Management Accounting and its Essential Requirements

This report provides an overview of management accounting and its essential requirements. It explains different management accounting systems such as cost accounting, inventory management system, and price optimization system. The report also discusses the benefits of these systems and their integration into the organization's processes. Additionally, it explores various methods of management accounting reporting, including budget reports, performance reports, account receivable reports, and cost reports. Finally, the report applies different management accounting techniques, such as marginal costing and absorption costing, to a case study on Unilever.

Management accounting
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INTRODUCTION
The MA is the arrangement of money related information and exhortation to an
organization for use in association and improvement of its business. This is the way toward
examining business expenses and tasks to plan inward budgetary report, records and reports to
help supervisor's taking specific business decisions for accomplishing business objectives in
successful way. The present report is based on “Unilever” which is British multinational
consumer goods company. The company is largest producer of consumer goods in the world.
The company has 155000 numbers of employees by covering world wide area. That is very
important to manage their account of company in effective manner. In respect of that report will
explain management accounting and give essential requirements of different types of
management accounting system. This will explain the different methods used for management
accounting system. As per that, report will calculate the costs by using appropriate tools of doing
cost analysis to prepare income statement under the different techniques. Report will also explain
advantage and disadvantages of different types of planning tools using budgetary control. Along
with that the report will also highlight comparison of adoption of management accounting
system to respond to financial problems.
LO 1
Explain management accounting and its essential requirement of different management
accounting system.
Management accounting system is also known as managerial accounting system. This is
the way toward giving money related data just as resources to administrator in taking decisions.
This is utilized by interior group of organization and thing that is making it appropriately unique
in relation to financial accounting. In this procedure, monetary data and report, for example,
receipt budget summary is shared with the finance department of the organization with the
correct supervisory group of Unilever (Abernethy and Campbell, 2018). The main objective of
MA which is used to statistical data as well as take the better chances for taking accurate
decision, controlling enterprise, various business activities and development. This is the
application of professional skills and knowledge in preparation of accounting and financial
information in effective and in respective manner. This assists internal management in the
formulation of planning, policies and controls the operations of company.
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Management accounting system:
The MA framework is significant in light of the fact that it helps to enhance the
profitability and productivity limit of organization in successful way. This procedure is higher
productive and useful for higher market share for their business expansion and growth just as
advancement. There are various accounting system which are explains below:
Cost accounting system:
A cost accounting system is the framework that is used by companies for estimating cost
of products for profitability analysis, cost control and inventory valuation. This helps to
determine the profitability and revenue of Unilever Company by including such activities such as
inventory, work in progress and finished goods. There are different types of cost accounting
which are explains below:
 Fixed cost is the cost which is depends on level of production. These are usually thinks
like the mortgage as well as the lease payment on the types of building or equipment.
That type of payment is depreciated at the fixed as per the monthly rate (Cost accounting,
2020). This can be increase and decrease as per production level.
 Variable cost is tied to company level of production. Most of costs into company are
more variable and not fixed due to some changes are required sudden. Like the floral
ramping, some of expenses as well as maintenance charges are also variable within the
company.
 Operating cost is associated with day to day operation of business. These costs can be
withering fixed or variable which are depending on situation.
 Direct cost is related with producing a product. The direct cost of finish good include the
labour working hours in production department in effective and in respective manner.
Inventory management system (IMS):
IMS is a tool and framework which involves the proper structure as well as establishing
the process and inventory monitoring of the organization. This is the software of tracking
inventory levels, order, sales and deliveries. It is the combination of technology and process
which is oversees monitoring as well as maintenances of stock product. Inventory is the most
important and an important asset or part of the organization and it is necessary to maintain record
of inventory (Ax and Greve, 2017). It is extremely pivotal so as to a foundation for overseeing
and tracking the stock whether it is crude material, work in progress, completed stock in
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distribution centre and showrooms, merchandise sent on credit or products dispatched for
conveyance to merchants or clients. For following its stock, Unilever utilizes software which
encourages the organization to unravel the inquiries of the clients on schedule and furthermore
advises for keeping up the nature of the items. This system has two methods which are help to
maintaining stocks of company. Those methods are explains below:
 FIFO; this is stand for the first in first out, the cost which is associated with the inventory
of Unilever was purchased first cost expensed first.
 LIFO: this is stand for last in first out, this assumes which is the most recent product
added into company inventory sold first.
Price optimisation system (POS):
POS is a procedure of scientific examination which is gives the best possible data along
with material information. This is about how the interest of an item and administrations are
differed by the variety in cost. This assistance to break down the conduct just as response of the
clients toward the value set that is varies at similar items in various circumstances (Fleischman
and McLean, 2020). It records and orders the data, at that point applies on cost of manufacturing
of stock which is helps the organization in picking the best value that improves the benefit and
consumer loyalty too. So as to gathering the best possible data and watching costumer conduct
on various estimating, different channels are utilized by Unilever. The Company proposed
various arrangements of costs to its all age sections' purchasers and choose right price as per
them.
Those are different management accounting system which is help to maintain the records
of company and its inventory by preparing statements. Those are creating various benefits for
company. Inventory management system is properly helped to company for eliminate shortage
and overstocking. This will also provide facility to manager for finding out right and proper
balance between carrying too much and little inventory (Honggowati and et.al., 2017). On the
other side, cost accounting system is help to disclosure profitability activities for business as well
as unprofitability. This provides effective guidance to Unilever for the future production policies
and to find the exact causes to decrease and increase profit of company.
Explain different methods of MA reporting
MA report is mainly created for undertaking proper and effective planning, controlling
and decision making. This assists in providing specific and useful information to management of
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the company that is further aids for making strategic decision in order to solve issues. There are
various types of management accounting reports which are very useful for Unilever explain
below:
Budget report:
This report is the tool and provides proper details which are used in the evaluation of the
performance evaluation of company in effective manner. This is used for showing indirect
comparison of actual and accurate result of company in order to prepare budget plan for identify
the proper differences between them. This will also used by Unilever for relating the previous
year’s performance with the present one and implement actions and steps in order to gain high
margin of profit (Maas, Schaltegger and Crutzen, 2016). This will likewise incorporate and
included income or cost of Unilever and later work for profit increments. This is the best
possible and viable improvement which helps the organization and its administration for
increasing legitimate information on performance of all the considerable number of departments
just as individual performance inside the association. This report will support Unilever in
effectively managing its work by carrying out the business activities within the given budget.
Performance report:
Performance report is refers with card report that is given to any individual, activity or
procedure. So, that creates usefulness for company to analysis their efforts as well as
productivity of execution can be estimated so as to accomplish their destinations. A foundation
utilizes this report to dissect the capability of its workers, systems and the executives also. This is
uncovers the change between targets which are finished by workers and the targets they expected
to do. The beneficiary of this report is subject to play out the medicinal exercises to improve the
presentation on the off chance that it is required for business. Unilever the board gets ready
execution reports for representatives and exercises with the goal that they might be remunerated,
prepared or change in like manner.
Account receivable report (ARR):
ARR is the receipts which are used by an organization (Hopper and Bui, 2016). That has
not received yet and has a right to attain it in near future. Like: at the point when association
depends about using a loan exchange, it is indispensable for them so as to keep up legitimate
records of data like account holders just as exchange receivables. The ARR refers to the formal
document that contains all the data worry with credit deals, due receipts, development periods,
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due enthusiasm on late instalments, credit approaches, contact subtleties of the borrowers,
arrangements for awful obligations, and so on. The administration of Unilever keep up this report
so that due sum can be gotten convenient, indebted person turnover proportion and liquidity of
the firm can be improved and credit approaches can be refreshed normally. Thus, it will assist
Unilever in meeting with the uncertain future events that can be dangerous for the company.
Cost report:
Cost report is the financial report that is help to identify cost and charges those are
generate through various activities happens within the company. This provides the complete
information about the cost accounting of company and business (Collis and Hussey, 2017). This
covers all the information about the all those transactions which are related to the cost expense
and revenue. Cost report is help to determine the cost elements and activity of organization that
includes product, services, manufacturing process, distribution and other various elements. This
helped to management of Unilever for keeping a watch on every cost of company. It is
effectively help in putting control on the cost element of the company in respect to various
business activities.
M1 benefits of management accounting system.
Management Accounting
(MA) System
Benefits
Cost Accounting (CA)
System
 This CA system is assist management for identifying the
activities which are unwanted and just incurring cost for
the company.
 Through this, company can work on reducing the cost
associated with manufacturing, improving efficiency and
saving time.
 It assists Unilever in determining the profitability
attached to the individual product.
IMS  This will assist Unilever in effectively managing its
inventory resulting in improved customer satisfaction.
(Maas, Schaltegger and Crutzen, 2016).
 The system controls over cost of inventory stock as well
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as provide an informational transparency.
 This also help the organization in exercising control over
the cost that is incurred on managing the inventory by
determining the right level of stock.
Price Optimisation System  Price optimisation system is helps for improving the
nature of items as per client prerequisites.
 Firm may fix the cost so as to get most extreme benefit
with least expense.
 The price is determined based on the demand of the
product and the consumers willingness to pay for that
product.
D1 integration of management accounting system and management accounting report into
organization process.
Management accounting system and report are very important and essential part of
company and its management accounting process. This provides the proper policies
implementation, procedure and structure for announcing process. Without keeping up the best
possible bookkeeping framework, that is beyond the realm of imagination to expect to gather and
arranged information and data in such unique and efficient manner that administration can use
that. Additionally, various reports are providing variances and reasons behind the reports and
management allows supervision for direct at the various functional units of the association for
create effective system (Messner, 2016). For understanding in better manner, here is taking
example: the inventory management (IM) is not working appropriately, then it is problematic to
keep records of stock and exact changes cannot be measures in inventory system. In the case,
report framework won't give exact data to framework, the executives not ready to settle inquiries
of clients. Hence, that it is must for Unilever must keep up both the framework and reporting
process together for survive in industry.
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LO 2
P3 Application of various management accounting techniques
With the increasing complexity in the management of financial information, there is
requirement of various types of MA techniques which can be useful in carrying out cost analysis.
Marginal Costing System (MCS)
The marginal costing is the coting method which is used by for the purpose of calculating
the per unit cost of the additional product manufactured (Collis and Hussey, 2017). It takes into
consideration only the variable cost in respect to evaluating the cost of production while the
fixed cost is taken as period cost and which is then set off against the contribution amount
derived of the product.
Absorption Costing System (ACS)
This approach of cost analysis takes into account all the production cost and expenses
incurred on the product irrespective of the fact whether it is fixed or variable cost (Hamamura,
2018). Therefore, the cost of production involves all the direct material and labour cost and the
fixed and variable overhead expenses. This method is used under GAAP and is also used for
external financial reporting.
Unilever is producing a new set of healthcare product which is completely organic. The cost
related to its production is attached in the Appendix.
Analysis and interpretation: It can be interpreted from the computation that under MCS, the
fixed cost is subtracted from the contribution whereas in AC system, the fixed expenses is taken
into account for determining the cost of production. This is the reason why the final outcome is
different under both the methods. In the context of Unilever, there is a profit under marginal
costing which is £28000 and in absorption costing there is a profit of £40000 because marginal
costing only considers variable cost in cost of production in contrast to it in ACS, the fixed cost
involved in the production is taken into account which lead to better results. Thus, absorption
costing is more preferred.
Marginal Costing System Absorption Costing System
It assumes only variable cost of production as
the product cost.
It assumes both fixed and variable cost as the
product cost.
It determines cost of additional unit. It identifies cost of each unit.
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The changes in the opening and closing stock
does not have any impact over the profits.
The opening and closing stock have impact
over the cost per unit.
It is represented by determining the
contribution.
It is presented in a structured manner for the
financial and taxation reporting purpose.
LO 3
P4 Advantages and disadvantages of planning tools
Budget is the statement which provides complete details about the estimated sales and
expenditure of the entity for a specific accounting period. It assists in effective distribution of the
organizational resources among the various business functions. The various tools that Unilever
can use in budgetary control are discussed below.
Zero based budgeting (ZBB)
In this budgetary control technique, budgets are being developed from the 0 level and do
not consider the past year’s budget (Rasugu, 2019). This approach is useful in defining the cost
structure of the organization. Budget under this approach carries out complete research
dependent up on which the ZBB is being created after analysing and interpreting all the outside
factors that might influence the budgeting. The budget for the organization is created each and
every financial year.
Advantages
 Zero based budgeting starts from the base zero every time it prepares budget.
 This budget assists the company in preventing the errors that incurred in the past year’s
budgets.
 This aides in practicing power over the expenses and uses of association.
Disadvantage
 Zero business budget is a time consuming process as everything starts from beginning.
 It is minimal exorbitant technique to be utilized by association for the planning purpose.
Capital budget
The capital spending plan is set up by the business association which helps in meeting
capital resource prerequisites of the business. These advantages are helpful in the assembling
procedure of the organization (Roy, Rudra and Prasad, 2017). It additionally includes the total
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examination of the speculation with the assistance of the capital planning methods which helps in
deciding the feasibility of the ventures and capital undertakings.
Advantages
 This budget helps the organization in analysing the prerequisite of the capital assets for
manufacturing process.
 This budget supports in analysing the capital requirements of the business. It helps in knowing the profitability and feasibility related to the investment plan which
the corporate is willing to make an investment.
Disadvantages
 This budget may not be able to provide accurate information with respect to investment.
 It is completely based on the estimation of the cash inflow that will be generated from the
investment and if it is gone wrong then it will affect the business and may incur losses.
Activity Based Budgeting (ABB)
This is form of budgeting method the business firms create the budget which depends on
the exercises embraced by the association. It depends on the estimation made in regard to the
assets to be used and apportioned alongside the degree of income it will produce (Seetharaman
and et.al, 2016). It doesn't consider the earlier year's spending plan for the purpose of preparing
the current year’s budget. This budgetary tool helps in determining the costs and expenses
attached to the various business activities which are being utilized in the manufacturing process.
The activity based budgeting helps in recognizing the inconsistency in the production framework
which results into determining the costs and the wastages in the process so ideal moves can be
made so as to deal with the circumstance.
Advantages
 This budgetary tool is very simple and easy to execute in the firm as it requires exercising
less time and efforts.
 This ABB instrument gives assistance to the association in deciding any disparity in the
creation exercises and the creation procedure also.
 It does not consider previous year budget which reduces the chances of errors.
Disadvantages
 It requires highly professional personnel with relevant skills and knowledge.
 This tool is very costly for implementation in the business entity.
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Variance analysis
It refers to the difference in the actual figures in comparison to the planned ones. It gives
the clear picture about the performance of the organization like Unilever. This stated in terms of
over performance or underperformance like favourable and unfavourable. An example is stated
in Appendix.
LO 4
P5 compare different management accounting system to respond financial problems.
Financial issues allude as the money related or support related issues. Yet, few of the
issues are which are mainly being come as a challenge by the organization are introduced as
under:
Late imbursement from clients is now a day is biggest financial problem. In that
organization relies that the credit policies of the entity very much and they need to sell their
items and services on credit to clients. At some point clients are from universally and
inadvertently neglects to pay due sum on time which is called as delayed in payment from
customers. It might the reason an enormous and greatest issue for assembling organization like
Unilever it become an ordinary act of clients.
Key performance indicator:
Key performance indicator is known as the KPIs which is measures performance of
establishment. This indicator is used in order to measures competence of both the monetary and
non-monetary operations (Otley, 2016). This is the best planning tool which has whole
concentration on high presentation events those are leads towards achievement of main goal line
and aims of corporation. This KPI pointer is used by upper and top management of Unilever who
are completely responsible for solve all the problems and issues which are related with finance.
The higher-level management of Unilever uses the key performance indicator in other to
recognize monetary issues for unanticipated costs and financial cycle those are significant issue
for organization and association. In that organization need to inspire their workers by giving help
and purchase utilizing proper procedures for accomplish objectives. This technique is significant
and compelling for organization so as to make progress by taking care of issues of organization
in a powerful and in important way. Through this Unilever can take effective steps in analysing
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its performance so that actions can be taken on time which helps on overcoming the financial
problems.
Benchmarking:
This is the effective and valuable process of setting measurement as well as guidelines for
each and every operations and employees. This additionally served to defines objectives and
goals which are accomplished advantageously and on schedule. in that procedure, the board is
break down methodologies or working procedure of those that are best in the business or
segment just as apply system and norms inside the organization (Schaltegger and Burritt, 2017).
With the assistance of this the organization of Unilever can normalize its credits terms
arrangements and liquidity position. That is assisted with discovering all the issues and issues
which are deferred in instalments from clients and feeble store the executives. The bench
marking policy is a crucial and effective aspects which is helps in resolving the problems related
to finance which are sets preparation phase by considering research of items and services through
exploratory the rivals at the market place. Thus, Unilever can have a view of its production
system in comparison to its competitors so that actions can be taken in the respected time frame.
Balanced scorecard:
The balanced scorecard is ideal and viable for evaluation metric which is utilized in key
administration. That is help to distinguish just as improve internal elements of a business and
their subsequent of external results. That is utilized to measures and gives reviews to
organizations. These aides later on for tackling any sorts of issues and conditions those will
looked by organization (Cooper, Ezzamel and Qu, 2017). This serves to Unilever so as to
building key strategies along with the managerial framework, by adjusting shared vision of
progress and get individuals taking a shot at the correct things and concentrating on results. This
viably gives input to organization to taking care of those issues in proper way according to the
vision of organization.
Those are the effective and valuable aspects and tools which are help to analysis the
complete and effective performance of company in respective manner. With the assistance of
this, organization is gains the capability to undertake investigation of the entire organization and
discover money related issues and issues which are faced by the organization. Through that
organization break down issues and attempt to understand by defining objectives and targets just
as working procedure. This approach will help Unilever in identifying any discrepancies in its
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internal functional system and the negative outcomes arising from it so that effective steps can be
taken to reduce the problem occurring through it.
M4 Analysing how MA can lead an organisation to accomplish sustainable success:
MA play as a crucial part in order to resolving the financial issues or getting effective and
sustainable success of company. That can be comprehended with underneath given focuses. The
board bookkeeping is the procedure of renders different arranging instruments like reports and
spending plans which helps the organization in predicting and planning gainful goals for the
accomplishment of entire association and Unilever.
D3 Planning tools respond appropriately to solving financial problems to lead organisations to
sustainable success:
The key planning strategies are significant viewpoints which are utilized for accountants,
are extremely utile in assurance of monetary difficulties. The budgetary arranging instruments
like capital and money spending plans are assistive in propagation data in association with
investment and other monetary challenges. Those troubles may develop in foundation inside a
specific period and procedures like KPI strategy and benchmarking technique are the most ideal
approaches to effectively and appropriately to separate outer and interior sensible monetary
variables (van Helden and Uddin, 2016). With the help of administrative bookkeeping strategies,
for example, corporate and money related governance, the financial issues can be distinguished
before they occur and viable actions, for example, following bookkeeping standards and norms,
applying provisions and so on might be taken on schedule so that Unilever may make
economical and sustainable progress.
CONCLUSION
From the above examination, it had been presumed that the MA has significant and
powerful perspectives for organization. It has the procedure which is utilized by internal teams of
the organization, in order to produce various material data and report which may help them for
effective planning, great decision making. The fundamental purpose of creating this report to
examine the different tools, methods, approached and strategies, techniques and system utilized
by administrative bookkeeper. The report has also covered the different bookkeeping framework
for producing reports, for instance, budgetary control, benchmarking and KPIs. Toward the
finish of report likewise featured the organization to estimate future plans, get ready approaches
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and methods, setting rules along with the method of and taking corrective steps in a respective
manner.
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REFERENCES
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Hamamura, J., 2018. Impact of a direct channel on the choice of absorption versus direct costing
using cost-based transfer price.
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Rasugu, E.N., 2019. Factors Affecting Implementation of Zero-Based Budgeting In Chemical
Organizations: A Case of Diversey Eastern and Central Africa Limited (Doctoral
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ONLINE
Cost accounting. 2020. [online]. Available through: <
https://www.investopedia.com/terms/c/cost-accounting.asp>
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APPENDIX
Cost details:
Particulars
Sales 800 units
Production 800 units
Variable production cost 640000
Fixed production cost 160000
Variable selling and dist. Cost 320000
Fixed selling and dist. Cost 240000
Normal activity level 800 units
Units produced in quarter 1 220
Units sold in quarter 1 160
Particulars
Sales revenue (A) (160*2000) 320000
Less: cost of production:
Variable cost (220*800) 176000
Fixed costs (220*200) 44000
Add: Opening stock -
Less: Closing stock (220000/220*60) -60000
COGS 160000
Less: Adjustment for over-absorption of fixed
production overheads (1/4 of 160000) – 44000 -4000
Add: Selling and dist. o/h:
Variable cost (160*400) 64000
Fixed costs (1/4*240000) 60000
Cost of sales (B) 280000
Profit (A)-(B) 40000
Computation of profit under absorption costing
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Particulars
Sales revenue (A) (160*2000) 320000
Less: cost of production:
Variable costs (220*800) 176000
Add: Opening stock -
Less: Closing stock (176000/220*60) -48000
Variable COGS 128000
Add: Selling & Dist. o/h:
Variable cost (160*400) 64000
Cost of sales (B) 192000
Contribution 128000
Less: Fixed cost:
Production costs 40000
Selling and dist. cost 60000
Profit 28000
Computation of profit under marginal costing
Profit reconciliation statement Amount
Profit under absorption costing 40000
Less: Fixed production o/h (60*200) 12000
Profit under marginal costing 28000
LO3
Standard cost of product XY being produced by Unilever is given below:
Material (5 units @ £4 each) £20
Labor (20 hours @ £1.50 per hour) £30
Overhead expense £10
Total Product Cost £60
Actual units manufactured were 8000 units and actual cost incurred are:
Material ( 40500 units @ £5 each) £202500
Labor ( 150000 hours @ £1.60 per hour) £240000
Overhead expense £90000
Total Cost £532500
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Particulars Standard Cost ( in £) Actual Cost ( in £) Variance ( in £)
Material 160000 (8000* 20) 202500 42500 (adverse)
Labour 240000 ( 8000* 30) 240000 -
Overhead expenses 80000 (8000*10) 90000 10000 (adverse)
Total 480000 532500 52500 (adverse)
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