Management Accounting Tools and Techniques

This assignment delves into the crucial role of management accounting in optimizing organizational performance. It examines various tools such as budgeting, benchmarking, financial governance, and KPI analysis. The document compares two hypothetical companies, Zylla and Unicorn Grocery, highlighting how different sizes and strategies necessitate varying approaches to management accounting. It emphasizes the importance of cost control, resource allocation, and strategic decision-making for achieving financial success.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting system and essential requirement of various management
accounting types.....................................................................................................................1
P2 Types of management accounting reporting.....................................................................3
TASK 2............................................................................................................................................5
P3 Analysation of cost and profit using costing techniques...................................................5
TASK 3............................................................................................................................................8
P4 Report on advantages and disadvantages of different types of planning tools for budgetary-
control.....................................................................................................................................8
P5 Uses of management accounting system in solving financial problems. .......................12
CONCLUSION .............................................................................................................................15
REFERENCES..............................................................................................................................16

FROM: MANAGEMENT ACCOUNTING OFFICER
TO,
GENERAL MANAGER
ZYLLA COMAPNY
SUB: MANAGEMENT ACCOUNTING SYSTEM
INTRODUCTION
In this present world, Globalisation and liberalisation supports many organisations in
covering more areas of operations to made a positive impact on company's business. Sometimes
globalisation brings complexity into business. Regulations and provisions has to be followed by
companies (Banerjee, 2010). Management accounting system which is a procedure of gathering
financial data's and analysis of data's. It provides various informations and data's which provides
guidelines to different departments of a company (Bennett and James, 2017). In this process
allocation of companies funds is done. Zylla, a UK small-sized company which deals in
providing multiple products is taken for the purpose of preparing this report. The
In this assignment, focus on two areas which is minimising wastage and expansion of
business has been done. Reports presented in this assignment, will concentrate on various kind
of management accounting information systems. Reporting method is also being discussed in
reports, Difference between marginal costing and absorption costing will eliminate the
confusions between two. As both types of techniques uses different methods to calculate net
profit for the company.
TASK 1
P1 Management accounting system and essential requirement of various management accounting
types
Management accounting system: It can be defined as the process of preparing documents
which contains accounting and other important information which help management in making
an effective decision and plans. As there are large number of transactions happened on daily
basis which need to be recorded to find out the outcomes received in near future.
Therefore, the management should required to prepare accounting systems such as profit &
Loss a/c, Balance sheet, cash flow statements etc. which show the true and fair financial
position of company. There are several objectives of management accounting which are briefly
1

described as below:
 Allocation of resources to different departments while making an effective plans and
policies.
 Analysis of transactions happened on daily basis in order to find out financial position of
company.
 Numerical interpretation of various financial statements directs management to make an
effective plans and strategies for future business activities.
Types of management accounting systems:
Cost accounting system: Such system is more helpful in controlling and monitoring cost which
is incurred in execution of future business activities. Through such system, the cost accountant
can able to allocate cost to the activities of different departments after analysing the outcomes
received in near future. This will help in reducing wastage of money and increases the chances
of utilising cost in an optimum manner.
Inventory management system: Such system is useful in determining the inventory level
available with the company in order to meet customer's needs and requirements. The main
purpose of using such system is to control inventory cost through ordering whenever the
managers feels the shortage of raw materials. The management of Zylla should required to place
an order of inventory whenever they needed. It helps in reducing cost of inventory as keeping
unwanted stock should be ignored.
Price optimisation: Such system helps in setting up the cost of products which helps in
maximising the level of satisfaction of customers. It can be done after identifying and analysing
the perception and buying behaviour of customers towards the price company charged from
them for their products. The management of Zylla should required to identify that which
amount the customers should agreed to pay for their products and accordingly setting the prices
in order to influences their purchasing decision.
Job costing system: Such system is useful for allocation of cost to manufacture specific product
or group of products. The management need to first identify the expenses which will be incurred
in producing specific products such as direct materials, direct labour etc. And accordingly took
decision regarding allocation of cost with a motive of achieve better possible outcomes in near
future.
2

P2 Types of management accounting reporting
Management accounting report
Management accounting reports is the statement which reflects companies performance and
its actual position in a market. Report usually made at the end of a year but on the demand of
Top management, monthly, quarterly and half-yearly reports is also made.
Value of Management Accounting reports
 It supports in estimating the future.
 It assist in identifying required rate of return for a business to pay loans (David, 2011).
 It helps to analyse the requirement of cash flows generated from type of sources
 Defining the strategies and plans and make decisions.
 It helps to evaluate the difference between the cost of labour, assets and material.
 Budget Report: The main objective of budgtary reports are analyzed data related
subject to revenues adn expenditure. there is a clear idea about the money spent on all
the divisions of an organization in the coming year. This helps to reduce the factors and
conflicts related the two departments as they have a plan and goals in the upcoming
3
Methods of Management Accounting Report
Accounts receivable
Aging Report
Job costs Reports
Income statement
report
Cash flow report
Budget Report
Inventory reports

plan, which they have to achieve so that they are not confused with the strategy of other
companies operating in the same industry. This report could help Zylla in determination
of their actual position in a market.
 Accounts Receivable Ageing Report: The quoted organisation is working in the retail
sector. This basically helps to determine the credit limits to potential customers. this
facility is also available to those who order massive orders (Fowzia, 2011). This report
helps find buyers who do not pay their debts on predetermined time. These reports are
used by organisation subject to support the organisational structure with in the
organisation. particularly at this level for their business, when they are working at lower
levels, report this on a weekly, monthly or quarterly basis. It depends on the size of the
enterprise and the complexity of the business.
 Job Costs Reports: it is mainly associated with getting the information related to
multiple product units. the venture is using it in different departments of this
organization. In this method, they discover the cost of each job and increase the
profitability of organisation. It would help Zylla in determining those activities which
are not providing them the necessary amount of revenue. They can also concentrate on
problems which are becoming main hind rates in increasing the. Zylla can detect jobs
that do not give returns according to management expectations.
 Inventory Reports: The main purpose of report to find the report the buisiness
problems. Zylla is a one of the small industry, they face the issue of overstalking, which
increase their overall cost of business. In the case of under-stocking, an organization can
lose some customers because they will buy essential items from other stores if they do
not get the desired product at the right time. These troubles can be resolved using
management accounting equipment such as economic order quantity, it provides the
right amount of goods in comparison to an enterprise so that they can live in their
warehouse so that they can reduce their carrying costs.
 Income Statement Reports: This reporting techniques supports company in
determining overall net profits which is remaining at the end of a year after paying all its
expenses. This remaining balance is added to retained earnings account in balance sheet.
This reporting method would be useful for Zylla because company could know its
remaining balance in profit at the end of a year. For example, Company has recorded
4

£7500 net profit through calculation of income statements in marginal costing. After
paying all its variable expenses, firm has earned that much net earnings.
 Cash flow report: This reporting method supports company in analysing availability of
cash with a business (Goetsch and Davis, 2014). It also helps company in evaluating
how much a business has a opportunity to earn cash in future. Zylla can applied this
method to find how much liquidity company has in its business. Like, company has
many accrual based analysis like budgeted sales and goods delivered to debtors. Hence,
in both cases, business doesn't received any cash. Therefore these type of real cash
analysis would help Zylla in identifying cash available with the business.
TASK 2
P3 Analysation of cost and profit using costing techniques
Cost management is an integral part of accounting. This helps the organization by
reducing their costs, which indirectly positively impacts the firm's profit. Following is
explanation of marginal and absorption costing:
Marginal Costing: This is an expense that a company has done on the production of an
additional item (Granlund, 2011). It can be divided into two parts, manufacturing and non-
construction costs. There are material, labour and upper main expenses which are considered in
this report. Apart from production, it also focuses on other expenditures like one of the main
points needed to consider the time of adoption of this form of time cost cost is that the closing
stock is treated in the same year. Break-even point is the main use of this method. Because
break-even point analysis is done to find optimum level of production that a company should do
to utilize maximum of its resources. This concept reveals that with increase in sales by a
company, it could earn a profit even if the profit margin is low.
Absorption Costing: In addition to direct material and labour, fixed manufacturing
overhead is also considered as the time to use this method (Lavia López and Hiebl, 2014).
Closing stock is included at the time of implementing this system, which is the main reason that
the company earns more income. Fixed overhead spent in this process is ignored if the goods are
not sold in the same year. It covers production process, manufacturing process and fixed
overheads. It mainly considers fixed and variable expenses together.
5

Below is the calculation of both marginal and absorption costing to find income
statement of Zylla:
Calculation of marginal costing through using Income statements
Particulars Amount
Sales
35*500 17500
Less:
Production cost 6+5+2
- 7800
Closing stock: 100*13
- 1300 -6500
Contribution 11000
Less:
Variable sales overhead 500*1
500
Fixed overhead
-1800
Selling and administrative cost expenses (800+400)
-1200 -3500
Total Profit / Loss 7500
Income statements through Absorption costing
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2+3 = 16*500
8000 8000
Gross profit 9500
Less:
Variable sales overhead 500*1 500
Selling and administrative cost expenses (800+400) 1200 -1700
6

Total Profit / Loss 7800
Marginal costing considers mainly two types of costs that is variable and fixed costs on
the other hand absorption costing considers production and selling & distribution costs (Linoff
and Berry, 2011). there are significant difference are defined in terms of marginal costing and
absorption costing:
Basis for comparison Marginal Costing Absorption Costing
Meaning These techniques of marginal
costing is used for finding total
cost per unit of production for
the process of decision-making
is known as Marginal costing.
In this costing techniques,
costs are distributed among
various cost centres to analyse
total cost of productions
(Ward, 2012).
Cost Identification Expenses are arranged into
variable and settled in
negligible costing. To discover
commitment and net benefit
independently.
This basically helps to
determine variable cost
considered as cost of the
product.
Categorization Expenses Cost are analysed in respect of
bifurcating the structure and of
business in effective manner.
There are also some essential
elements considered for
analysing profitability and
administration cost,
profitability.
Lucrativeness Cost volume analysis is one of
the major technique which is
used in organisational context.
This is the main objective
related fixed cost and
affectivity of profitability.
Cost per Unit There's no effect of opening
and shutting stock on cost per
unit count of Negligible
costing.
It mainly affect the difference
of opening and closing stock
cost per unit calculation of
absorption cost.
High spot This mainly helps to analyse Both the net profit and gross
7

the contribution of this
techniques.
profit are analysed the net
profit from the cost of various
department centres.
Cost Collection Collection of data and outline
the endeavour of subject to
each product.
Cost of data are collected
through type of type of data.
Absorption costing includes various methods which supports proper absorption
techniques, these different methods are explained below:
 Distribution of overheads: It involves charging overhead expense directly to production
department separately. Distribution of overheads contains allocation and apportionment
of overhead among various departments.
 Renomination of service cost centre overheads:In production activities, there is no
direct involvement of service cost centres or various departments. Therefore, to calculate
proper absorption costs, fixed overhead charges could be distribute among production
departments because they supports operational process of a company. For example,
canteen provides food to labour, stores provides protective equipments and maintenance
contributes in proper working of a machine. It is necessary to include these costs also
because main event of a company which is production of goods is depended on these
supportive stores, canteen and maintenance departments.
 Overhead absorptions: It is characterized as charging per unit cost of creation by
figuring based on add up to no. of units to be created. Overhead retention is a technique
in which overheads costs are incorporated into the aggregate cost of an item.
TASK 3
P4 Report on advantages and disadvantages of different types of planning tools for budgetary-
control
Budgetary-control
Zyla needs to ensure that it gives equal importance to each variety of budgetary tool so that
maximum returns can be achieved from same. It will increase the financial capacity of an
enterprise as when budget is prepared it ensures effective control over the various operations of
firm. Budgetary control plays an important role in providing sustainability to an organization.
8

Budget is done for a specific time period, usually a year. It helps the management to see the
company fully, which is necessary to remove various types of confusions present in a firm
(Renz, 2016). Most managers have planned because they understand that it supports the
company to move in one direction.
Process of Budgetary control:
Discuss with managers to make an effective plan: Under this step, the managers of Zyla meet
together and conduct meeting regarding the formulation of plans and policies. The officials of
Zyla this way plan their financial resources so that they can be allocated in an appropriate
manner.
Record the actual performance: After formulation, the management should concentrate on
recording the performance of employees so as to direct them to perform in right direction. This
way Zyla keeps monitoring over the different departments of an enterprise so that the officials
invole in same can be checked that weather they are performing well or not.
Comparison of actual with the standard: After recording, the management should carefully
analyse the performance of each employee through comparing their actual with standard.
Determine difference or other variance: Through comparing actual with expected
performance, the managers are able to find out the deviation if any, which restricts employees to
perform well.
Respond immediately: In this last step, the managers should require to implement corrective
measures in order to eliminate deviations and problems which brings motivation among
employees to perform well.
Planning tools which need to be used by Managers:
Forecasting tools: This is the tool which is used by manager to forecast the business trends and
occurrence that will happened in near future such as prices, demands, labour etc. For this, the
manager need to conduct research and identify the possibilities that will help in achieving
desired goals and objectives. Due to forecasting, the managers should able to direct and gudie
employees so that they are ready to face future challenges and meet future needs and demands
of customers.
Advantages:
 It helps management to make an effective plans and policies in order to compete with
future challenges.
9

 The chances of getting profitable outcomes from future business activities will be more
as the employees are ready to face future business activities.
Disadvantage:
 Sometimes the assumptions are not accurate due to which the chances of facing losses
by an organisation will be high. If the company have low skilled workers who are inefficient to face future challenges,
then it will be difficult for them to handle future challenges.
Contingency planning tools: This is the tool which is used with a motive of identifying
uncertainties which may affect the growth and success of an organisation. The management
here play an important role in implementing corrective measures in order to protect business
organisation from such uncertainties.
Advantages:
 It helps in handling and managing risk through implementation of contingency plan and
policies with a motive of achieving desired target. It help company in achieving competitive advantages through grabbing future
opportunities which are competitive in nature.
Disadvantages:
 The contingency plan has been made on the basis of data collected by management
through research. Therefore, the quality of data is poor then the contingency may less
effective.
 Formulation of contingency plans takes more time and money which affects the
profitability of company as well.
10
Types planning tools of Budgetary
control
Non-Monetary
Budgets
Financial Budgets
Operating Budgets
Fixed and variable
budgets

 Financial Budgets: These budgets support companies in allocating its funds on the
basis of financial budgets. Usually these budgets contain various sources and
distribution of cash flows to run business activities. It could help Zylla in determining
past trends to estimate future trends and budgets for a company. For example, managers
need to analyse the cash requirement for repayment of short term credits and payment to
suppliers in that condition this budget helps to analyse and forecast the expected
financial requirement.
Advantages: It helps Zyla in knowing its future cash inflows and outflows. It also
supports companies in knowing where to allocate its funds to benefit a business in long run.
Disadvantages: This method estimates future which is uncertain. Floods, strike, changes in
government, regulations and policies can't be predicted in advance. Zyla may go through big
time and resource loss in case of failure of the made budget.
 Operating Budgets: In this method of budget controlling. This tool helps company in
allocation of funds among its operational activities like work-in-progress, working
capital, etc. It can be used in following ways like Sales budget, Expense budget and
Project budgets. For example which are the operational needs to assist the structure of
organisation are considered in this context. Zyla with the assistance of this budgetary
tool can get maximum returns from its investments and such areas will be selected
which are capable of giving good results to firm.

Advantages
This tool is beneficial for a company in meeting future product demands. It is also an
effective tool in facilitating business in a smooth way. It supports business in allocating of its
funds.
Disadvantages
This tool is time consuming. Company requires all most a year to make such plane. It
also requires lots of expertise to make such a plan. Zylla requires lots of money also to
implement such a plan into business.
 Non-Monetary Budgets: These types of budget include non-financial sales or revenue
expenditure (Otley and Emmanuel, 2013). The company requires a non-monetary
11

budget to track all activities which do not affect the cash, but after the expiry of the
value of the machines' value, the machines can affect the operation of the business after
depreciation. These budgets helps to determine the non monetary requirement for
business such as stationary, recorded, news papers etc. Apart from this Zyla also uses
this budget to take decision regarding the promotion of various employees who are part
of the firm.
Advantage:
These budgets are substitute of planning as planning and budgets both works on future
estimations. It helps in knowing the strength and weakness of Zyla financial status.
Disadvantages:
These type of budget is only based future estimation for making budgets. It fully ignores
Innovation, which is an important part of every organisation. It is the major disadvantage of this
type of budget.
 Fixed and variable budgets: Fixed budget related to future estimates of business
expansion Fixed expenses are those that are permanently in nature or say that it is not
affected by any increase or lack of production of units. The revised budget is estimated
to increase per unit and decrease in production. These types of budgets would help Zylla
in advance planning for fixed costs, variable costs and semi-variable costs.
Advantage:
This budgetary-control tools helps organization in getting information regarding fixed and
variable expenses of all departments. In absorption costing methods, costs of various
departments like canteen, stores and health department is added with production departments as
it supports labors and employees in production process.
Disadvantage:
This tools of budgetary-control are rigid in nature because changes in a plan which is
already made can't be change. Any effort to make some modifications can impact a company in
huge loss of time and resources.
P5 Uses of management accounting system in solving financial problems.
Concept of Management accounting tools
12

Every organisation whether small, medium or large can sustain in competitive market
environment only when they are good in financial position. Sometimes due to ineffective plans
and strategies the company face financial issues and problems due to which their business
operations may also affected. Therefore, the management are held liable to adopt financial tools
through which they can able to resolve financial issues and problems.
Management accounting tools are practical in reaching accounting information which can
solve the issues of financial management departments (Monden, 2011).
Financial issues are all critical factors which impacts the performance of a company. Some
of the various issues are improper budgeting, accumulating too much debts, making poor
purchasing and investing decisions, etc.
After analysing various issues within the Culina Group through important sources, it was
found that the main reason behind the conflict between marketing and financial departments is
unplanned budget which was created by the top management. But after implementing tools, all
financial issues can be solved. Company can improve these issues through individually
controlling each issues.
Tools would help company in increasing its sales revenues and returns on investments. In
this system, previous data of a company helps in creating a linear trend on the past performance
of the business. This linear trends assists management in identifying future trends through the
application of regression methods and trend analysis methods while preparing a budget for a
company.
There are mainly three techniques by which financial issues can be solved, which is given
below:
 Key Performance Indicators (KPI): This techniques helps the company to track the
performance of various properties and investments. It works on the basis of a return
received by a business. In this process, the performance of KPI, debtor, creditors, raw
materials, labours etc. is tracked (McNeil, Frey and Embrechts, 2015). Tracking is based
on the weight-age given by a company based on the bear, which is to continue the
activity. It can solve financial issues of excess debts and non-performing of assets by
application of KPI indicators to eliminate these issues at initial stage of their arisen. For
example, Zylla can reduce credit amount given to debtors through identifying whether it
is profitable for a company to more sale foods on credit or not.
13

 Benchmarking: In this process, company can measured its annual performance either
through comparing it with previous year of it or different companies. For Example, let's
assume Zylla's competitors which is into same business size has more sales than the
company. Here company can set competitors sales as a benchmark to measure its
performances. This can solve the financial issues of wastage of resources by a company
in focusing irrelevant activities which doesn't gave any competitive advantage to it.
 Financial governance: It refers to the rules and regulations made by government which
need to be comply in order to operate their business operations in more effective and
efficient manner. Non-compliance of such rules and regulation by an organisation may
get legal fines and penalties which affects their financial position as well.
Comparison of Zylla company with Unicorn Grocery:
Zylla company Unicorn Grocery
As company is generally small in size due to
which the management need to carefully
consider and analyse all business activities in
an appropriate manner with a motive to
expand their business on large scale.
Unicorn grocery is large-sized company due to
which th management may find difficulties to
manage and monitor all issues.
The company should require to analyse the
performance of their employees through
comparing their actual with standard
performance. For this, KPI tools shall be more
effective to adopt.
As company has attained large market share
therefore they must require to follow rules and
regulation implemented by government for
this. Financial governance should be more
effective tool to adopt.
In order to expand business on large scale, the
management should require to set target to
each employees after analysing rival's
strategies. Thus, Benchmarking tool should be
used by company in order to achieve target
with the help of utilising resources in an
optimum manner.
Balance scorecard should require to adopt by
company in order to maintain balance between
revenues and expenses.
14

CONCLUSION
From above mentioned assignment it has been comprehended that an organisation has to
minimize their wastage and for this they need to use available resources in an effective way. It is
must for an organisation to do their task adequately as this will assist them to improve their
profits. Apart from this, manager has to prepare plan in an effective way as this will provide
direction to staff members. They have to follow management accounting system; hence, they can
accomplish coveted targets within limited period of time. Choose of costing method is always
depend on nature as well as complexity of business. With assistance of many tools of
management accounting, superior can easily eliminate their problems related to finance
effectively and efficiently.
15