The Role of Management Accounting

This assignment delves into the crucial role of management accounting in achieving corporate eco-efficiency. It examines how management accounting information can be leveraged for efficient use of environmental resources. The discussion encompasses relevant research articles, case studies, and the practical implications of incorporating environmental considerations into management accounting practices.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting systems and their essential requirements.................................1
P2. Methods of management accounting reporting ...............................................................4
TASK 2............................................................................................................................................5
P3 Difference between income statement made through marginal and absorption costing...5
TASK 3 ..........................................................................................................................................9
P4 Advantages and disadvantages of planning tools which are used for budgetary control..9
P5 Adopting management accounting systems for responding financial troubles .............11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is a well defined procedure that helps in analysis of financial
and non-financial data that will be use in crucial decision making that is related to investment
and operational control in firm (Renz, 2016). MA focuses on increasing returns by reduces cost
of various options like production or expenditures. Taj store is a grocery shop that operates their
business in London, United Kingdom. This organisation is working in small level but they start
their business in 1936. This report will asses management accounting with its variants and their
essential use in corporation. Some methods of MA are discussed in this report. This assignment
consist detailed explanation of income statement. Various budgets are also discussed in this
report.
TASK 1
P1. Management accounting systems and their essential requirements
It is compulsory for every organization to make right decision at correct time to ensure
profitability of business. Management accounting helps in the decision making systems because
it has many variants that are able to solve many financial and non-financial problems. Raise
funds for business operations are not easy for small enterprise like Taj Store. They depend on the
loans with low interest rates to raise funds and assign those funds in that areas which enables
high return for firm (Banerjee, 2012). Financial accounting helps in assignment of funds with
help of its other functions like inventory management, cost management etc. Basic focus of MA
is recording transaction that arise in daily operations in corporation. There are various
differences in financial and managerial accounting that are given as below:
Financial Accounting Managerial Accounting
It is made for external stakeholders like
consumers, suppliers, etc.
It is made for internal stakeholders like junior
employees, board members, managers, etc.
Historical data is required in this type and it
does not follow proper time schedule to
prepare.
It is a present year document that is made for
future purpose.
It includes all transactions that happen in
organization as a whole.
It records only particular and specific data.
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It focuses only on the financial data. Although it concentrates in financial and non-
financial areas both.
It is mandatory for organization to keep all
financial data to meet legal requirements.
There is no legal boundaries that pressurise to
keep the management accounts.
Small scale companies have limited resources that have to put in that task which can
provide high returns. Management accounting process recognises all mistakes attempted by
managers repeatedly in inventory control and price optimising system. It helps in diminishing the
confusion among various functional levels and it also reduces the time that is taken to make a
call. Cost accounting and job costing are some other kinds of systems that focus on minimising
the expenditure that are associated with production department. Complete explanation is given as
below:
Inventory Management system- If an organization does not manage its raw materials and
keep extra goods in their warehouses that increases cost of carry and enhances overall expenses.
On the other hand if firm have less than required inventory it delays production and maximise
expenditure of supply chain (Herzig and et. al., 2012). This kind of action will affect demand
meeting negatively and reduces customer base for corporation. Inventory management system is
a software that is used for managing deliveries, recording of available and sold stock, etc. For
making an order, it is necessary to identify accurate number of orders that can be measured by
EOQ i.e. Economic Order Quantity. This software of accounting helps in the decrement of
wastage of resources by tracking all records. It also assures smooth operations of business by
keeping all records regarding inventory which has to be in warehouse for the next production.
Some organizations keep their product’s record on the basis of margin. If an item earns more
profit then it gains more attention of supply chain management system.
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Cost accounting system: It is a software that manages over costing and stops wastages of
resources. It is an important part of management accounting that checks and manages the cost
that is related to various aspects like wages, manufacturing cost, etc. This function has a wide
scope but generally it is used in the production department. Managers use this as a tool of
identification of profit on specific products. Diminish direct labour cost and material cost are
main areas of focus (DRURY, 2013).
Job costing: This method studies profitability that is related to various jobs and analyse
capacity of these jobs. According to this analysis, if jobs are well doing then management
increases their no to obtain goals in lesser time. This option also expresses tasks and actions that
are generating low benefits and managers can remove these tasks from operations. This is mainly
used at the time when company has specific demands.
Price Optimisation System: Price of a product is very important part that affects its
demand directly in positive and negative manner. It is the responsibility of managerial
accounting to finds out number of high priced products in portfolio of company and check
whether they are generating profit or not (Morales and Lambert, 2013). A customer denies to buy
a product that have high rate and easily buys its substitutes that have low price. Price should not
be that much low that will be reason of company loss but it should not be that much higher that
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Illustration 1: Inventory Management
(Source: Orendorff, 2017)

customer would not purchase it. It must be in correct proportion so that customer will buy goods
and this action will generate profits also. This tool is associated with the price management.
P2. Methods of management accounting reporting
Each and every organizations record their transactions to evaluate their working that they
have done in their past. These are documents that is made for removing drawbacks of past
procedures and will help in successful future plans. These reports have matching criteria that
evaluates current objective with achieved targets. Distinct management accounting reports are
described below:
Inventory management reports: This is made for checking whether stock is properly
managed or not and if it is not what will be the ways of managing this in coming time period.
This action is helpful in removing problems related to stock for e.g. over and under stacking
without wasting time. This report is a presentor of present stock that is available in organization
and how much is needed for accomplishment of demands in particular time. Taj Store can accept
this to decrease its ordering and carrying cost and this method will help in identifying proper
needs of stock which is necessary to fulfil customers’ demands in correct time duration. This
kind of reporting hikes sale of enterprise. Venture is selling various kind of goods and items so
inventory control is mandatory for getting support in recognition of expected quantity of goods
which customer may buy in recent time. This task is done with help of past records and mistakes
(Ward, 2012).
Accounts receivables reporting - Taj store is running their business since long time in
United Kingdom. They have many customers that use to buy goods on credit basis and make
payments on schedule basis not at every time. This report concerns these kind of customers and
manages their records. This reporting includes data of record of data related to money that is a
receivable for company. Some corporations make this report on weekly, monthly and yearly
basis and some other firm do not focus on time period but they are concerned about total money
that are receivable from debtors. Taj store makes this report on their convenience but they are
very good in making and keeping this report in their venture. Main purpose of making this report
is that it reduces debt of organization. They will use this report in best way as they can and they
can make strict rules for those who are weak in payment and secures their payment with help of
this tool.
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Performance reporting- This is created for measuring working quality of workers who
are working in different areas of organization (Parker, 2012). But Taj store is a small firm and do
not run their operation in department basis. But it does not mean that they do not have need of
performance reporting. This report is also useful for small enterprises as it helps in evaluating
current performance with desired level of work. Mistakes done by workforce and targets that are
achieved by workers both is to be recorded in this reporting. This report includes all positive and
negative remark of working quality of manpower. This reports helps in making incentive report
of employees and their compensation plan also depends on this record.
Account payable reporting - It is a record of payable amount that has to be paid by
organization to its creditors for e.g. supplier etc. Strong connection between corporation and
supplier depends upon their payment that company has to pay in time that he promised to pay.
This is like receivable report and firm makes it on regular basis. But if association does not make
it on scheduled time it focuses on total amount that he she has to pay in upcoming time to its
creditors. It also affect policies of venture. Taj stores can manage their relations with their supply
chain management by making this report. It will lead them to make payments in correct time and
helps in maintaining relations in good manner. With help of this report organisation can get
pretty discounts from its creditors. This report is useful in finding available cash balances for
next year (Bouten and Hoozée, 2013).
Budget reporting - Budget is prepare for checking balance between actual and desired
performance of organization as a whole. Budget is a planning of future income and expenditure
and it is made for one year (Fullerton, Kennedy and Widener, 2013). This helps in evaluating
earnings and cost that happened in financial year and what is expected and this document checks
whether they match or what is reason of their difference. This is a performance evaluator of all
departments together as complete corporation. Taj store can get assistance from this report and
clear conflicts in m8ind of workers and can synchronise their efforts from corporations goal for
long term.
TASK 2
P3 Difference between income statement made through marginal and absorption costing
Income statement is a document that shows relationship between income and expenditure
done by organisation. Management accounting has more than one method for preparing income
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statement and it is also known as profit and loss account. Other one is marginal costing approach
and apart from this next one is absorption costing. Their explanation is discussed as beneath:
Marginal costing - In this method treatment of fixed cost is on period basis and variable
cost is treated as before i.e. deducted from contribution. When organization make more unit of a
product then it requires extra expenditure on its manufacturing. For this operation direct material,
labour and overhead will be charged when they actually incurred. On the other hand fixed
overhead, selling & administration expenses will be charged at the time when they incur
(Lambert and Sponem, 2012).
Absorption costing - This technique varies from above method. This costing does not care
about type of cost whether it is fixed or variable it will be allocate on basis of sold units. Some
particular expenses does not include in this section that is selling and administration expenses at
the time of income statement making. It is a traditional accounting approach.
Distinction between marginal and absorption costing are mentioned below:
Distinction between marginal and absorption costing are mentioned below:
Basis Marginal Absorption
Use Manager uses this technique as
decision making tool.
It ha sits utilization for
external reporting.
Accounting Standards Accounting standards does not
follow when inventory
valuation because they can not
be considered by management
personnels.
Although international
accounting allows this tool in
inventory valuation.
Fixed Cost In this fixed cost is fully
deducted from contribution
and selling of goods do not
relate with this.
Fixed cost is only incurred
when goods are sold in this
current year.
Inventory valuation Variable cost is used for
inventory calculation.
For inventory valuation total
cost will be used.
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Calculation as per Absorption costing.
Working notes:
Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £2
Fixed cost £3
Total £16
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*19 = £13300 100*16 = £1600
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £2100
Fixed overhead: £2000
Total £100(over absorbed)
Administration Cost: In this budgeted cost is £800 and Actual cost is £700
Selling cost: In this budgeted cost is £400 and Actual cost is £600
Net profit using absorption costing £ £
Sales
(-) Cost of Sales:
Opening stock
Manufacturing
Closing stock
(Under)/ Over absorbed fixed prod.
0
11200
(1600)
21000
(9600)
11400
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O/h
Gross Profit
Less Expenses
Variable sales expenditure
Fixed administration expenses
Fixed selling expenditure
Over absorption
Net Profit
600
700
600
(100) (1800)
9600
Working 1: Calculate variable production cost £
Direct material 6
Direct labour 5
Variable production O/h 3
Variable production cost 14
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*14 = 9800 100*14 = 1400
Net profit using marginal costing £ £
Sales value
Less: Variable costs
Opening stock
Manufacturing
Closing stock
Contribution
Less Fixed costs
Variable Production expenses
0
9100
(1300)
2000
21000
(7800)
13200
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Administration cost expenditure
Selling cost
Net Profit
1300
600 3900
9300
Above analysis shows that correct method of income statement is absorption costing that
an organization can adopt because this method gave a profit of rupees £9600 and if marginal
costing is adopted it is clear that it gave a profit of £9300. Both of these method have difference
of £300 i.e. less generated by marginal costing. Main reason of this difference that both method
have different ways of fixed cost treatment that generate more or less income for corporation. In
marginal costing approach entire fixed is deducted to determining revenue for company rather
than in absorption costing fixed cost related to current units sold is deducted in current year. That
represents different treatment of fixed cost in discussed methods of costing. In absorption all
expenditure done on closing stock and will be treated in next financial year but in marginal it
does not consider that whether goods are sold or not expenses will be treated in current financial
year. These are main reason behind variation of revenues that gained from methods. As company
wants to get higher returns it will use absorption costing and it is also allowed in in international
accounting standards and this proves that it is a best approach.
TASK 3
P4 Advantages and disadvantages of planning tools which are used for budgetary control
Budgetary control is a function of accounting that compares actual performance with
expected work. It helps in checking that planning is running according to managers expectations
or it needs changes to get more profit (Herbert and Seal, 2012). There are various techniques
that help in planning activities of Taj Stores. These tools are stated below:
Cash budget – This budget records all cash transaction which incur in business in current
year and recording of transactions does not get affected by actual year of transaction. This
method provides information about need of cash. This budget relates to specific time and
company prepares it on scheduled time. This method is records incoming and outgoing of cash
for business purpose. It ultimately helps in smooth functioning of corporation.
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Advantages – This tool diminish bad debts risk and it ensures that company should pay
its due amounts in promised time and also must receive payments from organisation's debtors
and this will bring strong relationship of firm with its external stakeholder (Contrafatto and
Burns, 2013).
Disadvantages – Maintain accuracy of this budget is very difficult task for accountants
because cash is a very fluctuating element in venture. And its exact need can not be found.
Manager prepares cash budget on the basis of previous year but these are very flexible points that
ensure inaccuracy of this tool.
Master Budget – Main task of this budget is to allocate various resources to different
functional areas of business. This budget is made for obtaining organizational goal rather than
focusing on individual targets. It is a combination of all budget that a business entity generally
made.
Advantages – Optimum utilization of resources can be done with help of this budget.
Master budget can decrease cost of operations in firm and bring all levels at same place in
organisation. It removes all kind of dilemmas from mind of employees of Taj stores and guides
them a clear way which they can follow for their goal achievement.
Disadvantages – Use of this method is very expensive for any business. Taj store can not
afford to invest their fund in this which is not so important for them because they are a small
enterprise and they can deal with their conflicts on small level (Taipaleenmäki and Ikäheimo,
2013).
Capital expenditure budget – Purchase of capital assets is not an easy task because it
requires higher amount of cash and more analytical time to made these expenses in an adequate
manner. Capital expenditures use more financial resources that is not affordable for Taj Stores.
Capital expenditure includes purchase of new land and building, plant & machinery, furniture
and fixture etc. Requirement of fund for these expenditure is main area of focus of this budget.
Every organisation made this budget whether it is small or big association.
Advantages – This budget analysis major risks that are associated with investments
decisions. It helps in recognition of higher return of applied investment decisions in corporation.
Expenses can be controlled in better way that uses large amount of cash.
Disadvantages – This is made for long term purpose because capital expenditure does not
incur on regular basis. They generally have to made for more than five year of duration. This is
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the reason that's why changes are not possible in this budget. This method does not include
uncertainty. Current budget is not relevant for future budget because it takes lot of time and data
became irrelevant in upcoming time.
Zero based budgeting – It says that a new budget must be made for recording data that
is related with all functions of business. This tool does not care about previous budget whether it
was low or high. As it starts from zero that is why it is named as zero base budgeting (Figge and
Hahn, 2013).
Advantages – It helps in cost reduction by allocating right amount to correct task in
organisation. Taj store can easily adopt this method as they are small enterprise.
Disadvantages – It is a time taking concept and require more number of workers which is
a difficult task for Taj stores because this use lots of training sessions.
Activity based budgeting – This method ignores past data and record transactions based
of activity based costing. Adequate examination is done for each an every activity in company
for allotment of resources.
Advantages – This tool evicted all irrelevant task which in not able to generate
remarkable returns for firm and reduces their cost.
Disadvantages – It consumes both time and money together that is why every association
can not afford this tool in their corporations. These ventures are generally small scale enterprise.
P5 Adopting management accounting systems for responding financial troubles
Change in only permanent thing in this world and business environment is changing very
rapidly and creates many financial and non-financial problems for corporate house. Management
accounting has ability to shoot these troubles by applying right approaches (Caglio and Ditillo,
2012). Modern method of accounting is using by Taj stores on the other hand Vectair is using
traditional approach. Their comparison is described below:
Taj store Vectair holding
Modern accounting helps in gaining
competitive advantage.
Traditional methods are simple to apply but do
not give extra advantage.
Their method consumes lot of time to analyse
data.
They are very simple but do not study data
properly.
Making fast and correct call is an advantage of They don't have these kind of benefits.
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this accounting.
It has many up to date software to use. Records are maintained manually.
Taj stores uses modern techniques but it does not mean that they do not deal with financial
problems. Below are main issues and their solutions:
Profitability – Every firm wants to attain more profit but cut throat competition and high
production cost stops them to achieve this target. Company managers fail to manage their stocks
and inventory that increases their total cost. This can be resolved by inventory management and
budgetary system.
Price maximisation – It is related to identification of that price which will give highest
return and this trouble can be shoot by price optimisation system (P. Tucke and D. Lowe, 2014).
Cost Efficiency – To manage efficient cost and to reduce cost of production and
operation, cost accounting method is used. This method helps in reduction of various cost that is
associated with functions of business.
Performance and Control – Control of firm's activities is a difficult task that includes
performance of employees but this issue can be solved with help of various management reports.
There are various other tools that are used by Taj stores to deal with financial issues and
they are stated as beneath:
KPI (Key Performance Indicator) – They are some indication points that measures
performance of employees if a worker match this it means he is doing well and if he does not
meet this criteria that means this worker needs training program.
Benchmarking – These are standards presented in every industry whether small or big.
Taj stores set higher standards that deals with financial issues in better and an efficient way.
Benchmark is a set of standards that an organisation has to achieve to gain reputation in market.
Financial Governance – This includes conduction of all financial audit and follow up of
all Govt. regulations in recognising all financial issues. This will bring solutions of problems so
that a manager can use them in their business activities (Schaltegger, Gibassier and Zvezdov,
2013).
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CONCLUSION
This above analytical report can be concluded as that every association must adopt
several management accounting systems because these tools and techniques are having very
much utilization in shooting various financial and non-financial problems of business entities.
Companies have two alternatives that are marginal and absorption costing and firm can choose
any one of them which is giving more net profit and higher returns.
REFERENCES
Books & Journals
Banerjee, B., 2012. Financial policy and management accounting. PHI Learning Pvt. Ltd..
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management accounting change. Management Accounting Research. 24(4). pp.333-348.
Caglio, A. and Ditillo, A., 2012. Opening the black box of management accounting information
exchanges in buyer–supplier relationships. Management Accounting Research. 23(2).
pp.61-78.
Contrafatto, M. and Burns, J., 2013. Social and environmental accounting, organisational change
and management accounting: A processual view. Management Accounting Research.
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DRURY, C. M., 2013. Management and cost accounting. Springer.
Figge, F. and Hahn, T., 2013. Value drivers of corporate eco-efficiency: Management accounting
information for the efficient use of environmental resources. Management Accounting
Research. 24(4). pp.387-400.
Fullerton, R. R., Kennedy, F. A. and Widener, S. K., 2013. Management accounting and control
practices in a lean manufacturing environment. Accounting, Organizations and Society.
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Herbert, I. P. and Seal, W. B., 2012. Shared services as a new organisational form: Some
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97.
Herzig, C. and et. al., 2012. Environmental management accounting: case studies of South-East
Asian Companies. Routledge.
Lambert, C. and Sponem, S., 2012. Roles, authority and involvement of the management
accounting function: a multiple case-study perspective. European Accounting Review.
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Morales, J. and Lambert, C., 2013. Dirty work and the construction of identity. An ethnographic
study of management accounting practices. Accounting, Organizations and Society.
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P. Tucker, B. and D. Lowe, A., 2014. Practitioners are from Mars; academics are from Venus?
An investigation of the research-practice gap in management accounting. Accounting,
Auditing & Accountability Journal. 27(3). pp.394-425.
Parker, L. D., 2012. Qualitative management accounting research: Assessing deliverables and
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Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Schaltegger, S., Gibassier, D. and Zvezdov, D., 2013. Is environmental management accounting
a discipline? A bibliometric literature review. Meditari Accountancy Research. 21(1).
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Taipaleenmäki, J. and Ikäheimo, S., 2013. On the convergence of management accounting and
financial accounting–the role of information technology in accounting
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Online
Orendorff. A., 2017. Inventory Management System. [Online]. Available through:
<https://www.shopify.com/enterprise/inventory-management-system>.
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