Management Accounting Principles & Practices

This assignment delves into the core principles and practices of management accounting. It examines the impact of lean manufacturing and environmental management accounting on organizational performance. The analysis also considers different research methodologies employed in management accounting, including qualitative and quantitative approaches, and discusses their contributions to understanding real-world applications of these concepts.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Analysis of management accounting and their essential requirement in organisation..........1
P2 Different types of management accounting reports and their importance.............................3
M1...............................................................................................................................................5
TASK 2............................................................................................................................................6
P3 Application of absorption and marginal costing for preparation of income statements........6
M2...............................................................................................................................................9
D2................................................................................................................................................9
TASK 3............................................................................................................................................9
P4 Different kind of budgets and their importance as planning tool..........................................9
M3.............................................................................................................................................11
TASK 4..........................................................................................................................................11
P5 Use of management accounting systems to respond financial problems.............................11
M4.............................................................................................................................................12
D3..............................................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Every organisation is need to adopt effective management accounting systems which
helps in recording of business transactions in more effective and appropriate manner.
Management accounting systems are considered as decision making tool which is used internally
by manager. The different tools which are included in this system are budgeting, variance
analysis, BEP, cost-volume-profit analysis etc. It helps the manager to formulate different reports
for improvement of understanding among different departments about their functions
(Baldvinsdottir, Mitchell and Nørreklit, 2010). Overall, it helps in completion of their
organisational objectives within stipulated period of time. Tech(UK)Ltd. Is manufacturing
organisation which provides their products to retailer.
In the present report explain about, concepts of management accounting and its
distinguish with financial accounting, importance of management accounting information as
decision making tool for departmental managers, application of different management
accounting systems in organisation, different types of managerial reports and its importance in
organisational scenario. Also, contribution of cost accounting techniques in preparation of
income statements, budget preparation process and contribution of management accounting
system to overcome from financial issues.
TASK 1
P1 Analysis of management accounting and their essential requirement in organisation
Management accounting- It is a procedure of preparing the management accounts as
well as reports which gives timely and accurate statistical and financial information needed
through employers to take decision on short term basis and day- to- day (Christ and Burritt,
2013). Manager of Tech business organisation uses accounting provisions in context to provide
the better and effective information before taking any kind of decisions in company.

Management accounting systems are use different accounting provisions in order to
develop various accounts which gives relevant information or data related to various
organisational functions. It is helpful for Tech company in developing policies, process of
decision making and also day to day operations.
Importance of management accounting as decision-making tool
Performance measurement- It assess company in measuring performance of staff
members as well as their efficiency. Under this, there is a comparison of the actual performance
with standardised performance to set deviations under which important steps can executed
(Fullerton, Kennedy and Widener, 2014).
Resources allocation- Tech firm able to accomplish proper utilisation of available
resources through resource allocation to different departments and divisions in company.
Risk assessment- It helps and determines all risk related factors with in Tech
organisation which can reduced by the effective management.
Presentation of financial statement- Management accounting gives proper or effective
presentation of Tech company with needed data or information. Different financial and cost data
makes easy for firm to show precise and better financial reports which will be helpful in taking
better decision making.
Formulation of budgets: Management accounting system helps in formulation of
different kind of reports as per the performance of different departments. It helps in formulation
of budgets according to their needs.
Difference among financial and management accounting
Financial accounting is an area of accounting which is related with analysis, summary
and also reporting of all financial transactions come to business (Garrison and et. al., 2010). It
consists make of financial statements which are available for public consumption.
Management Accounting Financial Accounting
It gives relevant and accurate data to
employers to prepare strategies, policies and
plans for running business in an effective
manner.
It is an effective accounting system which
focus on developing financial statement of firm
to give financial information and data to
interested parties.
It used future information and data not Its main focus on past economic events,

historical, for planning purpose. statements which include historical data.
It is established and regulated through an
entrepreneur.
It is regulated through legislation and this is
standardised.
Under this reports are developed on the basis
of needs of firm.
These are developed at end of accounting
period used in one year.

Various management accounting systems
Cost accounting systems- It is a structure used through Tech organisation in order to
estimate products cost for analysis of profitability, cost control and inventory valuation. In
addition to this, it is essential for Tech organisation to identify actual cost of goods.
 Actual costing: Cost of the products are taken on their actual value. For ex., actual
material, labour and overhead cost.
 Standard costing: Estimation of costs which incurs in future production of product.
 Normal costing: Valuation of manufactured products according to predetermined
manufacturing overhead rate.
Job costing systems- It is an accounting which tracks revenues and costs through “job”
and also able standardized profitability reporting (Macintosh and Quattrone, 2010). The main
focus of Job costing system is to producing costs to person, batches of goods. In context to this
system, it is only used if in case production is sufficiently varied from the each other.
This includes that cost is classified as:
 Direct material
 Direct labour
 Fixed and variable overhead
Inventory management systems- It is supervision of the stock items and non-
capitalized assents (Stock). Inventory management is major element of the supply chain
management which oversees flow of products. It supervises proper flow of products from
producers to warehouses and sale point facilities. It is used through Tech business firm to
manage stocks in proper or systematic manner. It gives information or data related to inventory
present in firm and allocation to various departments in proper manner. Management accounting
system contributes in the activities of planning related to stock and inventories and better
resource allocation.
The techniques which are used for inventory management includes:
 LIFO: It is considered as last in first out method which helps to ascertain the value of
closing stock.
 FIFO: First in first out method. Old inventory is considered as sold first whether it is sold
later.
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P2 Different types of management accounting reports and their importance
Practices of management accounting are helpful for development of business.
Management accounting produces the reports for internal stakeholders of an organisation as
comparison to external. There are several accounts which are developed to record different kinds
of operations of firm. Tech (UK) manager formulates various accounting systems like for an
instance cost accounting, stock management system, job costing and many others (Nixon and
Burns, 2012). With the help of all these accounts, firm can give various types of management
accounting reports and these are helpful in getting information of firm functions. Its enables
management of Tech (UK) business firm to take better decisions, performance appraisal,
planning etc. Management accounting report is helpful in give reliable and accurate financial and
statistical information or data.
Kinds of management accounting reports
Budgeting reports- These reports are assess to determine performance level of firm
during making evaluation regarding control costs and performance of all departments. In order to
preparation of budget, it is necessary to utilize the past expenditure. The budget reports are used
to give the incentives to staff members which motivate them to accomplish the set objectives
with in given period of time. In addition to this, forecasting of the future budgets depends on
given reports helps company to integrate efforts of different departments towards aim of firm.
Job cost reports- These are related to determining expenses, profitability and also cost of
specific job. There is an evaluation which can made regarding earning aspect of projects so that
firm can introduce efforts to minimising their efforts on minimum profit in business activities
(Parker, 2012). Job costing reports are helpful in determine cost if project is in the progress,
workable as well as profitable. This reports assess cost along with the time of firm on the
minimum profit margin. From this profit level of Tech (UK) firm will be enhanced.
Performance reports- It is important in the project communication management. It
consists disseminating and gathering information about project, project progress, proper
resources utilization and also status to different stakeholders. There are variations calculated on
comparison of the actual results with performance of budgets which are determined as well as
information related to performance reports. In context to this, these are developed on quarterly,
monthly and yearly basis.
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Manufacturing and stock reports- Firms which are includes in the production processes
formed these kinds of reports so process of manufacturing can be effective or efficient. It
includes overhead cost, labour cost and also wastages which are related with an inventory gives
managers of Tech (UK) organisation for comparison among various assembly lines in order to
see improvement opportunities which are identified through employees and different
departments.
Significant of management accounting reports
Loss minimization- All given information are helpful for management of Tech (UK)
organisation to anticipate future related issues and also prepare provisions related to this (Pipan
and Czarniawska, 2010). It enable business firm to tackle all issues and also minimizes some
chances of the future loss. It will be helpful in taking better in a better manner.
Decision making- All given reports give different non- financial as well as financial
information and data which increase ability of manager of Tech (UK) in order to take they better
decisions concerned to necessary aspects. It will be helpful for future planning, risk management
and performance management which can enhance profit of this company. Management
accounting reports or systems play big role related to enhance management power in context to
make improvement in power of decision making.
Enhances financial returns- Such necessary information assess manager to prepare
plans as well as policies for future context which can increase capabilities of the departments for
performing all functions in an effective or better manner (Qian, Burritt and Monroe, 2011).
M1
Some of benefits of various accounting systems given below as above:
Accounting systems Advantages
Cost accounting systems  Tech (UK) can measure effectiveness
in the processes and assist making
improvements with use of this kind of
systems.
 Gives important information needed for
better planning.
 It will be helpful for Tech (UK) firm in
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minimization and fixation of costs.
Inventory management systems  From this firm can make improvement
in its orders of costs of stock.
 Improve effectiveness and efficiency.
 Cost consuming and time savings.
D1
Reporting types Integration with process of firm
Budgeting reports An integration among process of firm
concerned to Tech (UK) organisation and
reports of budgeting make better path for
organisation activities in order to make
concentration ion targets in a proper manner.
Performance reports There is an integration among all Tech (UK)
organisational activities and reports. From this
manager can make plan regarding future
manufacturing and cost enhanced.
Job cost receipts Activities and operations of Tech (UK)
organisation should directed towards an
achievement of price objectives as well as cost
reports which can be helpful in deciding
pricing related strategies in a easy manner and
minimize cost of goods.
TASK 2
P3 Application of absorption and marginal costing for preparation of income statements
Costing is an estimated cost of manufacturing and also undertaking something. Cost
accounting is procedure of classifying, recording, allocating and also summarizing different
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alternative action course for control of pricing (Vaivio and Sirén, 2010). There are different
kinds of costing mention below:
Absorption costing- It is a main method of calculating cost of goods or an organisation
through taking in to an account all indirect expenses and direct costs.
Marginal costing- It is an additional cost which are incurred in manufacture of extra
units of products. It is an significant economic theory due to increasing profit.
Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production O/h 2
Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
Nil 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing ￡Amount £ Amount
Sales value
Less: Variable costs
Stock at the begining
Cost of production
Stock at the closing
Variable sales overheads
Contribution
Less: Fixed costs:
Fixed Production overheads
Fixed Selling overheads
NIL
30000
(7500)
15000
10000
52500
(22500)
(7875)
22125
(25000)
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Net loss -2875
Income statement on the basis of Absorption costing method
Selling Price per unit ￡35
Unit costs
Direct materials cost ￡8
Direct Labour cost ￡5
Variable Production overhead ￡2
Variable sales overhead ￡5.25
Budgeted production during the year is 3000
units
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: under this budgeted cost is £10,000and Actual cost is £7875
Absorption costing working notes
Working Note 1: Calculate full production cost
Direct material ￡8
Direct labour ￡5
Variable cost ￡2
Fixed cost ￡5
Total ￡20
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40,000 500*20 = £10,000
Working Note 3: under/ over absorbed fixed production overhead
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Actual fixed production: ￡15000
Fixed overhead: ￡10000
Total £5000 (under absorbed)
Net profit using absorption costings ￡Amount £Amount
Sales value
Less: Cost of Sales:
Opening stock
Cost of production
Closing stock
(Under)/Over absorbed fixed prod. O/h
Gross Profit
Less: Selling Expenses
Variable sales expenditure
Fixed selling expenditure
NIL
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
Net loss -375
M2
One of the major function of organisation is to forecast their future operations. It helps is
estimation of cost and expenses. To improve the profitability need to adopt effective approaches.
Conservatism approach helps in reduction of risks and costs which improves their profitability
and materiality technique provides opportunity regarding maintenance of resources in more
optimum manner.
D2
This is observes that the two different cost techniques used related to profit calculations
through absorption and marginal costing (Van Helden and Northcott, 2010). With the help of
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absorption costing, losses are obtained through Tech (UK) OF 375 and loss of marginal costing
is 2875. Differences among loss arise due to fixed assets.
TASK 3
P4 Different kind of budgets and their importance as planning tool
There are different types of budget which are developed through Tech (UK) firm to
manage all organisational functions.
Types of budgets
Master budget- It is an aggregation of minimum level of budget which are produced
through different functional areas of company. It consists cash forecast, financial statements,
financing plan and many others.
Financial budget- This type of budget is prepare for defined time period on yearly basis.
It may involve sales revenues, volumes, assets, expenses, cash flows etc.
Cash flow budget- It is estimation of cash receipts and expenditures which are expected
to rise at the time of certain period of time (Ward, 2012). Estimates can be bimonthly, monthly,
quarterly basis and these consists expenditures and n on farm income.
Types of Budget Advantages Disadvantages
Master budget It gives whole cost of the
functions of an organisation.
This is not particular on single
activity and covers aspects of
firm which minimizes
reliability of an information or
data.
Financial budget It provides opportunities to
business and also financial
awareness.
This budget does not deal with
subjective problems.
Cash flow budget It gives better opportunities to
firm in order to cash outflow
and inflow. It is helpful to
manage organisation cash
It is complex to manage firm's
cash flows on above mention
information or data.
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flow.
Significance of budget for planning and control
There are several importance of budget to management of the Tech (UK) firm. All
budgets are used through employer of business firm for purpose of planning as well as
controlling (Weißenberger and Angelkort, 2011). They give different information related to
specific aspects to manager for future actions, policies, plan etc. Importance are mention below
as above:
Develop financial roadmap- Budgets are helpful for Tech (UK) organisation to identify
all financial needs through various departments. These types of budgets are develops according
to guidelines of last years. They display their affect on operations of firm and gives better
opportunities to formulate plans.
Plan for future development- All budgets are use through an organisation to develop
plan related to business expansion and development. In addition to this, saved through employer
of Tech (UK) firm because of budgets are invest in to opportunities of new business.
Limit expenditures- Under this budgets gives opportunities to compare performance level
of staff members with the standards and find deviations. Through this performance of Tech
company will be enhanced and eliminate all risks.
Process of Budget preparation
Under this some steps are given below as above:
Expenses calculation- It consist identification process of actual expensed sped each
month.
Income determination- Requirement to determine capabilities regarding profit earnings
from operations of business.
Setting off debt pat- off goals and savings- It involves identification of savings which
assess pay off debts in proper manner.
Track progress and record spendings- There is requirement of record all expenses which
are completed on the actual basis (Zimmerman and Yahya-Zadeh, 2011). It assess in determining
future progress.
Follow budget- To achieve budgeted targets, there is a requirement to follow all
standards which are given through budget.
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Different pricing system
 Price skimming: One of the best method to improve the sale of new products and
services. This method helps in pricing of the new products which is quite high at
introductory stage.
 Economy pricing: This will fixing of the price of products last in comparison to other
for improvement of their sales and profitability.
Different costing systems
 Direct costing: For valuation of the product, such costs are considered which change as
per vary in their production unit.
 Standard costing: According to the use of the provisions of this method standard cost
are set which is need to achieve for accomplishment of their actual cost goals. It helps in
reduction of cost.
M3
There are several planning tools such as forecasting tools are used through Tech (UK) in
order to make their budgets which explains objectives and aims to achieve with the help of
operations. The main limitation of planning tools depends in estimation which are not proper at
each time.
TASK 4
P5 Use of management accounting systems to respond financial problems
Tech (UK) firm is manufacture firm and produces special charges for UK retailers. There
are several problems which are during giving functions which affects on financial performance.
Under this, it was noticed from given financial statement that this firm suffer from loss in
operations of £1.5 million. There are some approaches which are helpful to overcomes all
finance related issues:
Balance scorecard approach- It is performance metric used in the strategic manage to
determine and raise different internal functions of an organisation and resulting external results.
Its main focus on necessary process to improve organisational performance and helpful in
develop better strategies (Baldvinsdottir, Mitchell and Nørreklit, 2010).
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Four perspectives of Balance Scorecard approach
Stakeholders and consumers- Provide better quality of goods which assess satisfaction
of various needs of consumers.
Financial- Make improvement in financial performance by effective resources
utilisation.
Organisational capacity- Raising performance of business by determining various
aspects such as technology, human capital, infrastructure etc.
Internal process- Assess in innovative techniques for strengthening an internal process of
company.
Just in time- This technique is helpful in minimization of wastage which can make
improvement in working efficiency and quality of goods (Garrison and et. al., 2010). It denoting
production systems under which components or materials are deliberated in context to reduce
storage costs.
Comparison between Zylla and Tech (UK) Limited
Tech(UK)Limited Zylla
Its main motive to oversee operational fields
where more issues are arise.
This company perform its activities at small
scale so that it can take decisions in better
manner.
Information as well as data is evaluated
according to performance of current year or
historical data.
Manager of Zylla organisation uses KPI tool in
order to monitors employees performance.
M4
Management accounting systems play necessary role related to eliminate of financial
problems and also chive sustainability given below as above:
 All these systems are helpful in manufacturing of various reports which rises
understanding of employer related to costing and budgeting decisions.
 Standard costing is helpful in risk assessment and standard cost allocation.
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D3
It is noticed that Tech (UK) company is in loss because of problems related to daily
operations. In order to overcome from all problems,this firm uses planning tools.
CONCLUSION
It has been concluded from the above report that management accounting is broad
concept which provides the opportunity of manager of Tech(UK)Ltd. To use the provisions of
cost accounting also to ascertain the performance of different departments in most appropriate
manner. It provides the opportunity regarding development of effective strategies which directs
the employees in completion of their tasks. Through collected information from such different
accounting systems helps in formulation of different reports which enhance decision making
power. Benchmarking is effective tool which is used by Tech(UK)Ltd. To overcome from the
losses which is faced in last financial year.
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REFERENCES
Books & Journals
Baldvinsdottir, G., Mitchell, F. and Nørreklit, H., 2010. Issues in the relationship between theory
and practice in management accounting. Management Accounting Research. 21(2).
pp.79-82.
Christ, K.L. and Burritt, R.L., 2013. Environmental management accounting: the significance of
contingent variables for adoption. Journal of Cleaner Production. 41. pp.163-173.
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). pp.414-428.
Garrison, R.H. And et. al., 2010. Managerial accounting. Issues in Accounting Education. 25(4).
pp.792-793.
Macintosh, N.B. and Quattrone, P., 2010. Management accounting and control systems: An
organizational and sociological approach. John Wiley & Sons.
Nixon, B. and Burns, J., 2012. The paradox of strategic management accounting. Management
Accounting Research. 23(4). pp.229-244.
Parker, L.D., 2012. Qualitative management accounting research: Assessing deliverables and
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accounting from idea to practice. Critical Perspectives on Accounting. 21(3). pp.243-
251.
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government: A case of waste management. Accounting, Auditing & Accountability
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Vaivio, J. and Sirén, A., 2010. Insights into method triangulation and “paradigms” in interpretive
management accounting research. Management Accounting Research. 21(2). pp.130-
141.
Van Helden, G.J. and Northcott, D., 2010. Examining the practical relevance of public sector
management accounting research. Financial Accountability & Management. 26(2).
pp.213-240.
Ward, K., 2012. Strategic management accounting. Routledge.
Weißenberger, B.E. and Angelkort, H., 2011. Integration of financial and management
accounting systems: The mediating influence of a consistent financial language on
controllership effectiveness. Management Accounting Research. 22(3). pp.160-180.
Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control.
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