(PDF) Management Accounting Techniques

Management accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
LO 1.................................................................................................................................................1
P 1. Management accounting and its system. ............................................................................1
P 2. MA reporting.......................................................................................................................3
M 1. Benefits of MA systems.....................................................................................................4
D 1. Critical evaluation of MA systems and MA Report............................................................5
P 3. Calculate costs using appropriate techniques......................................................................5
P 4. Benefits and limitations of budgetary tools.......................................................................13
M 3. Forecasting budgetary tools..............................................................................................14
P 5. Comparing organizations to respond to financial problems through management
accounting systems...................................................................................................................15
M 4. Assessment of how resolving financial problems, lead organizations to sustainable
success.......................................................................................................................................15
D 3. Critically evaluating planning tools to solve financial problems......................................16
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting is an impelling process which helps in rendering and preparing
timely statistical and financial data to the internal management of the organization in order to
take effective strategic decision.
This study includes, management accounting techniques and also include various key
functions and elements of MA system. It will also critically evaluate the different methods used
in the management accounting reports. This study will further analyse the cost of the company
using various appropriate techniques in order to get effective results and outcomes. Furthermore,
this study will help in examining the benefits and limitations of different planning tools which
are used in budget control. This study will further, compare different organization who are
adapting to different management accounting system to solve varied financial problems
effectively.
Arcadia group is a multinational retail company which was founded in the year 2002.
This company mainly deals in clothes, accessories and shoes.
MAIN BODY
LO 1
P 1. Management accounting and its system.
Management accounting (MA) is an impelling process which helps in rendering and
preparing timely statistical and financial data to the internal management of the organization in
order to take effective strategic decision (Kaplan and Atkinson, 2015). It is an effective process
of formulating and preparing various management accounting reports which helps management
of the Arcadia group in taking in strategic decision on a timely manner without any delay.
Management accounting helps in planning, solving various financial problems, strategic decision
making and strategic management.
The main function of management accounting is to determine and evaluate the
profitability and operations of the organization. It also helps in forecasting the future which leads
to strategic decision making. Management accounting aids in financial accounting, variance
analysis and capital budgeting reasoning. It also helps in break even analysis, new product
analysis and stock valuation. Management accounting also facilitates in controlling cost of the
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business and serves as an effective mean for communication for strategic management and
decision making.
MA system
MA system helps in effective planning and taking strategic decision in order to reach
better results and outcomes for Arcadia group (Clarke and et.al., 2019). It is an effective process
that helps internal management of the company to effectively evaluate the operations of the
business with utmost accuracy and efficiency. This helps in forecasting the future and take
strategic decision in order to achieve goals and objective of the organization.
System of Management accounting helps in reducing cost and controlling the operations
of the business. It is also beneficial in measuring the actual performance by comparing it with the
management accounting and budgeted reports. It helps in effective decision making by lessening
the ambiguity.
Cost accounting system: This is also known as product costing system which helps in
effectively computating the cost of the various products of the company in order to analyse the
profit, cost control and inventory evaluation (Shields, 2018). This system helps in recording and
presenting various financial data.
Inventory management system: It is an effective management accounting system which
effectively evaluates the level of resources required for the production and operation of the
business. Inventory management system helps in tracking the orders, various inventory levels,
sales and deliveries (Kaplan and Atkinson, 2015). The various examples associated with
inventory management system is LIFO, FIFO and weighted average.
Job costing system: This is a strategic process that accumulates and assign cost to the
various per unit of the production. This system helps in keeping proper track of the various
expenses and accumulating cost to each unit by categorizing them into direct material, direct
labour and overhead cost.
Price optimization system: This is an effective MA system that determines and evaluate
the behaviour of the customers in relation to the change in the prices of the various products and
services of the company. This method focuses on finding the perfect balance between the value
and price of the product to generate higher profits.
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P 2. MA reporting.
Management accounting reporting constitutes of preparing various managerial reports for
the internal stakeholders of the Arcadia group in order to take strategic decision for future
sustainable growth. It also provides clear view about the performance and finances of the
company which leads to strategic management and decision making. There are various types of
Management accounting reports in order to evaluate the performance of the organization:
Budget report: This is one of the crucial MA report that helps company in evaluating the
past performance of the organisation and setting budget for the future. This report helps the
management of the organization in comparison the actual results with the budge plan, in order to
evaluate the deviation and take necessary action accordingly in order to reach greater heights and
productivity. This report also helps in analysing the performance of the company and also helps
in reducing cost. The key purpose of this report is to help management in evaluating the past
performance and setting standard is to achieve better productivity and attain higher profits.
Accounts receivable report: It is a critical tool that is useful in determining the invoices
which are due for the invoice payment. This report takes into consideration various credit
transactions and also critically evaluates the repayment capability of the customers. This is an
important tool which helps in evaluating the various invoices that are due for payment. Accounts
receivable report helps internal management of the organization in understanding the outstanding
receivables and time taken to recover the money which are due for payment. The key purpose of
this report is to help management in determining the amount of goods given on credit to the
customer also effectively evaluate the time taken to recover the cash for a specific period.
Performance report: This management accounting report helps in determining the
performance of the Arcadia group by comparing it with the budgeted plan (Clarke and et.al.,
2019). The key purpose of this report is to help management in controlling the cost of various
department which eventually leads to higher operational performance and productivity for the
Arcadia group. This is crucial for the company to keep a proper track on the efficiency of the
business and helps measure their strategy that helps in achieving strategic goals of the
institution. This report also helps in effectively analysing the performance of the each department
that contributes towards in achieving greater heights for future growth and development.
Cost report: This report aids in evaluating and estimating the cost of each activity in
terms of direct cost and indirect cost of material, labour and overhead. This method helps
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management of the organization in estimating the cost allocated in producing each unit of the
output (Types of Managerial Accounting Reports, 2019). It also helps in reducing wastage and
controlling cost of the Arcadia group. This report also helps in evaluating the profitability
attached with different types of departments. This helps in focusing on those departments that are
more profitable and beneficial for the growth of the Arcadia group. The key function of this
report is to help management of the organization to have a clear picture regarding the cost
attached with the production of various different units in an effective and efficient manner for
strategic decision making.
Other managerial report: This report mainly incudes competitor analysis report and
other project reports which are cruciate for the business. This report gives best outcomes that
eventually helps in profit management, investment management and cot control in order to take
strategic decision for future growth and expansion of the Arcadia group.
M 1. Benefits of MA systems.
Cost accounting system: Cost accounting system helps in evaluating the profitability of
the various activity carried out in the Arcadia group. It helps in reducing cost for higher
profitability and efficiency.
Inventory management system: It is beneficial in keeping proper track on the various
inventory orders and raw material of the Arcadia group (Top 10 Benefits of Great Inventory
Management, 2011). This helps in optimum utilization of resources on a timely and efficient
manner. This management accounting system helps in improvising employee efficiency and
productivity, saving time and cost cutting.
Job costing system: The major advantage of Job costing system is that it helps in
providing detailed analysis and interpretation of the cost of each job. It also helps in estimating
the cost and profitability attached with various other jobs in the production activity. This system
also helps in determining the defective and spoilage work which further helps in controlling the
cost of different jobs in Arcadia group.
Price optimization system: This system helps in effectively determining the objectives of
the Arcadia group in order to maximize the operating profit to reach greater heights. This method
helps in determining the price that helps in achieving economies of scale and leads to higher
generation of profits.
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D 1. Critical evaluation of MA systems and MA Report.
(Clarke and et.al., 2019) established the fact that, MA systems helps in giving relevant
and viable financial and management statistical information and data to the consumers in order to
take strategic judgment in an efficient manner which leads to future growth. (Morden, 2016)
argued that, management accounting system leads to personal biasses and intuitive decision
making. Management accounting systems in integration to the Arcadia group helps in controlling
cost and reducing wastage. (Mårtenssonand et.al., 2016) established the fact that, MA report
provides up to date information and data to the internal management of the organization.
(Shields, 2018) argued that, MA report only takes into consideration on;y financial data which
affects the operational efficiency and viability of the data. Integration of, management
accounting reports intro the Arcadia group helps in setting budget which eventually helps in
determining the performance of the organization.
P 3. Calculate costs using appropriate techniques.
Case 1
Under marginal costing
Cost per unit
D.M. ($7*5) 35
D.L. ($8*4) 32
VARIABLE O/H 5
Marginal cost / unit 72
Selling price 40
-Marginal cost /unit -72
-variable selling price -4
Contribution / unit -36
January
sales (10000*40) 400000
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COS
Opening stock 0
Material (12000*35) 420000
Labour (12000*32) 384000
Variable o/h (12000*5) 60000
864000
-Closing inventory (2000*72) -144000
720000
-320000
-Variable selling cost (10000*4) -40000
Contribution -360000
-Fixed costs -24000
-Fixed selling expenses -3000
Actual Net profit/(Net Loss) -387000
Febuary
sales (12500*40) 500000
Cost of sales:
Opening inventory (2000*72) 144000
Material (10500*35) 367500
Labour (10500*32) 336000
Variable o/h (10500*5) 52500
900000
-Closing inventory 0
900000
-400000
-Variable selling cost (12500*4) -50000
Contribution -450000
-Fixed costs -24000
-Fixed S.E. -3000
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Actual Net profit/ Loss) -477000
Interpretation:
Marginal costing: Marginal costing is an impelling technique which helps in evaluating
the variation in the cost when one additional unit is produced (Labro, 2019.). The company is
performing under loss i.e., -477000. The marginal costing method takes into consideration
variable cost which gives clear results to the management and helps in decision making.
Case 2
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Interpretation:
Absorption costing: The absorption costing is an appropriate technique which effectively
determines the all the cost associated at the time of manufacturing the set of products (Göx,
2000). The company is performing under loss i.e., -481000. The absorption costing method is
more appropriate because it takes into account all the cost associated at the time ff production
and gives clear results.
Case 3
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Case 4
Case 5
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P 4. Benefits and limitations of budgetary tools.
Budgetary control is an effective process which helps in management of the organization
in setting various performance and financial goals in order to reach higher operational efficiency
and performance (Miller, 2018). The budgetary control tool focuses on setting standards and
comparing it with the actual results to critically evaluate the performance of the company in an
accurate and efficient manner.
Sales budgeting
It is an effective planning tool which helps in estimating sales for the particular financial
year. This planning tool is used to forecast future production requirements and also estimate
earning from the particular sales. It helps in evaluating the sales expenses and also determine the
revenue collected from each sales.
Advantages of Sales budgeting
Sales budget is essential in allocating the resources of different products which leads to
smooth functioning of the business. This planning tool also helps in determining the revenue
generated from a particular production unit. Sales budget helps in keeping the sales expenses in
control in order to generate higher profit. This also helps in determining various production units
which strengthen the performance and position of the Arcadia group. It helps in improving the
cash flow management of the company which leads to better cost control.
Disadvantages of Sales budgeting
Sales budget does not give clear picture as it does not take into consideration credit sales.
This hampers the decision making of the management of the organization. It is difficult to predict
revenue from the sales which leads to lower performance and productivity of the organization.
Flexible budgeting: This planning tool is also referred to as variable budget. It is an
effective planning tool which can be varied with the change in the volume of production. The
flexible budget plan will flex because the budget report will take into consideration variable rate
per unit of the activity (AlKhajeh and Khalid, 2018). Flexible budget effectively evaluate the
expenses and revenues in the current production of the company.
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Advantages of Flexible budgeting
It is one of the most beneficial budgetary tool which helps in evaluating the performance
of the company in an effective and efficient manner. This tool is beneficial for the company to
regularly update the budget plan and do not remain static for higher operational performance and
productivity. Flexible budget helps in updating current statics and data of the company. It also
helps in better cost control and estimation of effective profit margins.
Disadvantages of Flexible budgeting
Flexible budgeting is a time consuming process. This budgetary tool does to give the
accurate results as it overshadow the revenue of the company by estimating budgeted to the
actual (Maas, Schaltegger, and Crutzen, 2016). The flexible budget is little complicated and
leads to biasses of the data from the managerial staff to attain stipulated goals and target in an
effective, accurate and viable manner. Production budgeting: It is a financial plan which
helps in estimating the cost associated with the manufacturing and production of a particular
output. Production budget helps in making raw material available at the right time and at the
right place to effectively coordinate the function of various department.
Advantages of Production budgeting
Production budget helps in stabilizing the production of and controlling cost associated
with the manufacturing process to reach greater operational efficiency. This also helps in
reducing production expenses and maintaining enough stock for further growth and
development.
Disadvantages of Production budgeting
It is a very time consuming and tedious task to prepare the budget plan for the future. It is
very complex process as it is difficult to evaluate the various changes and need of material in the
production process.
M 3. Forecasting budgetary tools.
Production budget is used to track the cost of the manufacturing process which helps
Arcadia group in evaluating the cost attached with each production process. Sales budget is
useful in evaluating the revenue generated from the particular amount of sales. Flexible budget
focuses on determining the fluctuations with the change in the production report.
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P 5. Comparing organizations to respond to financial problems through management accounting
systems.
Benchmarking: The key financial problem associated with the Arcadia group is that it
has higher competition, which eventually leads to lower market share.
Benchmarking is an effective process of evaluating the performance of the Arcadia group
by setting benchmark in order to achieve desired results and outcomes (Kaplan and Atkinson,
2015). This helps in drilling out the areas of improvement for future growth and development.
Benchmarking is an effective process of standardizing the set of metrics to achieve higher
results. Benchmarking helps in achieving economies of scale by reducing cost, this eventually
helps in achieving higher competitive position.
Key performance indicator: The key financial problem associated with the company is
that the sales of the company is reducing which eventually leads to lower revenue and profit
margins.
Key performance indicator is an effective technique which helps in determining the
various strategies to achieve the key goals and objective of the ScrewFix company (Parmenter,
2015). Key performance indicator helps in evaluating success of reaching desired target for
future growth and expansion.
Variance analysis: The key financial problem associated with the Boux Avenue
company is that the company is having lack of resources and raw material which adversely
impact the performance and productivity of the business.
Variance analysis is an effective technique which helps in determining the budgeted plan
with the actual results in order to maintain effective control over the efficiency of the business. It
helps in determining the cause of variance and take necessary action to optimally utilize the
resources of the organization which leads to higher productivity (Ray and Jenamani, 2016).
M 4. Assessment of how resolving financial problems, lead organizations to sustainable success.
Financial governance means compliance with various accounting standards and
legislations such as GAAP and IFRS. This is an effective strategy which helps in evaluating
financial data by complying with various regulatory rules. Financial governance helps in
tracking various financial transaction, controlling cost, disclosures, operations, compliance and
managerial performance which leads Arcadia group to sustainable success.
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D 3. Critically evaluating planning tools to solve financial problems.
(Otley, 2016) established the fact that, continuous and regular preparation of various
planning tools give full disclosure on a timely manner to the management of the Arcadia group
to take necessary strategic decision. The company must develop strategic tool and techniques to
resolve various financial problems by comparing actuals with the budgeted plan.
CONCLUSION
From the above study it has been summarized that, there are various management
accounting system which helps in evaluating the various MA system such as cost accounting
system, inventory management system, job costing system and price optimization system. It will
also evaluate MA reports such as budget report, accounts receivable report, performance report,
cost report and other managerial report. This study also evaluates marginal costing and
absorptions costing. Furthermore, it also examines various budgetary control tools and MA
techniques to solve financial problems.
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REFERENCES
Books and Journals
AlKhajeh, M.H.A. and Khalid, A.A., 2018. Management Accounting Practices (MAPs) Impact
on Small and Medium Enterprise Business Performance within the Gauteng Province of
South Africa. Journal of Accounting and Auditing: Research & Practice.
Clarke, B and et.al., 2019. Strategic management accounting: CPA program.
Göx, R.F., 2000. Strategic transfer pricing, absorption costing, and observability. Management
Accounting Research.11(3). pp.327-348.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Labro, E., 2019. Costing Systems. Foundations and Trends® in Accounting.13(3-4). pp.267-
404.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production.136.
pp.237-248.
Mårtensson, M and et.al., 2016. Management accounting of control practices: a matter of and for
strategy. In the 9TH INTERNATIONAL EIASM PUBLIC SECTOR CONFERENCE, held in
LISBON, PORTUGAL, SEPTEMBER 6-8, 2016..
Miller, G., 2018. Performance based budgeting. Routledge.
Morden, T., 2016. Principles of strategic management. Routledge.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research.31. pp.45-62.
Parmenter, D., 2015. Key performance indicators: developing, implementing, and using winning
KPIs. John Wiley & Sons.
Ray, P. and Jenamani, M., 2016. Mean-variance analysis of sourcing decision under disruption
risk. European Journal of Operational Research.250(2).pp.679-689.
Shields, M.D., 2018. A Perspective on Management Accounting Research. Journal of
Management Accounting Research.30(3). pp.1-11.
Online
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Top 10 Benefits of Great Inventory Management. 2011. [Online]. Available
through<https://inventorysystemsoftware.wordpress.com/2011/05/02/top-10-benefits-
inventory-management/>
Types of Managerial Accounting Reports. 2019. [Online]. Available
through<https://smallbusiness.chron.com/types-managerial-accounting-reports-
58384.html>
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