Management accounting

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Management Accounting

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
LO1: Demonstrate an understanding of management accounting systems.....................................1
LO2: Apply a range of management accounting techniques...........................................................4
LO3: Explain the use of planning tools used in management accounting.......................................5
LO4: Compare ways in which organisations could use management accounting to respond to
financial problems...........................................................................................................................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11
Appendix........................................................................................................................................12

INTRODUCTION
Management accounting is the word which is used to describe the accounting practices,
systems and strategies that firm’s performance in its task of maximizing profit or minimizing
losses, with specific skill and expertise (Brewer, Garrison and Noreen, 2015). Applying skills
and knowledge in the preparation and presentation of financial designed to inform management
in policy making and in managing and scheduling the process of the initiatives.
For the better understating of management accounting concepts, Unilever selected which are
FMCG Company and manufacturing food, beverages, skin care and personal care products. This
report covers the several topics such as understanding of management accounting systems, apply
the range of management accounting techniques, use planning tools for budgetary control and
compare organizations which use management accounting to resolve financial issues.
MAIN BODY
LO1: Demonstrate an understanding of management accounting systems
Role of Management accounting:
The management accountant’s job is to conduct a list of functions to maintain financial
stability for their organization, effectively overseeing all business affairs and therefore helping
with the effective operations and strategies of the company. As a junior accountant of Unilever
company, below mentioned roles are essential to follow and those are as follow:
 One of the most essential roles of management accounting is to prepare financial reports
for routine basis decision making process.
 Another role is to done long term as well as short term planning in context of
organization which further helps in making corporate strategy.
 Management accounting has a big role to play in collecting funds and implementing
them. They need to settle about holding a fair balance of equity and debt (Gullberg,
2016). It is cheaper to raise funds via debt because of tax benefits.
Different management accounting systems:
Inventory management system: It is software that helps companies to control over their
stock level for effective supply chain. It maximizes the complete entire spectrum from making
purchases with the supplier to order satisfaction for their customer, analyzing the entire route of a
manufacturing company. Unilever management incorporates this program in their company to
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monitor inventory level in warehouses on a regular basis. It helps in manufacturing products
according to the requirements of demand. This system is essential required in the organisation to
monitor the level of inventory or remain accountable. Manager is in a position to develop an
effective strategy for the company to operate its business in well manner.
Cost accounting system: It is costing systems which are designed for industrial firms
that continuously monitor the material movement through the various stages of development and
determine the expense of each product at specific stages. It is essential required for the
measurement of the final cost of product in work-in - progress and finished level. Additionally,
Unilever executives are able to develop plans for reducing or managing costs during the
development process.
Price optimization system: It is one of the important accounting system because it help
the organization to set product price as per the customer’s wiliness which further meet the
company’s objectives as well (Monden, 2019). For Unilever, They wants to connect its total
sales to earnings, optimal level selling prices is essential and more importantly, if company's
aims to expand revenues by sustaining the same levels of customer retention. This is becoming
increasingly essential as prices are becoming intensely profitable for individual business units. A
variety of firms are now looking to launch new products, including those in niche consumer
markets. In this sense, knowing the correct price becomes even more essential, or a company can
end up wasting significant client base on its rivals.
Above discussion management accounting systems provide clear understating to the
Unilever company that how it help them to maximise their operational efficiency as well as
performance.
Different methods used in management accounting reporting:
Management accounting reporting includes the several financial information which are
used for reporting purpose and with the help of it, company’s managers able to make financial
strategies to enhance operational performance. Some of the reports are discussed below:
Inventory management report: Companies are manufacturing goods, especially
for those with poor load balance in manufacturing; consider these reports to be of great
importance (Kerr, Rouse and de Villiers, 2015). Many that offer authentic conditions the
inventory costs, labour, and other operating cost mechanisms involved in the production cycle,
including raw data to maximize construction or machining. This report is accompanied by the
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Unilever Company and involves the inventory-related information such as labour cost, cost of
carrying, cost of placing an order and other costs. Unilever's manager uses this report to
document information that is valuable for tactical building management.
Budget report: It allows enterprises to understand and cut costs, whether it's a
collaborative organization or has several divisions in it. By analyzing spending in prior years , it
is possible to evaluate expenses for the upcoming year, and identify ways to reduce costs.
Unilever’s management develops a report for successful execution of marketing strategies where
managers measure the total expense of the goods and the potential benefit that can be produced
from sales expected quantity. However, total costs were often used for the calculation rather than
producing products and it allows management make rational strategies to meet company targets
& objectives.
Accounts Receivable Aging Report: This report is essential for the organization at the
time of recover their money from creditors. It provides an overview of credit balances and the
number of defaulter which typically include different classes of defaulter such as 30, 60 or 90
days late. It could help in modify contract terms to incorporate them with consumers' payment
potentials. Unilever administrators use this tool to classify their fraudulent activities
which depending on specific time spans. To minimize the number of default lists, managers pf
the company should develop such a strict credit policies in order to minimise the loss of
receivables.
Evaluate the benefits of management accounting systems along with its applications:
Management accounting systems are extremely important and have many benefits when
applying these systems within Unilever Business. Unilever's manager can handle the entire stock
requirement by using inventory management system which mitigating the chance of over-selling,
saving costs, or simplifying the operation (Brustbauer, 2016). Cost management accounting
assists the Unilever's managers in assessing each unit cost which is further efficient in preventing
overall production costs and ensuring cost control over the time frame. In addition, the price
optimization program enables the customer to adjust the quality of their goods according to the
company priorities, and to guarantee that it always meets the needs of the consumer.
This accounting systems allows the management to carry out its operations management as well
as ensure that the overall effectiveness and efficiency are maximized. It also maximizes both
efficiency and output that produces success in the enterprise.
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Critically evaluating how management accounting systems and management reporting is
integrated in an organization:
Accounting systems and reporting are very necessary to integrate with organization to
complete its task. It was objectively assessed that the costing system lets the manager determine
the expense of the commodity which was further reported in the costing report and from this
report managers can use the information when designing techniques that help to effectively
execute the operational cycle. Additionally, for some further analysis, inventory management
system also used track the availability of raw material and further this data recorded in the
inventory management report for strategic decision making which taken by the managers of
Unilever Company. It is determined that accounts records and processes are interconnected. This
also allows Unilever to efficiently execute organizational procedures to meet company goals &
objectives.
LO2: Apply a range of management accounting techniques
Marginal costing method: The term marginal costing is refers to the additional costs
which involved in generating an unit of output which can be determined on the basis of the
operating expenses assigned to one unit (Cooper, 2017).
Absorption costing method: This costing system is being used for the valuation of
inventories. It encompasses not only materials and labour costs, but also both dependent and
fixed manufacturing operational costs (Harrison and Lock, 2017). The consumption rate is also
called full price. The training will show how to quantify it, and the benefits or disadvantages of
using such a accounting method.
Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents:
Management accounting techniques are used by the Unilever Company in order to
calculate the profit and it includes marginal or absorption costing method. It is has been analysed
that, absorption method is more favourable in the selected organization. In order to maximise
their profit, managers should focus on misnaming the operational expenses. This information
further utilized in making financial reports for strategic decisions. It further help the managers to
use such information in the decision making process.
Produce financial reports that accurately apply and interpret data for a range of business
activities:
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From the above calculation of cost by using different methods, it has been interpret that
profit of the company by using marginal costing method is £ 65400 and by using absorption cost
method is £ 83,600 (Hoque, Parker, Covaleski and Haynes, 2017). It has been observed that
company generate more profit by using absorption method because it not only encompasses the
cost of material or labour but also cover the fixed manufacturing cost.
LO3: Explain the use of planning tools used in management accounting
Evaluate the advantages or disadvantages of different planning tools which are used in
budgetary control:
There are several planning tools which are used for budgetary control in the organization
and also help in maximising operational efficiency as well as effectiveness. Before implementing
these tools in organizational context managers of Unilever evaluate its advantages or
disadvantages those are discussed below:
Capital budgeting: It could be interpreted as a budget which linked to assessing the
profitability of long-term investments in firms like equipment, plants and so much more. Finance
department takes effective considerations to enable the long term investments on the basis of this
spending plan. In the context of Unilever Limited, this strategy can be followed by the finance
team taking corrective actions with regard to proper allocation of existing financial capital such
as making plan of earnings by investing in profitable project. This planning tool has certain
advantages and drawbacks that are as follows:
Advantages: In this budgeting method, investment evaluation should be done using
many investment assessment techniques such as Net Present Value (NPV), Internal Rate of
Return (IRR), payback period etc (Kenyon and Kenyon, 2016). Relatively low payback period
chosen and greater one is rejected because it is more profitable and other side often selected
positive or higher NPV or IRR because investment on those projects are beneficial for the
Unilever Company.
Disadvantages: Time valuation of money is not included at the time of estimating
recovery period and the measurement of NPV is based on the rate of discounting and can adjust
as per the proposals. Due to the difference in the cost of capital, the end result of the capital
expenditure can be different and that further changes the entire project return.
Flexible budgeting: This budget can be adjusted in volume and any other aspects.
Flexible budget is much easier and more realistic than a static budget. The adjustable schedule
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should be changed for costs that vary for operational volume, since the program would deliver a
fixed interest rate each unit rather than a fixed total amount. The budget deficit, in short is a
much more powerful method for measuring an employer's performance. Unilever's manager may
follow the whole budget but, beforehand, it is crucial to analyse its benefits and drawbacks
which are as follows:
Advantages: This budget is much more crucial in comparison to other budgets, since
they include all past and current financial records (Fleischman and Parker, 2017). Market experts
find it more helpful as it appears to show deficiencies in depth and shortfall of budget value. It
allows them to minimize the volume of expenditure by analyzing budgetary differences. It is
valuable also for the possible mitigation of expected disruption.
Disadvantages: This budget suggested the differences between expenditures but this
does not enlarge on the specific details or the main examples of the differences which may be
exposed. For example, flexible timetables are scheduled for a quarterly or annual noticeable
feature etc. The main disadvantage is that, it reveals an unfavourable budget situation which can
have a negative impact on taxpaying citizens or clients. Incorrect or impolite budget will also
contribute to the public opinion of the company and trigger collapse of the organisation.
Analyse the use of different planning tools and their application for preparing and forecasting
budgets:
In context of Unilever Company, above discussed budgets used for forecasting future
expenses and make further decisions accordingly which are more favourable to maximise the
profitability. Use of several budgets for prediction purpose is critical for efficient management of
the financial reserves, as well as for getting precise forecasts of specific events and programs. In
regards to Unilever Company, the accounting professionals are finally prepared vital range of
budgets like capital or flexible budget. Most of these plans play an important role in the context
of reliable predictions of income and expenditures. This is realistic because the president of the
company reviews the budgeting specifics of the past year in order to predict future operations. So
it can be argued that strategies of estimating budgets are too critical to allow accurate predictions
of specific forms of financial activities to achieve business goals & objectives.
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LO4: Compare ways in which organisations could use management
accounting to respond to financial problems
Financial issues: Financial problems create due to inefficiency of the employees or
management and it further affect the operations as a whole (Gray, 2015). In other words, such
issues start due to ineffectively formulation of strategies and managed. In simplistic terms,
financial problems are the situations where companies struggle to execute multiple roles due to
the lack of sufficient financial resources. Unilever Company faces such financial issues and those
are addressed below:
 Unnecessary expenses: One thing that most financially distressed companies have in
general is over-spending obligations. Organizations want to make itself look quite
efficient than they really are, which would lead to the an enormous office, luxurious
business cars, mobile phones, a decked out waiting area, top of the line appliances and a
lot of other needless spending money that just generates debt and expenses. Take a
relaxed, streamlined attitude and they will be compensated with more cash money to
spend on other important items.
 Poor accounting practices: Financial reporting and budgeting are the two most
important elements of financial reporting of industry, and wasteful procedures and
misjudgements will create a lot of problems in any of these fields. While they don't
actually have to hire a qualified accountant, at least accountant can take some workshops
about how to use common accounting tools.
 Excessive spending on advertisements: Many companies can make the mistake of
spending a lot of money on advertising without actually learning in detail the art of
marketing. Non - targeted advertising will also turn out to be quite a pointless waste of
cash, so the remedy is not merely to pump more resources into a marketing budget.
Management accounting methods:
Below mention accounting methods used by the managers of Unilever company to
resolve their financial problems which affect the productivity as well as profitability. In addition,
above discussed financial issues impact the entire company’s performance.
 Benchmarking: It is a method of comparing the efficiency of a company's goods,
facilities or procedures to another business that is perceived to be the strongest in the
market, or "highest in class." Benchmarking is for finding internal incentives for change.
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 Key performance indicators: This is a metric used to represent operational success or
advancement with respect to a given goal (Liff and Wahlstrom, 2018). KPIs seek to track
progress in meeting the strategic objectives usually expressed on a policy diagram. In
general, financial KPIs are addition to business statement such as balance sheet elements,
and could also document changes in sales growth or expenditure. In addition, non-
financial KPIs usually involve measures concerning customer service, workers,
operational activities, reliability, cycle time and the distribution network or infrastructure
of the organization
 Balance score card: It is a performance measurement which is used in strategic process
to address and enhance specific inner business operations and their consequent external
results. Equilibrated scorecards are being used to evaluate organisations and offer input.
 Activity based costing (ABC): This helps production companies to distribute labour
costs more efficiently to different goods, when many cost factors are used.
 Financial governance: It means the way in which a firm accumulates, maintains,
monitors and evaluates financial data. Financial regulation encompasses how businesses
monitor financial transfers, handle data on results and monitoring, audit, procedures and
reports. Weak financial governance includes the threats such as bribery, misapplication,
material mistakes, regulatory sanctions, bad decision-making and decreased trust among
stakeholders.
Comparison of organizations:
Basis Unilever P&G
Financial problem Company face the financial issues
which affect their operational
activities which further become
the reason of low productivity as
well as profitability (Meidell and
Kaarbøe, 2017). Unilever face the
issues regarding excessive
spending on promotions which
maximise the overall product cost
and automatically reduces the
In context of P&G company,
management face the issues
regarding poor accounting
practices which further leads to
generate wastage of inventory due
to ordering more than required
inventory. Ineffective accounting
practices indicate the wrong
figures which affect the
manager’s decisions in context of
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profit margin. inventory for the requirement of
production.
Techniques In order to resolve company’s
financial issues, managers should
implement key performance
indicator techniques to identify
which activity is monetary
beneficial for the business or not.
In addition, Unilever should
properly follow the cost
management system to estimate
each activity cost.
P&G company have to follow
benchmarking techniques to
evaluate that how their
competitors manage their
accounts and further operational
activities. If further help the
managers to build their strategies
accordingly which support to
maximise operational efficiency
as well as effectiveness.
Analyse how these management accounting methods can help your organisation to respond to
financial problems:
It has been critically analyzed that, there are multiple management accounting
techniques which is used to resolve the financial issues that currently faced by the Unilever
Company. In the context of Unilever Company, the above-mentioned issues can be resolved by
using benchmarking, key performance indicator and other accounting systems such as price
optimization and cost accounting (Smith, 2015). As they experienced a unnecessary
expenses problems where managers need to implement the costing system, they changed their
price strategy and this business ' financial issue is overcome. Strategic management is important
for preparing and managing financing assets which will actually fix financing issues.
Expenditures plan should be construed as the budget agreements are compatible with a proper
process of assessing financial reporting factors. In the above Unilever business where manager
implement range of techniques such as balance scorecard, financial governance, KPI etc. For
them, most of these techniques are important in tracking gaps that allow measures to be taken to
fix problems.
Critically evaluate that how different planning tools used in resolving financial problems which
can to lead an organisation achieving a competitive position:
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In the Unilever Business, administrators can incorporate different strategic techniques to
address financial problems such as poor accounting practices, higher spending etc. By using the
approach of capital budgeting, the organization will assess each initiative to ensure that it can
have the benefits of the potential or not. If not, the proposal will be dismissed and yet another
side will assist the manager in making efficient methods to solve their financial difficulties.
CONCLUSION
Based on the above discussion, it has been observed that management accounting is
essential for all types of entities in the sector. This research summarizes the numerous
accounting systems, such as cost management system, price optimizing plan etc. Additionally,
numerous accounting management reports are mentioned, such as cost report, budget report etc.
In fact, different kinds of planning tools are used for budgetary purpose. In the end, organizations
follow the accounting techniques and systems to resolve financial problems.
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REFERENCES
Books & Journals
Brewer, P. C., Garrison, R. H. and Noreen, E. W., 2015. Introduction to managerial accounting.
McGraw-Hill Education.
Monden, Y., 2019. Toyota management system: Linking the seven key functional areas.
Routledge.
Gullberg, C., 2016. What makes accounting information timely?. Qualitative Research in
Accounting & Management. 13(2). pp.189-215.
Kerr, J., Rouse, P. and de Villiers, C., 2015. Sustainability reporting integrated into management
control systems. Pacific Accounting Review. 27(2). pp.189-207.
Brustbauer, J., 2016. Enterprise risk management in SMEs: Towards a structural
model. International Small Business Journal. 34(1). pp.70-85.
Cooper, R., 2017. Target costing and value engineering. Routledge.
Harrison, F. and Lock, D., 2017. Advanced project management: a structured approach.
Routledge.
Hoque, Z., Parker, L. D., Covaleski, M. A. and Haynes, K. eds., 2017. The Routledge companion
to qualitative accounting research methods. Taylor & Francis.
Kenyon, R. and Kenyon, C., 2016. Accounting for KVA under IFRS 13. Risk, March.
Fleischman, R. K. and Parker, L .D., 2017. What is Past is Prologue: Cost Accounting in the
British Industrial Revolution, 1760-1850. Routledge.
Gray III, A. W., 2015. Evaluating ethics education for accounting students. Management
Accounting Quarterly. 16(2). p.16.
Liff, R. and Wahlstrom, G., 2018. Usefulness of enterprise risk management in two
banks. Qualitative Research in Accounting & Management. 15(1). pp.124-150.
Meidell, A. and Kaarbøe, K., 2017. How the enterprise risk management function influences
decision-making in the organization–A field study of a large, global oil and gas
company. The British Accounting Review. 49(1). pp.39-55.
Smith, S. S., 2015. Accounting: Evolving for an integrated future. Journal of Accounting,
Finance & Management Strategy. 10(1). p.1.
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Appendix
Income statement by using marginal costing method:
Particulars Year 1 ‘£’
Sales (Unit) 3,000
Selling Units @ 92 276,000
Less:
Direct labour @ 11 33,000
Direct Material @ 17 51,000
Variable Expenses @ 7 21,000
Opening stock -
-Closing stock 4,200 (600*7)
Contribution (A) 166,800
Less: Fixed cist 84,000
Selling & Distribute 5,700
Administration overheads 10,500
Interest expenses 1,200
(B) 101,400
Profit (A-B) 65,400
Income statement by using absorption costing method:
Particulars Year 1 ‘£’
Production Units 3600
Direct material @ 11 39,600
Direct material @ 17 61,200
Variable expense @ 7 25,200
Fixed indirect production cost 84,000
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Total Production cost 210,000
Add: Opening value -
Less: Closing value 35,000
175,000
Add: Selling & distribution 5,700
Administration overheads 10,500
Interest expenses 1,200
192,400
Profit (Balance) 83,600
Sales 276,000
Working Notes:
Particular Year 1
Opening stock -
Add: Production Units 3600
Less: Sales (3000)
Closing Stock 600
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