company.
Customer and stakeholder: They both plays an important role in the growth and success
of an organisation. Customers are the one whose needs and preferences decided the quantity of
producing products and services where as stakeholder are the one which supports an organisation
in executing business activities through giving financial resources. Thus, it is essential for the
management to provide maximum return on their investment so as to get sufficient support from
then in proper execution.
Internal process: Improvement in quality of work through adopting advanced
technology in the manufacturing process help company in getting maximum profitable outcomes.
Investment in updated technology brings maximum return which enhances the financial
capabilities of company.
Organisational capacity or learning and growth: An organisation always tried to give
more efforts in enhancing their potential to meet customer's needs and requirements on time in
order to achieve huge customer strength. It can be done through making an effective decision
regarding managing human capital, technological equipments, removing cultural differences etc.
Benchmarking: It is the process of analysing the performance of products and services
of company through comparing it with their rivals. This will help company in determining the
inner opportunities in order to improve the overall performance of company. There are mainly
two types of improvement opportunities such as regular and dramatic. The regular improvement
is incremental, covering only small arrangements to reap sizeable advances. While, dramatic
improvement is only emerged via re-engineering the entire internal work process (Management
Accounting, 2016).
Therefore, management accounting play an important role in resolving all financial issues
of Zylla through implementing various financial tools and management accounting systems such
as cost accounting, inventory management system etc. For example, inventory management
system communicates the company about the current inventory level which enable management
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to decide whether it is sufficient to meet customer's requirements or should give further order to
suppliers. This will help in meeting market needs which indirectly increases the revenue and
growth of company for maximum period of time.
M4: Analysing management accounting techniques
The management of Zylla may adopt various accounting techniques such as standard
costing which assist them to set range of expenses which are required to invest in execution of
business operations. The historical cost method is based on the past regulations and rules. On the
other hand, marginal costing method help management in setting up the prices of products that
produced additionally by company.
CONCLUSION
It has been concluded from the above project report that management accounting is
playing an essential role in maintaining financial position of company through adopting various
accounting systems and preparing financial reports. For thus, an organisation must required to
have an effective management who are more capable to make decision and plans regarding all
aspects which influences the business operations of company. There are two costing methods
such as marginal and absorption which must required to adopt while calculating cost of products
ad services. The management also required to use different tool for budgetary control in order to
execute future business activities in an effective and efficient manner. In order to maintain
financial stability, it must required for management to use different financial tools such as KPI,
Balance scorecards approach etc. so as to compete with their rivals in an effective and efficient
manner.
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REFERENCES
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Ahmad, Kamilah. "The adoption of Management accounting practices in Malaysian Small and
Medium-sized Enterprises." Asian Social Science 10, no. 2 (2013): 236.
Boyns, T. and Edwards, J.R., 2013. A history of management accounting: The British
experience(Vol. 12). Routledge.
Dillard, J. and Roslender, R., 2011. Taking pluralism seriously: embedded moralities in
management accounting and control systems. Critical Perspectives on Accounting.
22(2). pp.135-147.
Lavia López, O. and Hiebl, M. R., 2014. Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of
Management Accounting Research. 27(1). pp.81-119.
Luft, J and Shields, M.D., 2010. Psychology models of management accounting. Foundations
and Trends® in Accounting. 4(3–4). pp.199-345.
Morales, J and Lambert, C., 2013. Dirty work and the construction of identity. An ethnographic
study of management accounting practices. Accounting, Organizations and Society,
38.(3). pp.228-244.
Parker, L.D., 2012. Qualitative management accounting research: Assessing deliverables and
relevance. Critical perspectives on accounting. 23(1). pp.54-70.
Quinn, M., 2014. Stability and change in management accounting over time—A century or so of
evidence from Guinness. Management Accounting Research. 25(1). pp.76-92.
Vaivio, J and Sirén, A., 2010. Insights into method triangulation and “paradigms” in interpretive
management accounting research. Management Accounting Research. 21.(2). pp.130-
141.
Ward, K., 2012. Strategic management accounting. Routledge.
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<http://www.yourarticlelibrary.com/accounting/budgetary-control-accounting/budgetary-control-
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