Importance of Management Accounting and Techniques for Reporting

This report explains the importance of management accounting and its principles, techniques for reporting, advantages and disadvantages of budgetary control, and comparison of organizations for adapting management systems to respond to financial problems. The report is based on the case study of Eastern Engineering Cooperative Limited located in the United Kingdom. It also includes real-world examples and references from various journals and books.

Unit 5 Assessment

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Explaining the different principles of management accounting and mentioned its importance to
integrate management accounting systems of an organisation....................................................3
Demonstrating the different techniques and methods used for management accounting
reporting.......................................................................................................................................4
Budgetary control : advantages and disadvantages.....................................................................5
Comparing the organizations for adapting management systems to respond to financial
problems.......................................................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Management accounting is the process or method of preparing the reports of the business
operations and functions that helps the management of the organization to take the appropriate
decision for short or long term areas. This process of the accounting management refers to look
out for the financial information or non-financial data and help to make the appropriate decision-
making process to the managers. This entire process is also known as cost accounting. The
company named Eastern Engineering Cooperative Limited located at United Kingdom which is a
medium-sized manufacturing organization.
The report will illustrate the importance of the management accounting and its
effectiveness in the company and also mention the different techniques and methods which can
be used for accounting report (Mynbayeva, 2018). It also mentioned the advantages and
disadvantages of the budgetary tools and will compare two organizations to adopt the
management system to respond the financial problems effectively which can develop the growth
of the company.
MAIN BODY
Explaining the different principles of management accounting and mentioned its importance to
integrate management accounting systems of an organisation
The term management accounting is the financial information an organization required to
adopt to take the economic decisions relevant to business functions. The accounting management
principles are developed for understanding the needs of internal management from which an
improvement area has been to be considered and can support the decision objectives (Amir,
Rehman, and et.al., 2020). It has to be considered to put the effectiveness in the internal
management of the company and can obtain the effective outcome and productivity. There are
different kinds of principles of management accounting which are described below:
Designing and compiling: It is important take the evidence of any information which helps the
company to maintain and conduct the relevant data which can help them to overcome their uses
and obstacles related to the accounting management of the company. The reports, statements,
and all other present and past information should be collected and designed according to the
needs and requirements of the particular business and organization.

Control at source accounting: At the organization there are many types of expenditures takes
place where controlling the usage of sources can help to maintain the accounting management of
the company. In other terms, they are required to control at source accounting. The performance
of the employee, material issues, using the services as machine, power and maintenance are
preparing in the quantify and qualitative manner from which the control can be practised.
Uses of resources: In an organization, the usage of the resources should be used properly at
many of the machines and resources are used in plenty where some resources are available in no
use throughout the year (Alamri, 2019). Hence, the management accounting should be ensuring
to use the proper resources.
It is important for an organization Eastern Engineering to integrate the management accounting
their company as it helps them to take the better and appropriate decision which can provide the
effective results and profitability. It is utilized at mentioned organization to increases the
operational effectiveness and efficiency and can earn the beneficial outcome.
 For example, it helps the company to take decision of what products and services of their
company is profitable and can grow and develop the company at higher level.
 It also helps them to take decision of launching a new product and service.
 Also, supports and helps to understand the employee requirements.
Demonstrating the different techniques and methods used for management accounting reporting
Margin Analysis: The term margin analysis is an associated cost or a potential benefit which a
company gains from specific business or activity. In other words, the profit which has been
obtained from the production where this margin analysis is the essential technique utilize id
management accounting (Liem and Hien, 2020). It includes the proper calculation of the product
where it evaluates the optimal sales mix for the product.
Capital budgeting: Capital term simple means economy of finance which a company needs to
run the business or an organization. Capital is essential to be adopted by the company as it is
required to take the appropriate and sensitive decision of the capital expenditures. The capital
budgeting analysis is management accounting calculates the net present values and internal rate
of return which helps and supports the manager to take the appropriate and beneficial decision in
making or analysing the capital budgeting.
Trend analysis and forecasting: Trend analysis is technique which helps the company to
predict the future growth and development of the product and can observed the data and

movements of the fluctuation. In general, it deals with the variations in the product cost where it
helps the company to analyse the patterns and researching of the definite solutions and resolving
the different issues.
Constraint analysis: There are many companies utilize the technique for management
accounting report where they monitor and analyses the limitation or constraints of the profit and
cash flow of the specific product where they identify the problem and measures or calculates the
impact on the company’s revenue, outcome and profitability (Rashid, and et.al., 2020).
Inventory and Product costing: It has been known that the company deals with different
products and services where the accounting management system refers to determine the actual
cost of the goods and services where the process includes the computing and evaluation of direct
costing with goods or products which are sold.
Budgetary control : advantages and disadvantages
It is defined as the process of differentiating range of real income and spendings with the
budgeted fixed income or spendings to know whether the right is action is required or not in
order to calculate variances (Johnstone, 2020). The steps involved in budgetary control system
are as follows – preparation of the budget, communicating the prepared budget, measuring the
result, comparing and analysing the deviations from result, reporting the examined result and
take further corrective steps, revising the budget.
Advantages of budgetary control
Maximizing the profit : the main work of budgetary control is to focus at the increase in profits
of the firm or business enterprise. In order to achieve this target accurate planning and the
coordination between the different functions are being undertaken, this helps in taking control
over many capitals or income spendings (Dierynck, and Labro, 2018). In this the resources are
used efficiently and effectively.
Co-ordination: The working between the different departments, sectors and the units should
have to be properly coordinated towards a target, the budgeting of the various departments has a
carriage of each other, for the achievement of budgetary targets the coordination is very
necessary.
Separate targets : the plan, procedure, aim, goal or targets are being established by the top-level
management. In which all the efforts are being put together to achieve the common target of the
firm, every department has their own goal that has to achieved by them own time. All the efforts

of the employees working in the firm coordinates their efforts towards the achievement of the
goal. If there will be no specific targets the efforts done by the employees will get wasted ( Wu,
and Wang, 2020).
Reduce costs : as the word directly suggest budgetary control will be something that must be
directly or indirectly linked up with the control of income and expenditure and the huge spending
of the firm is it's production cost which should be reduced to control the budget of the firm.
Disadvantages of budgetary control
Uncertainty regarding future : the future can never be predicted it can only be anticipated or
forecasted, there is no one who knows what will happen in future, the covid-19 pandemic is it's
biggest example, mainly the budgets are being prepared for the future but not always the
prediction can come true as the situation which is predicted in future may change according to
the change in the environment, the differentiation in condition of future predicted and in real is
may upset the budget which reduces the budgetary control system utility.
Problem of coordination :- the main success of the control of budget will be in hand only when
there will be a good coordination among the sectors, department and units. The performance of
the one unit will directly affect the performance of the another unit, in order to overcome the
problem of coordination there will be a great need of the budgetary officer in the firm. The lack
of coordination may results in the poor performance of the firm (Daraban, 2018).
Comparing the organizations for adapting management systems to respond to financial problems
Tesco Eastern Engineering
 Benchmarking: The term
benchmarking is the process of
comparing and measuring the
performance of the organization
product and service against the another
company. The main purpose of
adopting and implementing the
benchmarking point is to identify the
internal opportunities of a company
from which they can be able to improve
 Key Performance Indicator: The key
performance indicator is a type of tool
which helps the company to evaluate
and analyse the company performance.
It helps the company to evaluate the
overall performance of the success of a
company. The company Eastern
Engineering use the KPI tool for
selecting the good KPI which is
depended on good understanding which

their definite growth (Alcouffe,
Maurice, and et.al., 2019).
 A company Tesco who is an
international firm utilize this method
for managing the system to respond to
their financial problems. Tesco
implements this method at their
company from which they are able to
measure the performance of the product
and services and can compare the
processes of the business which
operates and can easily implement the
changes for the better and essential
improvement.
 There can be two improvement
opportunities the company can have
where continuous improvement means
incremental where it includes only
small adjustments whereas dramatic
improvement involve to re-engineer the
whole internal process.
 Benefits: Using the benchmarking, the
company can be able to understand the
cost structures and internal process of
the company which results them to
obtain profitable results.
 It also helps the company to encourage
the team-building performances and
help to face the competition in definite
manner. Overall, this factor and method
helps the company to move towards the
refers the important area of the
organization (Gatti, 2018).
 The company Eastern Engineering
utilizes the KPI to ensure the overall
growth by the support from the teams
which leads the company to achieve the
targets and gaols at definite manner.
This can be done by measuring the
project success or employee
performance which helps them to stay
engaged and can achieve the goals
together.
 Variance analysis: The company
Eastern Engineering also utilize this
method to solve their financial
problems. The variance analysis is a
study where the deviations of actual
behaviour and planned behaviour in the
management accounting takes place
(Ciuhureanu, 2018). This helps the
company to concern the differences of
actual and planned behaviour and can
analyse the performance impact.
 The company utilize this form of
analysis also to understand and solve
financial problems in the management
accounting.

improvement and gives opportunities to
grow the company widely
(Wahyuningsih and et.al., 2021).
CONCLUSION
The report has concluded the importance of the management accounting where it helps
the company to grow and develop at definite manner. It has included the significance and
different principles of the management accounting and detailed the importance of integrate
management accounting system. Also, it has explained the different techniques and methods
which is essentially needs and required to adopt and implement for management of the
accounting within appropriate manner. The report has also included the advantages and
disadvantages of the budgetary tools which are the main component and factor of the
management accounting area. At last, the report has concluded the comparison between the two
organization who are adopting the management system to respond the financial problems with
real world example.

REFERENCES
Books and Journals
Alamri, A.M., 2019. Association between strategic management accounting facets and
organizational performance. Baltic Journal of Management.
Alcouffe, S., Maurice, and et.al., 2019. Is the limited diffusion of management accounting
innovations really a paradox? A meta-analysis of the relationship between product
diversity and the adoption of Activity-Based Costing. Accounting Auditing Control.
25(1), pp.133-164.
Amir, M., Rehman, and et.al., 2020. Mediating role of environmental management accounting
and control system between top management commitment and environmental
performance: A legitimacy theory. Journal of Management and Research. 7(1), pp.132-
160.
Ciuhureanu, A., 2018. Management accounting–Managerial obligation or need. Land Forces
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Daraban, M.C., 2018, September. Business value created by management accounting. In CBU
International Conference Proceedings. (Vol. 6, pp. 76-80).
Dierynck, B. and Labro, E., 2018. Management accounting information properties and operations
management. Foundations and Trends in Technology, Information and Operations
Management (2018). 12(1), pp.1-114.
Gatti, M., 2018. The impact of management accounting research: An analysis of the past and a
look at the future. International Journal of Business and Management. 13(5), pp.47-60.
Johnstone, L., 2020. A systematic analysis of environmental management systems in SMEs:
Possible research directions from a management accounting and control stance. Journal
of Cleaner Production. 244, p.118802.
Liem, V.T. and Hien, N.N., 2020. The impact of manager’s demographic characteristics on
prospector strategy, use of management accounting systems and financial
performance. Journal of International Studies. 13(4), pp.54-69.
Mynbayeva, D.E., 2018. Concept of organization of management accounting in bank. News of
the national Academy of sciences of the Republic of Kazakhstan. Series of social and
human sciences.6(322), pp.265-270.

Rashid, M.M., and et.al., 2020. Revisiting the relevance of strategic management accounting
research. PSU Research Review.
Wahyuningsih, D., and et.al., 2021. Why dynamic capacity influences the quality of management
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Psychosocial Rehabilitation. 24(10), p.2020.
Wu, Y. and Wang, X., 2020, February. Application of blockchain technology in the integration
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