Management Accounting Concepts and Practices

This assignment delves into the core principles of management accounting, examining its role in informing decision-making within organizations. It explores diverse topics such as activity-based costing (ABC), lean manufacturing, balanced scorecards, and environmental management accounting. The assignment analyzes scholarly research articles to provide a comprehensive understanding of current trends and challenges in the field of management accounting.

MANAGEMENT ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Meaning of management account and its essential requirements for Unicorn.....................3
P2. Different methods used for Management Accounting Report..............................................4
TASK 2............................................................................................................................................6
P3. Preparing income statement using marginal and absorption cost accounting......................6
TASK 3............................................................................................................................................9
P4. Advantages and disadvantages of different types of planning tools used for budgetary
control.........................................................................................................................................9
P5. Presenting Unicorn adapting management accounting system to respond to financial
problem.....................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting plays a key role in every organization. Every organization wants
to track performance information that goes beyond to cost based information of historic general
ledger provided by additional financial accounting and this report helps to understand the use of
good management accounting information. This report is based on Unicorn which is a small
retailer company in UK. It provides the entire grocery items with fresh quality of drinks and food
items. The report explains the meaning of management accounting and gives the essential
requirements of different types of management accounting system. It also deals with different
methods which are used for management accounting reporting. The report uses appropriate
techniques of cost by preparing an income statement using marginal and absorption cost. It also
explains advantages and disadvantages of different types of planning tools used for budgetary
control for Unicorn and compared it how an organization adapts management accounting system
to respond to financial problems.
TASK 1
P1. Meaning of management account and its essential requirements for Unicorn
Management Accounting refers to preparing and providing timely data related to
financial status of a company to the managers so that they can take short and long term decisions.
Management accounting includes complete details of cash available in a company to meet the
future problems, sales revenue and many more (What is management Accounting,2018). Unicorn
also uses management accounting system because this reports are basically use for internal
purpose only.
There are various types of management accounting systems which are mentioned below:
 Cost Accounting: Cost Accounting System is used by Unicorn in order to know the price
of every product. It is used to track the position of raw materials moving from one
operation to another and this system updates it in computer. For using cost accounting
system, the owners and managers of Unicorn must know whether the product is going to
earn profit or not (Labro and Hemmer, 2017). Actual Cost Accounting is the real cost of a
product which includes real labor and expenses incurred during manufacturing. Normal
cost is used to know the value of manufactured product in comparison of actual cost
which includes expenses incurred during allocation of product. Standard Cost Accounting
is the basic difference between actual and normal cost of product. In order to prepare

financial statement of a company, cost accounting helps to estimate the values of
inventory of product and finished goods inventory.
 Inventory Accounting System: Unicorn used inventory accounting system which is a
process which check the movements of products during shipping or for market purpose.
Earlier, this system is based on cardex system but now whole system is based on system
software that is computer Unicorn maintains perpetual inventory system because it
shows all inventory movements during an accounting period whereas in periodic
inventory system, the balance is not changed throughout the year and remains the same
till the end (Chenhall and Moers, 2015). Using inventory accounting system, managers
can improve communication skills and use the latest technology and this system easily
analysis about the product shortage in a company.
 Job Costing System: Unicorn also uses job costing system as it divided the
manufacturing cost into particular job such as direct material, labor and overheads. It is
necessary to use job costing system in a business because it helps to show an overall
profit in specific field of job but it does not show the complete profits earned during a
year. It is used when the products manufacture are completely different from each other j
If a company uses job costing then it must maintain job cost records for each item which
shows an overall profit of all departments of materials used, labor and extra expenses
incurred during manufacturing (Oseifuah, 2018). Job Costing Accounting System is
useful to know the accuracy and performance of company by allocating normal prices in
order to maximize profits.
P2. Different methods used for Management Accounting Report
Unicorn uses various types of accounting reports to know the exact position and
performance. These reports show whether the business is in profit or loss and presents an exact
scenario of business.
These are mentioned below:
1. Budget Report: Unicorn uses this report in order to know how much money is needed
by every department and this estimation is done based on the past experience. Budget
report shows the exact cash flow and expenses incurred during a year. Using this report,
Unicorn tries to achieve its goals and objectives by providing sufficient money to each
sector.

2. Financial Report: this is the most common report which is used by Unicorn that presents
the exact position of a company during a particular year and it is sum up of all the reports
which are used by a company. It shows net profit and losses bear by a company during a
year and it is necessary to be presented in a financial report because it will help to know
the current status of Unicorn (Kren, 2018). This report includes profit and loss statements
which will tell how much a company earns or incur losses during a particular period, next
balance sheets shows the net profit earn and loss and show how much cash is available
for next operations in next year.
3. Performance Report: this report is used by Unicorn because it helps to review the
performance of a company with its staff. Managers and owners used this report to take
decisions for the future of organization (Bandeira, Meira and Tomé, 2018). Unicorn was
awarded its best employee for performing extra ordinary during a year and this report
enhances the level of performance of every individual.
4. Inventory Report: this report helps to check the valuation of stock that means shortage
of stock is calculated and is considered as the most important among all. This report
shows in and out of every product during a day and there is need to update this report on
daily basis as it helps to determine the exact number of products available in a company.
5. Sales Report: Unicorn maintains sales report because it will help the managers to show
which item earns the most income (Granlund and Lukka, 2017). This report is useful for
every small business because they show source of revenue and also show which product
are most and least successful. Sales report also presents which sales person are generate
most as well as least income which help at the time of giving award.
M1 Management accounting system is quite useful for Unicorn because it will help to know the
exact position of a company and tells the net income and loss during a year. Management
accounting help in planning, directing and decision – making which are basic element to run a
company in better way. Unicorn uses management accounting because it help to maximizes the
profit and provide effective management control over a product as well as on environment.
D1 Both management accounting system and management accounting reports are beneficial for
Unicorn. Accounting system help in planning, controlling while accounting reports provide basic
structure of a company and know the exact position during a particular year. System direct the

business and report presents total earning and extra expenses incurred during manufacturing and
allocation and distribution of a product.
TASK 2
P3. Preparing income statement using marginal and absorption cost accounting
Absorption cost accounting: it include both fixed and variable units such as direct
material, labor and expenses incurred during manufacturing. It used for decision making and
absorption costing is mainly required for presenting external financial reports (Otley, 2016).
Marginal Costing: this accounting is used to determine the overall production quantity
for a company and it does not focus on both fixed as well as variables. Under marginal costing,
fixed cost remain unchanged and only variable cost that is direct material and labor affected that
is why Unicorn did not use this cot accounting method.
Absorption Costing

Marginal costing
As per above calculation it is concluded that net profit of absorption costing is 9600 and
net profit of marginal costing is 9300 which proves that using absorption costing method is good
as compared to marginal costing because it considered both fixed as well as variable factors
while marginal costing does not.
ABSORPTION COSTING MARGINAL COSTING
Consider both factors- fixed and variable Fixed factor remain unchanged that is why
consider one factor that is variable.
Profit get affected only. Profit is measured by profit volume ratio.
Highlights on net profit per unit. Mainly highlight contribution per unit.
Determine the overall cost of product that is Help in decision making technique

manufacture.
Opening and closing stock affected. Opening and closing stock does not affected.
M2 and D2: Computation of net profit (Absorption costing method)
Particulars
Budgeted figures
(in £)
Actual
figures (in
£)
Sales revenue 14000 21000
less: Cost of goods sold (COGS) 7200.00 9514.29
Gross profit (GP) 6800.00 11485.71
Less: indirect expenditures
Variable sales overheads 450 600
Administrative overheads 800 700
Selling cost 400 600
Total indirect expenditures 1650 1900
Net profit 5150.00 9585.71
Profit margin (per unit ) 11.44 15.98
Income statement on the basis of marginal costing method

Particulars Budgeted Actual
Sales revenue 14000 21000
less: Cost of sales (see above) 5850.00 7800.00
Variable sales overheads 450 600
Total variable cost (TVC) 6300.00 8400.00
Contribution (Sales – variable cost) 7700.00 12600.00
Less: Fixed expenses
Administrative overheads 800 700
Selling cost 400 600
Total fixed cost (TFC) 1200 1300
Net profitability (Contribution – fixed expenses) 6500.00 11300.00
Profitability per unit 14.44 18.83
As per above data given, it is concluded that by using absorption costing method a
company analyses that estimated budget was 5150 but the actual budget is 9585 and for marginal
costing method actual budget is 11300 and after calculation budget will come 6500, it proves that
company can appropriately apply the range of management accounting techniques and from
above two method using absorption costing method is quite beneficial because it consider both
factors fixed and actual to gain the overall production of manufacturing. That is why company
chooses absorption costing method.

TASK 3
P4. Advantages and disadvantages of different types of planning tools used for budgetary control
Budgetary control means in which manner managers of a company uses budget to
monitor and control cost and different operations during an accounting period. It also help to
compare the actual results with the performance. There are different types of planning tools
which are mention below:
 Activity based budgeting: this budget control tool is used by Unicorn because it does not
consider past year budget to complete the need of future budget and it is very useful for
every business because it brings efficiency in all the activities (Heald and Hodges, 2018).
Advantages: it improves the efficiency of a business and improve relationship with customers as
it help to eliminate all unnecessary activity of Unicorn and serve customers by providing best
means of product with good quality at lower rate. It help a business to gain its original position in
the market.
Disadvantages: to maintain this system into a business is quite crucial because it requires lot of
research and it is quite complex in nature. To implement it, managers require software and it is
very expensive that is why generally avoided by many business firms.
Example: To know where the money goes, Unicorn uses this budget control system. It allot a
budget to every department so that they complete the need of every customer by means of
providing best quality of product at low rates as compared to its rivals.
 Responsibility Budget Accounting: Unicorn uses this budgetary system in order to allot
each and every responsibility to every member so that managers come to know in which
department uses more budget and where the actual cash flows (Cooper, Ezzamel and Qu,
2017).
Advantages: this budget control help to establish good communication between staff and
managers. It also help to increases interest as well as awareness of the upper level of authority in
order to know who are responsible for minimizes sale.
Disadvantages: managers require extra skill of knowledge to classify the responsibilities among
their staff. If one department did not complete the allotted work on time then whole system may
affected and which lead to a result of decline in their sale (Labro and Hemmer, 2017).
Example: Unicorn uses responsibility budget control method and allot work to each department
such as sales operation, then managers make report in every month whether the target which had

been allotted are completed or not. This will help to analyses the best performance of each
department and determine all the allotted responsibility are fulfilled or not so that it will help in
future estimation.
M3 There are different planning tools such as activity based accounting, standard cost budgetary
method and responsibility method which help to control budget in Unicorn so that it will help in
future estimation and in growth and development of business.
P5. Presenting Unicorn adapting management accounting system to respond to financial problem
 Key performances Indicators: this indicator help to measure the success of an
organization. KPI's provide information on a wide variety of platform for future planning
Good communication help to keep the business in forward direction and KPI's break
down all complex information into understandable form (Key Performance Indicator,
2018). The biggest disadvantage of using KPI's that it tends to create a short term result
and performance measure somehow encourages the rigid behavioral result of Unicorn.
Customer loyalty also decreases because users satisfaction encourages to long term
financial success but this is short term.
Example: Unicorn, have key performance indicators in order to achieve its target. Their target is
to attain at least 60 to 70 number of customers in order to increase their sale with satisfaction of
customers. To achieve target the company decrease the price and offer discount vouchers in
order to attract more customers.
 Benchmark: it is a technique which is used to evaluate the performance of company with
its rivals. Benchmarking help unicorn to open new ideas and methods to improve the
effectiveness. It also helps to inspires the creativity of every individual. Main focus of
benchmark is on change for the favor of a company. It also help to create a deeper
understanding (Latan and et.al., 2018). For a company like Unicorn, sometimes
benchmarking treated as a single activity and it does not measure the effectiveness. There
are 4 types of bechnmarking but many times only one benchmark is used and it is not the
correct aspect to meet the company's goal.
Example: Unicorn use benchmarking in order to increase their customer service practice and
compare its performance with other of its rivals and due to this, it sale a product at lower rate
with good quality. It is also use in marketing process like to promote their service company may
hire an individual who look after all the activities related to promotion.

 Balanced Score Card: this is used to identify the mission and vision of Unicorn and to
analyzes the performance of organization by the means of various perspective such as
financial, customer and business for learning and growth of a business. It help in
communication and understanding the basic goals and strategies of a business (Nitzl,
2018). It clearly differentiate between financial and non financial performance of a
company. It only analyzes 4 perspective and ignore others and it neither set standard
goals nor set performance. It also did not suggest anything related to the better
performance of company.
Example: Unicorn, use balance score card system to identify the mission and vision and build
new and managed team for the proper growth and development of a company. As this is also
look after customer service and complete the products according to the need of customers such
as add healthy drinks in his store so that customer attract and maximizes sales. It mission is to
serve customer by providing healthy and fresh products and balance score card help to make its
vision complete.
M4 There are many techniques which help to reduce the financial problem for Unicorn such as
key performance indicators, benchmarking, balance score card method. These all are used by
unicorn in order to maximizes its profit and help in its growth and development.
D3 Different planning tools are used to solve the financial problem in Unicorn such as key
performance indicators, bench marking etc. These tools help in leading the company in right
direction as well as attain all objectives and needs (Pratheepkanth, 2018). Planning tools are
mostly used in resolving financial problems of a company.
CONCLUSION
By summing up above report it is concluded that management accounting play very
important role in every business. The report present deep meaning of management accounting
and help to know the system which quite useful for Unicorn. The company is small and medium
type of retailing store whose main focus is on customer service by providing good quality of
product. It also explain different types of management accounting system which is used by a
company. The report explain different methods of accounting report which is used by Unicorn in
order to determine the exact position and financial status. It presents absorption cost is quite
useful for a business and presents advantages and disadvantages of different types of planning

tools used for budgetary control. The report presents different financial problems which help to
increase the selling power of a company.

REFERENCES
Books and Journals
Bandeira, A. M., Meira, D. and Tomé, B., 2018. Reflections on the Accounting Framework of
Public Interest Cooperatives in Portugal. In Handbook of Research on Modernization and
Accountability in Public Sector Management (pp. 433-445). IGI Global.
Chenhall, R. H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, Organizations and
Society.47. pp.1-13.
Cooper, D. J., Ezzamel, M. and Qu, S. Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research.34(2). pp.991-
1025.
Fullerton, R. R., Kennedy, F. A. and Widener, S. K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting
practices. Journal of Operations Management. 32(7-8). pp.414-428.
Granlund, M. and Lukka, K., 2017. Investigating highly established research paradigms:
Reviving contextuality in contingency theory based management accounting
research. Critical Perspectives on Accounting. 45. pp.63-80.
Heald, D. and Hodges, R., 2018. Accounting for government guarantees: perspectives on fiscal
transparency from four modes of accounting. Accounting and Business Research, pp.1-23.
Kren, L., 2018. Activity Based Management (ABM) and Control System design. Accounting and
Finance Research.7(2). p.61.
Labro, E. and Hemmer, T., 2017. Management Accounting and Operations Management. In The
Routledge Companion to Production and Operations Management(pp. 345-359).
Routledge.
Latan, H. and et.al., 2018. Effects of environmental strategy, environmental uncertainty and top
management's commitment on corporate environmental performance: The role of
environmental management accounting. Journal of Cleaner Production.180. pp.297-306.
Nitzl, C., 2018. Management Accounting and Partial Least Squares-Structural Equation
Modelling (PLS-SEM): Some Illustrative Examples. In Partial Least Squares Structural
Equation Modeling (pp. 211-229). Springer, Cham.