Management Accounting: Roles, Systems, and Techniques

Management
accounting

MANAGEMENT ACCOUNTING 1
Question-Answers
LO1- Management Accounting
Management Accounting is the procedure of maintaining management reports and accounts that
offer correct and timely financial information that is necessary by managers to take the decisions
such as short term or long terms decisions. The act of translating the financial data into the useful
information helps the managers and officers to take the decision (Business Dictionary, 2018).
Roles of Management Accounting
Management accounting plays the different role in the organization as it is essential to retain the
financial information. The role of management accounting is describing below:
Formulate Financial Strategies- Management accountants can frame financial strategies using;
sales forecasts, job costing techniques, and budgets. It has been seen that the organization
develop the strategies to improve the net profit, gross income, and earning per share. It is
essential for the organisation to analyses the financial data while developing the strategies for the
growth.
Monitor expenses- Gathering financial data of the organization in a single book helps to monitor
all the expenses and incomes.
Maintain Profitability- Company maintains its books and accounts due to which the
profitability of an organization will maintain (Chenhall, and Moers, 2015).

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Management Accounting System
Inventory Management System- In this system, all the transaction related to stock is recorded.
The activity of supply chain is also mentioned in the report as it helps to maintain the stock to
operate smoothly in the market.
Price Optimization System- In this system, the organization set the prices of delivering the
services to consumers.
Cost Accounting System- It is the system that is used by the manufacturing department in order
to record the production events by using the perpetual inventory system.
Job Costing System- In this system, the cost is allocated to the specific job or business involved
in it.
It has been seen that the different management systems have different role in the organization
that helps to operate smoothly in the market. It is essential for the organization to implement
these systems at the workplace to gain the advantage (Kaplan, and Atkinson, 2015).
Methods of managerial accounting reports
There are various ways in which the organization maintains their reports with the accurate
amount and these are as below:
Budget Report- Organisation can prepare the budget by collecting financial data as per the
financial funds. It is useful for the managers to control the cost of every department and reduces
the wastage.
Accounts Receivable Aging Reports- Organization can maintain the account receivable aging
report to uphold the cash flow statement for organisations that spread credits for their customers.

MANAGEMENT ACCOUNTING 3
Job Costs Report – The report contain the expenses of a specific project that helps to estimate
the revenue so that the organization can earns the profitability.
Inventory and Manufacturing – Organization that has the physical inventory can also maintain
the inventory and manufacturing report to create their manufacturing process efficient or
effective (Cooper, Ezzamel, and Qu, 2017).
Advantages of systems of management accounting with an organization
There are numerous assistances of system of management accounting that improves the
operations and overall profitability. The assistances of management accounting system are
discussed below:
Reduce expenses- Maintaining the management accounting report with the different systems
helps to maintain the balance between the expenses and revenues. Budget report of the
organization helps to allocate the cost as per the requirement of the departments due to which the
expenses will control.
Improve cash flows- It has been seen that the accounts receivable aging report is maintain that
supports to compare the cash flow statement. This system is mainly roll up into the company
total master budget that helps to save the money by analyzing the expenditure with the revenue.
Maintaining balance between the expenditure and revenue improves the cash flow statement of
the organization.
Business Decisions-

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Preparing the accounts and reports of management accounting supports the organization to take
the accurate decision. Management accounting assistances to analyses the quantitative with the
qualitative to take the decision appropriately (Thomas, 2016).
Increase Financial Returns
Management accounting also supports to prepare the financial forecasts in order to increase the
consumers demand and potential sales due to which the company financial returns is increases.
LO2- Techniques of Management Accounting
Evaluation of cost using suitable techniques of cost analysis
Cost- It is a monetary value that the organisation has spent in order to gain somewhat in return or
produce something. In the organization, cost symbolizes the money amount that the organisation
spends the amount in producing something (Labro, 2019).
Differentiation Classification Cost
There is various costs that are spent by the organization in order to producing something. These
are given below:
Fixed Cost- The cost that remains constant and cannot change with the change of output level
or sales revenue.
Variable Cost- It is the cost that can be differs from the production volume or services provided.
Direct Cost-The amount that can be spent on the production of specific goods or services.
Indirect Cost- Indirect Cost is the cost that is not straight liable to a cost object. It can be fixed
or variable in nature but particular overhead cost can be directly credited to a project.

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Material Cost- It is the cost of production material that can be easily found with the unit of
production. It can also be said that it is the cost of direct material.
Labor Cost- This cost includes the wages that are incurred while producing the goods or
delivering the specific services to consumers (Quattrone, 2016).
Different Costing System
There is various costing system that can be used by the organizations to assess the cost and these
are given below:
Absorption Costing System
Variable costing is the methodology which is only assigned the variable cost to inventory. In this
system, all overhead costs are considered as the expenses in the period while variable overhead
cost and direct material are allocated as an inventory of the organisation. It has been evaluated
that there is no uses of the variable costing in the financial reports since the accounting
frameworks implement at the workplace (Babu, and Masum, 2019).
Marginal Costing System
It is a cost that will incurred on one additional unit of output. It is used by the organisations to
evaluate the optimum production quantity. The company who operates the business within the
sweet spot helps to maximize the profits. This concept is used to measure the product pricing
which is essential for the organisation to measure the price while consumers request the lowest
possible price.
Job Costing System