Management Accounting Concepts and Techniques in Decision Making

This document discusses the concepts and techniques of management accounting in decision making. It covers topics such as interpretation of management accounting systems, methods used for management accounting reporting, income statements using managerial accounting techniques, interpretation of advantages and disadvantages of managerial planning tools, and how managerial accounting tools can be used to overcome financial problems and lead organizations to sustainable success.

Management Accounting Concepts and
Techniques in Decision Making

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................2
TASK1.............................................................................................................................................3
P1 Interpretation of Management accounting system................................................................3
P2 Methods used for management accounting reporting............................................................4
M1 Advantages of using management accounting system..........................................................1
D1 Impact of integration of managerial accounting system and reports..................................1
TASK 2............................................................................................................................................1
P3 Income statement using managerial accounting techniques...................................................1
D2 Interpretation of data by financial report...............................................................................4
TASK 3............................................................................................................................................4
P4 Interpretation of advantage and disadvantages of managerial planning tools...............4
M3 Uses of planning tools for budgeting and forecasting process..............................................6
TASK4.............................................................................................................................................6
P5 Explanation of how managerial accounting tool uses to overcome financial problem..........6
M4 Analyses how, in responding to financial problems, management accounting can lead
organisations to sustainable success............................................................................................8
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success................................................................8
CONCLUSION................................................................................................................................8
REFRENCES...................................................................................................................................9

INTRODUCTION
Management accounting is provision of information collect from recording, analyzing,
evaluating transaction of daily business activites it is used for development of business. It also
known as managerial accounting. In other words management accounting is a systematic process
of decision making with the uses of accounting data. Business organization use policies,
techniques and various systems to formulate, planning and controlling managerial functional
activites. In order to understand the concept of management accounting Crèmes limited has been
taken. This organization provides ice creams, doughnuts, waffles food products and provides
service to their customers it is medium size organization, which is now suffers from financial
problem, to solve their problem this report has been prepared which contains all the essential
information regarding use of system, tools of management accounting to overcome issues of the
organization.
TASK1
P1 Interpretation of Management accounting system
Management accounting: It is a combination of two words management and accounting.
Management refers to the process of planning, organizing, coordinating, directing and
controlling business activites and accounting is a framework through which manager collect
information of daily transaction. Management accounting is systematic framework of presenting
accounting data in an efficient way which will assists manager for creation of policies. It is not a
special function of accounting it comprise as any form of accounting through which organization
conduct their activites more efficiently. Following are the system manager can use:
Job Costing System: This system is used in managerial accounting procedure in order to
determine cost of each activity of business. This method comprise of 6phases which start with
organization take inquiry related to the needs of customers and ending up with providing
products and services to customer. Job costing system is used for identifying enquiries, related to
the job activity (Resta, Gaiardelli, Pinto and Dotti, 2016).
Price Optimising System: It is implemented within the organization to understand the effect of
demand and supply factor of price discrimination Price optimization system will be used to
determine prices of product through which company can gain profits and established their

position in market. Manager will use price penetration, discounting pricing strategies, and cost
pricing in order to take decision regarding their price.
Cost Accounting system: It includes all the procedure through which organization can calculate
cost of processing, cost incurred during purchasing installing and uses of equipment for
manufacturing process it includes, marginal, job costing, process costing, standard costing
method which will help in identifying cost and risk for the organization.
Inventory Management System: It is one of the most useful system for business organizations.
Manager use this system to determine cost of inventor, it will help in maintain stock in an
efficient way . Managers use EOQ, ABC anaysis.JIT system it will help in determining numbers
and quality acquire at minimum, maximum level of stock
P2 Methods used for management accounting reporting.
Management accounting reports are formulated for providing facilities to manager to collect
information and decision related to future project. Following are the reports Creams Limited
can used for their organization
Budgeting report: This report is prepared on the basis of collection of information from
operating, financial, production purchases and master budget. Budget report is the summery
which explain to future inflow and outflow of business organization. Manager of Creams limited
will use this report for identifying their incomes and expenses and profitability rate of projects.
This report helps in analysing risk and also by formulating this report (Resta, Gaiardelli, Pinto
and Dotti, 2016).
Account receivable report: met is most essential managerial accounting report for
organizations. This report is formulated to determine the numbers of default debtors present in
organization. This report also help in identifying cause3s of slow growth rate of company and
debtors unable to pay their debt liabilities. By using summery data of account receivable report
manager of Creams limited will be make polices regarding their debtors so that they can able to
pay their liability amount to the company within short period of time and it will also help in
taking decision regarding attractive debtor policy so that debtors get attracted towards the offers
and it will help in increasing cash sales for to organization. This report is useful for enhancing
cash inflow of to organization

Inventory report: Business entities use managerial inventory report to collect information
regarding inventory. It will help in provide summery related to stock valuation, verification, cost
of maintaining inventory, level of maximum, minimum numbers of inventories etc. Bt using this
report managers can prepared polices to control their cost by managing wastage active an tools
of inventories.
Performance report: This report is brief summer of all the report, it will used for controlling
process. Managers formulated performance report for analysing performance of each employer,
sectors, department of organization. This report provides information through which manager
can recognize best employees and weak work force of the organization. Data collected from
performance report uses for take decision regarding incentive to their human resource according
to their performance (Trotman, Bauer and Humphreys, 2015).
M1 Advantages of using management accounting system
Management accounting item is vital tool for any business organization especially
Creams limited which comers under middle sixe organizations. By using various stems of
managerial accounting organization can reduce cost incurred in additional activites, theses
system also useful for determination of price of product on the basis of needs and requirement of
organization. Manager of Creams Limited will be used theses system as job costing, and prices
costing system help in determining cost and by using theses system their an achieve objectives.
D1 Impact of integration of managerial accounting system and reports
Integration of management accounting system and reports are essential both are essential
part and based on each other, manager of Creams limited made accounting reports on the basis of
data collected by management accounting system. It will help in achivement of organization goal
by effectively utilization of resource
TASK 2
P3 Income statement using managerial accounting techniques
Absorption costing: It is a method through which organization can determine cost of
particular product by considering direct as well as indirect cost.
Income Statement of Prime Furniture (Absorption costing)
Particular January February
1

Revenue 250000 125000
Cost of revenue:
Opening Stock
Variable cost 42900
Fixed production cost 15600 13200
- closing stock 10200 3400
Cost of revenue 56100 52700
Gross profit 9900 21300
- Selling &
Administration
Costs(fixed)
5200 5200
Net Profit 4700 16100
Interpretation: From their calculation it has been identifying that organization will be able to
gain 4700 profit in January and 16100 profit in the month of February if they used absorption
costing technique.
Income Statement of Prime Furniture (Marginal costing)
Particular January February
Revenue 250000 125000
Marginal cost
Opening Stock
+ Variable cost 130000 130000
- closing stock Nil 125000
Marginal cost of revenue 120000 120000
Fixed manufacturing costs 40000 40000
Selling & Administration
Cost
30000 30000
Gross profit 50000 50000
Marginal costing: This method of calculation of cost is using for identifying effect of
additional units on profit and cost of the project. It also known as variable costing technique
2

as in this method organization only consider variable cost. This will help indentifying
breakeven point of the projects (Chiarini and Vagnoni, 2015).
Absorption costing: It is a method through which organization can determine cost of
particular product by considering direct as well as indirect cost.
Interpretation: This calculation help in interpretation that if managers use marginal costing
technique then they can able to gain 5000 gross profit n the month of January as well as
February.
Standard cost: It is a modern technique of calculation of cost as this method help in utilization f
resource and minimization if cost in this method manager compare standard cost and actual cost
incurred during the project through which they can recognize amount of difference it will help in
reducing cost of the operations
Material Variance:
 Material Cost Variance= Standard material cost – Actual material cost
 Standard quantity * Standard Price – Actual quantity – Actual Price
Material Price Variance:
Particular Formula Amount
Material Price Variance Actual Quantity
(Standard Price –
Actual Price)
1100 (F)
Material Usage Variance
Particular Formula Amount
Material Usage Variance Standard Price (Standard
quantity – Actual quantity)
2000 (A)
Material cost variance
Particular Formula Amount
3

Material cost variance Standard material cost –
Actual material cost
900(A)
Labour Variance:
Labour Efficiency Variance
Particular Formula Amount
Labour Efficiency Variance (Standard hours – Actual
hours) *Standard rate
(Jakhar, 2015).
500 (A)
Labour rate variance
Particular Formula Amount
Labour rate variance Actual time (Standard rate –
Actual rate)
680 (A)
Labour cost variance
Particular Formula Amount
Labour cost variance  Standard cost –
Actual cost
1180 (A)
M2 a range of management accounting techniques and management reporting
Various managerial accounting techniques will be used in order to analysis revenue
amount as well as relationship of profit with other factors, manager of Creams limited can use
standard costing, and marginal costing for determination of policies and strategies and
calculation of cost
4

D2 Interpretation of data by financial report
Manager of Cream limited use data of marginal costing in order to for reports it will help
in providing best decision for the organization
TASK 3
P4 Interpretation of advantage and disadvantages of managerial planning tools
Planning tools: Theses tools of managerial accounting are used for controlling extra activites the
organization, they are help in formulating of strategies and work according to the ethical
principle of to organization. Following tools Manager of Creams Limited can be used for
controlling their business activites:
Budgetary control technique: Budget is a framework which formulated for providing
information related to future performance of organization. Following are the tools of budgetary
control (Lienert, Scholten, Egger and Maurer, 2015).
Zero Base Budgets: This budget is included in the methods of preparation of budgeting
organizations can use this method for formulate budget. In this method budget prepares from
initial level thus it also as Zero based budget.
Advantage:
 This method is used for providing accurate information.
 Chances of errors are comparatively low then other methods
Disadvantage
 It require deep research for this type of budgets
 Success of the budget depend in the skills of expertise who hire for researching and
formulation of budget.
Rolling Budget: This is one of the most useful method of budgeting in this technique budgets
are formulated for short time period probable for less then one year. When the duration of
budget complete managers compare their actual and standard target and ten format new budget
policies to remove all the errors. Many organization apply this method of budgeting
Advantage:
 This method is help in enhancing efficiency.
 It will help in controlling extra activites within the premises
5

Disadvantage
 It is a time consuming method.
 Workforce get de motivated as the can not accept changing policies
Activity Base Budget: In this type of controlling technique budgets are prepared on the basis of
allocation of resource. Manager prepared budget by identifying cost allocation of their activites.
This type of budget is useful for manufacturing industries.
Advantage:
 It will use for effectively utilization of resources
 This method is helpful for controlling of cost.
Disadvantage
 It is complex method of budgeting.
 This method cannot adoptable for service industries.
Price strategy: Manager of Creams limited will use pricing strategies as tool of planning
control. Theses include all those strategies which will help in determination of prices of specific
product. Creams limited is provides ice cream products to their customers thus it is very
necessary for them to determine price after considering the entire factor. They can use price
penetration, price skimming strategies (Al Moussawi, Fardoun, and Louahlia-Gualous, 2016).
Advantage
 This strategy will use for determination of price
 It will help in identifying profitability ratio of the organization
Disadvantage
 Rigid pricing policy cannot be applicable for organization as due to changes off time
customer’s demand for product change.
 It requires great skills to determination of price of the product.
Cost system: This method of planning control used for control all the unwanted wastage cost for
the organization. It will help in identification of risk and formulation of policies to minimise
future risk.
Advantage:
 This system is provide information related to cost
 By using this system organization can get sustainability within the market
Disadvantage
6

 It is complex method of calculation of cost
 This method is very typical to apply in services industry.
M3 Uses of planning tools for budgeting and forecasting process
Planning tools help in forecasting and predication of future for business organization.
Manager of Creams limited use pricing strategies for determine price and they use activity
budgeting method in order to analysis their future cash inflows and also managing polices
for future objective.
TASK4
P5 Explanation of how managerial accounting tool uses to overcome financial problem.
Financial Problem: It is a type of situation which is arise due to lack of monetary resource
in the organization. Finance problem is a phase in which organizations are not able to pay or
sue their short term as well as long term liability by using their sources of funds. This type
of problem mainly arise n medium and small size industries (Kruis, Speklé, and Widener,
2016). These types of industries have potential workforce but due to their lack of capital
they suffers from problem of finance. At present time Creams Limited also suffers from
financial problem, manager of this organization cannot formulate strategies to overcome this
problem. Main reason of arise of finance problem within this organization is that they did
not have experienced or skills manager thus due to lack of managerial skills to organization
unable to formulate effective polices regarding debtor to take their payment back. From the
last 2 years sales volume of this organization also decrease this inflow of cash goes down as
compare to outflow and they suffers from financial problem. By using following tools of
managerial accounting organization will overcome from this problem:
Key Performance Indicator: This tool is used for performance evaluation method. KPI
help in measuring performance of department by using parameters. Manager of Creams
Limited will use this tool to increase their sales volume asset will help in comparing last
achieved target and current target versus gape between standard target of sales volume it
also motivated employees to increase their performance skills to get incentive as when the
sales raise their incentive amount or bonus amount t automatically raises and company
provides hem on the basis of their performance
7

Benchmarking: It is the traditional method of managerial accounting used for resolve
problems of the organization. In benchmarking manager compare their actual outcomes with
set target or benchmark, it can be decided by organization on the basis of their rivalry
industries or target say by government or past performance of the company. By comprising
performance with ideal benchmarking manager of Creams limited can easily understood
mistakes and errors and they ill try to overcome all the errors it will help in increasing their
skills to provides term managerial service through which they are able to formulate standard
method policies for their debtor as well as creditors in order to control cash outflow and
improve cash inflow (Defoe, Dubas, Figner, and Van Aken 2015).
Financial Governance: This policy is used to track all the activites of business organization
in order to prevent them unethical activities. By using financial governance rule manager of
Creams limited able to formulate policies which work according to the ethical and law of
their constitution.
Statement of comparison
Particular Creams Ltd Bakers Restaurant Limited
Monetary issue It is mainly arise due to lack of skills
and slow growth rate of the
organization
In this organization monetary issue
arise due to lack of security of
financial resource.
Techniques to
solve issues
Creams limited uses benchmarking and
KPI technique of managerial
accounting in order to solve their
financial problem.
Manager of Bakers Restaurant
Limited used financial governance ,
balance scorecard techniques for cut
throat problems related to finance for
their organization
8

M4 Analyses how, in responding to financial problems, management accounting can lead
organisations to sustainable success
Managerial tools used by Creams Limited help in enhancing their performance of work
force and also increase profitability rate through which they can maintain long term
potion and success in market (Kahraman and an.et. 2017).
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success.
Manager of Creams Limited use benchmarking, financial governance and KPI indicator through
which they can evaluate their standard which help in overcoming financial problem
CONCLUSION
. From the above analysis it has been concluded that Management accosting process help
in successfully run business functional activites. Job accosting, cost management price
optimization system are used for taking decision regarding cost of projects, determination
product price, it will help in enhancing sales volume , various decision making
techniques, which includes, marginal standard, and absorption costing technique can be
used by managers to evaluate profit, cost and it will also help in performance evolution.
With the use of various tools of managerial business entities can find out causes of their
financial problem and KPI benchmarking financial governance tools are help in
overcome issues related with finance and provides strength and help n increasing
profitability rage of the business entities.
9

REFRENCES
From books and journals
Lehnert, K., Park, Y. H. and Singh, N., 2015. Research note and review of the empirical ethical
decision-making literature: Boundary conditions and extensions. Journal of Business
Ethics, 129(1), pp.195-219.
Chiarini, A. and Vagnoni, E., 2015. World-class manufacturing by Fiat. Comparison with Toyota
production system from a strategic management, management accounting, operations
management and performance measurement dimension.International Journal of
Production Research, 53(2), pp.590-606.
Trotman, K. T., Bauer, T. D. and Humphreys, K.A., 2015. Group judgment and decision making
in auditing: Past and future research. Accounting, Organizations and Society, 47, pp.56-
72.
Zopounidis, C., Galariotis, E., Doumpos, M., Sarri, S. and AndriosopouloS, K., 2015. Multiple
criteria decision aiding for finance: An updated bibliographic survey. European Journal
of Operational Research, 247(2), pp.339-348.
Resta, B., Gaiardelli, P., Pinto, R. and Dotti, S., 2016. Enhancing environmental management in
the textile sector: an organisational-life cycle assessment approach. Journal of Cleaner
Production, 135, pp.620-632.
Jakhar, S.K., 2015. Performance evaluation and a flow allocation decision model for a
sustainable supply chain of an apparel industry. Journal of Cleaner Production, 87,
pp.391-413.
Lienert, J., Scholten, L., Egger, C. and Maurer, M., 2015. Structured decision-making for
sustainable water infrastructure planning and four future scenarios. EURO Journal on
Decision Processes, 3(1-2), pp.107-140.
Al Moussawi, H., Fardoun, F. and Louahlia-Gualous, H., 2016. Review of tri-generation
technologies: Design evaluation, optimization, decision-making, and selection
approach. Energy Conversion and Management, 120, pp.157-196.
Kruis, A. M., Speklé, R. F. and Widener, S. K., 2016. The levers of control framework: An
exploratory analysis of balance.Management Accounting Research, 32, pp.27-44.
Defoe, I .N., Dubas, J .S., Figner, B. and Van Aken, M. A., 2015. A meta-analysis on age
differences in risky decision making: Adolescents versus children and
adults.Psychological bulletin, 141(1), p.48.
Kahraman, C., Keshavarz Ghorabaee, M., Zavadskas, E. K., Cevik Onar, S., Yazdani, M. and
Oztaysi, B., 2017. Intuitionistic fuzzy EDAS method: an application to solid waste
disposal site selection. Journal of Environmental Engineering and Landscape
Management, 25(1), pp.1-12.
10