Management Accounting: Types, Reporting, Cost Analysis, Budgetary Control

This report covers the types of management accounting, methods of management accounting reporting, advantages and disadvantages of planning tools in budgetary control, and cost analysis techniques.

MANAGEMENT
ACCOUNTING

Table of Contents
MANAGEMENT ACCOUNTING.................................................................................................1
Introduction......................................................................................................................................3
P1 Management accounting and its requirements related to its types of essential requirements.
................................................................................................................................................3
P2 Elaborate methods of management accounting reporting.................................................4
M1 Critically analyse the advantages of management accounting systems and its use within an
organisational context.............................................................................................................5
D1 Analysis of how the integration between management accounting systems of a company
and management accounting reporting is establishes and maintained?.................................6
P3 Calculation of costs with the use of different techniques of cost analysis in order to prepare
income statement with the help of marginal and absorption costs.........................................6
Marginal costing:..................................................................................................................6
D2 Develop financial reports that will help in accurately applying and interpreting financial
data for the business organization..........................................................................................8
P4 Critically evaluate the advantages and disadvantages of various types of planning tools
which are applied in budgetary control..................................................................................9
M3 Evaluate the application of different planning tools for preparing budgets and forecasts.11
P5 Compare how companies adapt their management accounting systems to address financial
issues.....................................................................................................................................11
M4 Analyse how management accounting leads organizations to sustainable success in
responding to financial problems.........................................................................................13
D3 Requirement of budgetary planning tools for accounting in order to solve financial
problems...............................................................................................................................13
Conclusion.....................................................................................................................................14
References......................................................................................................................................14
Books & Journals.................................................................................................................14
APPENDIX 1.......................................................................................................................16
M2 Accurately apply different tools of management accounting techniques and develop the
required financial reporting statements................................................................................16

Introduction
Management accounting can be defined as an effective tool which helps an organization
in dealing and handling with the administrative reports and records in order to provide budgetary
and measurable data to the different stakeholders of the companies. It helps an organization to
keep a check on the functioning of the company in relation to its business operations in the best
possible manner. Management accounting is a key tool that aims at increasing the efficiency and
effectiveness of the financial operation resulting into high amount of growth in long run.
Management accounting is mainly used by the internal team of the organization which makes it a
different concept as compared to financial accounting. It helps in providing a way towards planning
the executive financial reports to make short and long term decisions for achieving the
organizational goals. It also helps out the managers by providing all the information regarding
market factors, profitability and many more in order to decide the prices of the products or
services. In context to this report, different tools and techniques that helps in running an
organization in a smooth and efficient manner. Also, it includes the financial reports that help in
interpreting the financial data in order to take different business decisions in relations to the
operations of business.
P1 Management accounting and its requirements related to its types of essential requirements
of the accounting system of management.
This process or a technique can be defined as identification, measurement, analyses and
interpretation of the accounting information helping the managers of the business to take sound
and e4ffective financial decisions to deal with the daily operations of the company (Ajayi and et.
al., 2017). There are different uses of management accounting that helps an organization to work
effectively. They are mentioned below:
 Planning: Management accounting plays an important role in developing plans that can
help the organization to set standards on the basis of which the organization will be able
to achieve the organizational goals efficiently.
 Decision Making: It is an essential tool that helps the managers of the organization to
take certain important financial decisions that are required to achieve the objectives of the
firms (Tang, Ziyuan, Gautam Srivastava and Shuai Liu, 2020). Management accounting
considers uses the financial data of the company that ultimately portrays the financial
status of the company.

 Measure the performance: Management accounting also helps in keeping a check on
the results that re obtained from the business operations. Therefore, in consideration to
the planned standards the output must be equal. Therefore, this is how the performance of
the company is measured with the application of management ccounting.
 Increases efficiency: The efficiency of the company can be increased to higher levels
because optimum utilization of the resources is done by the use of management
accounting (Brink, Hobson and Stevens, 2017). Therefore, it helps in achieving the
standard objectives of the company.
 Increases profitability: When all the functions of the business organization in financial
as well as overall capacity are performed effectively with the use of management
accounting, it helps the organization to increase the profit margins achieving high level
growth in the long run.
 Budgeting and forecasting: Management accounting is an important tool that helps in
projecting and developing the budget related requirements of the company that helps in
having a pro active approach towards the future financial requirements of the company.
 Communication : When the financial data is effectively collected and used in the
financial operation of the company, it is communicated to the various parties which are
interested in the different activities of the business. Therefore, this concept majorly helps
in communicating efficient and relevant information through different levels of
management to different stakeholders of the company.
Some types of management accounting systems are explained below:
 Costing system: This is a kind of management accounting system mainly used by
manufacturers to record production activities with the help of permanent inventory
system. Simply put, it is an accounting system specially designed for manufacturers
or producers that allows them to track inventory flow at various stages of production.
It is also useful for profitability analysis, cost control and inventory valuation.
 Inventory Management System: Can be defined as a system or process that
supports effective tracking and management of physical inventory. The system
focuses on tracking the exact quantity of products that can be sold, allowing
companies to place the right number of units in the right place, at the right time, and
ultimately at the right price

 Job Order Costing System: This is a type of management accounting system
commonly used in large projects where the cost of each product needs to be tracked.
This type of process is primarily used by manufacturers involved in the manufacture
of a wide variety of products that differ from each other. Because all articles are
different, such a billing system requires a separate order cost rate for each individual
article.
P2 Elaborate methods of management accounting reporting.
The concept of management accounting is an effective tool which is also an important
components for the purpose of reporting. Management accounting reporting is considered
important because it is directly related to the achievement of the objectives of the company
(Giuliani and Skoog, 2020). Therefore, there are different types of reporting that is used by an
organization which are explained below in detail:
 Budget Reporting: The first and foremost types of reporting method of management
accounting reporting is budget reporting. It is highly critical for the purpose of measuring
the performance of the company in an efficient way. A budget is basically made to have a
projections of all the estimated costs that the company is going to incur for a specified
financial period. Also, it will also includes all the incomes that the company is going to
incur. This ultimately helps in achieving the goals and objectives of the company.
 Cost managerial accounting reporting: This type of management accounting reporting
states that all the costs related to the raw material, overhead, labour are taken in
consideration (Kajüter and Schröder, 2017). This method is considered as very important
because it helps in bringing out the profit margins for the company.
 Performance Reports: The performance reports are also one of the type of management
accounting reporting because it helps an organization to analyse its overall performance
and develop strategy for the enhancement of the business efficiency to a greater level. Account Receivable Ageing Reports: Many business organization are heavily
dependent on the credits (Skousen , Sun and Wu ., 2019). Therefore, it is vital for the
company to have complete records of all the transactions related to the credits which will
help in identifying the defaulters and prevent the issues which may come in the collection
process.

 Inventory management Reporting: This type of management accounting reporting helps
in keeping a check on the stock availability in such a way that all the analysis should be
done properly keeping in consideration to have some adequate levels of inventory to run
the business operations.
 Constraint Analysis: This type of analysis aims at the bottlenecks existing in an
organization. Bottlenecks have full control over the profitability of the business so, an
organization should focus on maximizing the utilization of a bottleneck. Keeping the
focus on other aspect will have no impacts on the profitability. As bottlenecks can be
found anywhere, it is considered as an important concept.
M1 Critically analyse the advantages of management accounting systems and its use within
an organisational context.
The various types of advantages of having an efficient accounting system od management which
helps a business organization in achieving the finance as well as the overall objectives of the company
(Levine and Smith, 2019). The major benefits of management accounting helps an organization in
increasing the efficiency along with an increment in the sales and profits. Also, when the application of
management accounting is done in an effective way it helps also helps in running the business operation
with proper planning, executing, controlling as well as coordinating (Tucker, 2019).
Management Accounting System Benefit Application
 Cost accounting system Measuring and improving
efficiency.
With the use of cost accounting
system, business organization can
measure its efficiency in relation
to cost, time, efforts etc. It can
also compare the actual figures
with the economy standards to
increase its efficiency levels.
 Inventory Management
System
Avoiding stock outs and excess
stocks.
A better planning and
management of inventory system
will help business organization to
avoid the stock outs as well as the
wastage of the food stock.
 Job Order Cost Accounting Keep track of individuals This accounting system will

System and team performance. benefit the managers of the
business organization to keep a
check on the performance in
order to maintain efficiency and
productivity.
D1 Analysis of how the integration between management accounting systems of a company
and management accounting reporting is establishes and maintained?
In order to run the business operations of the company, it is significantly important that
there is an effective integration between the management accounting system and its reporting. It
is necessary to report and disclose the relevant financial information to the stakeholders. It is
very much essentials for the company to convert the effects of the operations in to the financial
information so that it becomes communicable to the interested parties of the business (Li, 2018).
Therefore, the use of both the concepts is highly needed to take relevant and significant decisions
which will help the organization to achieve the end goal of the company using different
strategies. Therefore, both financial reporting and management accounting go hand in hand
during the time of the execution of the strategies in the business organization.

P3 Calculation of costs with the use of different techniques of cost analysis in order to prepare
income statement with the help of marginal and absorption costs.
Marginal costing:
Calculation of absorption costing :
The statement of reconciliation:

Calculation of Material variances:
Calculation of LIFO (Last in first out):

Calculation of AVCO (Average Cost):
D2 Develop financial reports that will help in accurately applying and interpreting financial data for
the business organization.
After the calculation of the marginal and absorption costing it has been evaluated that the results
obtained are reflecting the same profits for the months May and June. Therefore, the business
organization can use any of the methods because both of them are resulting into the same results.
(Mahmoudi, Jodeiri, and Fatehifar, 2017). Also, the use of these techniques will help the company to

record and maintain all the records and calculations in the most effective and proper manner which will
help in simplifying the process of decision making even more efficient as well as effective.
P4 Critically evaluate the advantages and disadvantages of various types of planning tools
which are applied in budgetary control.
Budgetary control planning tools can be defined as the techniques or tool that majorly
help the company in planning the action plan of the business organization so that it can be
implemented in achieving the goals of the company. The important tools that are included in
planning are as follows:
 Variance Analysis: It is a type of analysis which refers to the measurement of the set
of numbers in context to the statistical measurement (Matějka, Merchant and
O'Grady, 2021). This helps in analysing the deviations between the actual and the
forecasted results. Therefore, it affects the performance of the company directly.
Advantages Disadvantages
 This analysis helps in making certain
changes in the strategic plan
effectively.
 This analysis helps in having a
proactive approach towards all types of
the risk which may occur in the near
future.
 This type of analysis helps in
maintaining the proper internal records
that majorly helps in creating value for
the shareholders.
 The element of inaccuracy always exist
because the time when the financial
results are obtained and the time when
they are released. It also affects the
values of variances.
 The process of calculating the variance
analysis is very much lengthy and
complicated if it is compared with other
methods of the analysis.
 The process of variance analysis is
considered as highly expensive and
thus it involve huge amount of costs
(Wells, 2018). These costs are
sometimes even higher than the
benefits that the company is earning.

 Zero based Budgeting: It is considered as one of the most important and effective tool
that helps in keeping a control on the budgets of the company. Therefore, the major
objective of this method is to keep a check on the amount which is spent by the company
on various business operations.
Advantages Disadvantages
 This analysis believes in the concept of
optimum utilization of the resources
which basically aims at delivering more
values, cost cuttings and high level of
efficiencies (Yu, Lin and Tang, 2018).
Therefore, it can be considered that this
process is aiming at continuous
improvement.
 This analysis helps in strengthening the
element of growth and transparency in
the organizational strategies.
 The major objective of this method
aims at the cost benefit analysis which
majorly focuses on the elimination of
those factors which are not helping in
providing higher returns to the
company.
 Zero base budgeting is considered as
highly expensive as well as time taking.
The reason behind that is it may require
higher level of skills.
 Disruption in the process of the
business operation can also be caused
because of any change or amendment
and it can also create higher level of
risk exposures.
 Budget: It is a financial statement which is basically made to have an estimate of
incomes and expenditures for a specific period of time (Namazi, Dehghani Saad and
Ghoohestani, 2017). This tool majorly aims at reducing the cost of producing the goods
and services. It also helps in avoiding useless costs and managing the waste.

Advantages Disadvantages
 This technique helps in providing a
centralized control in accordance with
decentralized activity.
 It helps in maintaining proper planning
which helps in smooth functioning of the
business helps in maintaining high level
efficiency.
 In the process of decision making,
management can also consider taking
help from this technique.
 It is very difficult for the company to
maintain high level accuracy during the
process of this technique.
 In order to prepare the budgetary
statements, it is necessary to appoint
professionals who can perform the tasks
efficiently. Therefore, this increases the
pressure of heavy expenditures.
 Budget preparation is done for future
period which is always considered
uncertain. The future contingencies always
comes up with a element of risk.
M3 Evaluate the application of different planning tools for preparing budgets and forecasts.
Budgetary planning tools are considered as highly significant element of a finance
functions of the business organization because it helps in the analysis of the financial business
operation of the company. There are different techniques namely, variance analysis, zero base
budgeting and the financial plans are made so that the finance and overall objectives of the
company can be achieved effectively. In order to achieve success in long run it is highly
important for the company to use these planning tool to enhance the efficiency levels.
P5 Compare how companies adapt their management accounting systems to address financial
issues.
Management accounting systems are considered as highly important for every
organization as it plays an important role in achieving the organizations goals in the most
effective manner. The major objective of this method is to use minimum costs as well as
resources and achieving the highest level of the productivity (Opute and Madichie, 2017). The
concept of management accounting is not all about recording the transaction in the books of
accounts but it also considers the application of management accounting in order to analyse the

interpret the business operation results. The problems that are majorly faced by the organization
are explained below: Bad Cash Flow Management: It is considered as the one of the most usual and common
problem that is faced by almost every organization in the financial capacity. With the
utilization of the concept of management accounting in the practical terms will help the
company in becoming more productive. Problem of budgeting: Without the application of management accounting, budgeting is
never taken seriously in many organization. It helps in avoiding this problem, by
providing budget estimates which helps in providing the margins that are to be kept to
maintain efficiency. Lack of proper planning: When there is a lack of proper planning involved in the
company it ultimately results in the implementation of the strategies unsuccessfully
(Passoni and Glavam, 2018). Considering the use of management accounting can help an
organization to develop and implement effective plans that will ultimately helps in
achieving the organization goals in the best manner. Problem of delegation of authority: Many organization face the problem of the
delegation of authority. This results in bringing high level of inefficiencies in the business
operations of the company. Therefore, management accounting can play a major role in
solving the issue of the authority because it aims at distributing the authority at different
levels so that any kind of loophole do not exist in the management system.
 Expenses are greater than income: Business organization often face the issues of
bearing expenses which are comparatively higher than that of the incomes. Thus,
management accounting can help the organisation in developing an ideal balance
between the expenses and incomes of the company.
Therefore, management accounting helps in dealing with problems mentioned above with the
help of the techniques mentioned below: Good performance management: This is a common technique where the organization
keeps its concentration on the careful monitoring of the financial data so that any kind of
inefficiencies can be avoided to improvise the financial reports and tackle the financial
performance.

 Conducting adequate research: Before making any important financial decision it is
highly important for the business organization to perform an extensive research which
may help in clarifying the advantages and disadvantages of the specific business
decisions. Benchmarking: It is an important technique that often used by the organizations which
can be used to analyse the risks and return of the financial portfolio of the company. This
will ultimately helps the company to stay updated according to the trends in the industry. Adaptability: Every business organization should have the capacity to adapt changes
according to the changing business environment. Any major changes coming in by way
of a policy or guidelines in a particular process it should be considered and the activities
should be conducted accordingly.
 Balance Scorecard: It is a kind of matrix which is used by the company in order to identify and
manage different business functions and other outcomes related to it. This helps the company in
achieving growth in long run (Patten, and Shin, 2019). In short, it is called a s management
strategic tool which comes up with a well structured report helping in execution of activities and
monitor the consequences arising thereof. It is a tool of financial planning which is used for the
purpose of better strategic planning.
M4 Analyse how management accounting leads organizations to sustainable success in
responding to financial problems.
Management accounting is considered as very important because it ultimately helps in
managing the financial workings. This makes the process of making decisions simpler yet
efficient. With the application of management accounting the major aim of the companies relies
on attaining the sustainable success (Ruggeri and Rizza, 2017). When success is in accordance with
the long run profits it helps the organization to achieve sustainability. Sustainable success last for
a longer period of time so that the business operations of the company can remain effective and
efficient. This will ultimately help in bringing high level of efficiency in the finance functions for
a longer financial period.
D3 Requirement of budgetary planning tools for accounting in order to solve financial problems
The financial planning tools are considered highly important for the companies so that the
financial issues of the company can be eliminated effectively. Also, it helps the company in predicting the
future contingencies so that the decision can be taken accordingly. It can be considered that these

planning tools helps the organization in identifying the problems that may occur in future and having a
action plan with a pro active approach (Saliy, and et. al., 2021). Therefore, it is highly important for the
company to avoid all the cases of discrepancy which may occur due to certain type of financial issues
and using the application of management accounting for the purpose of making effective decisions. When
the management accounting is used in an organization with the use of its different tools it helps the
organization to have better maintenance of all the financial and overall business operations. This will
ultimately direct the organization towards the success path in the longer run.
Conclusion
From the above critical analysis done in the report, it has been analyzed that that the
concept of management accounting and its fundamental tools and techniques play an important
part in the business operations of the company. It helps in providing the key insights about the
company and its management so the the decisions can be taken based on the analyzed and
interpreted data. The focus comes on speeding up the management and classification of the company's
various types of cost which results in improving the management and control of finances in a very
effective manner. There are many types of the planning tools in the financial capacity that can be used to
promote the finance function in the most smooth manner and preventing all the contingent situations
which may create future issues for the business organization. There in order to deal with such issues there
are different techniques like bench marking, good financial planning and many more. In order to develop
the financial statements and ascertain the profitability margins, different techniques can be used such as
marginal analysis and absorption cost analysis that is used and applied in the report.
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APPENDIX 1
M2 Accurately apply different tools of management accounting techniques and develop the
required financial reporting statements.