Management Accounting: Explanation, Requirements, and Methods

MANAGEMENT ACCOUNTING
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Table of Contents
Introduction......................................................................................................................................2
1.0 Task 1....................................................................................................................................2
1.1 Explanation of management accounting and essential requirements of different types of
management accounting systems.................................................................................................2
1.1.1 Explanation of management accounting.........................................................................2
1.1.2 Requirements of different types of managerial accounting system................................4
1.2 Different methods of management accounting......................................................................5
2.0 Task 2.........................................................................................................................................5
2.1 Income statement by considering Absorption costing and Marginal costing........................5
2.2 Explanation of the difference between Absorption costing and Marginal costing................7
3.0 Task 3.........................................................................................................................................7
3.1 Advantages and disadvantages of different types of planning tools in budgetary control....7
Task 4.............................................................................................................................................11
4.1 Comparison between the processes, which organisations use the management accounting
to respond the financial problems..............................................................................................11
Conclusion.....................................................................................................................................11
References......................................................................................................................................12
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Introduction
Managerial accounting in a profit seeking concern is to be considered as one of the most
important factors of financial control. As accounting is considered as an important aspect of
financial management, managers are to use suitable cost and financial accounting techniques in
order to put control over the financial facts of an organization. In the initial part of the study, the
researcher shall act as a Management Accountant and make report to the General Manager of a
profit seeking concern in order to describe the essential requirements of different types of
managerial accounting. The researcher shall make discussion on the different methods of
management accounting in the next part of the first part. in the next part of the study, the
researcher shall make calculations of cost in two different methods of managerial costing.
Financial budgeting and other planning tools are also to be discussed by the researcher after
making calculation of costs. Moreover, the budgetary control and the financial resource
allocation will also be discussed in order to select financial management problems. The
researcher shall make the discussuins by considering Unilever Inc. In this context, the researcher
is to mention that the selected company belong to the manufacturing sector.
1.0 Task 1
To: Name- (General Manager)
From:- Your Name- Management Accounting Officer
Date: ................
Subject: Management Accounting & Management Accounting System
1.1 Explanation of management accounting and essential requirements of different types of
management accounting systems
1.1.1 Explanation of management accounting
Management accounting could be considered as one of the most crucial financial factors that
affects the financial controlling system of an organization as financial accounting is the most
essential tool to record all the financial facts and figures. In this context, Vernimmen et al.
(2014) stated that the financial accounting records all the quantitative data for particular period
of time. On the other hand, the researcher is required to mention that the financial accounting
data are used in developing the managerial accounting. In the profit seeking organizations, the
management accountants are required to use the accounting information from the financial books
of accounts to prepare different managerial accounting statements such as budgetary reports,
variance statement and standard costing statements.
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In case manufacturing firms like the company in the case study, the managerial accounting is
required to be considered as the most important aspect for putting control over the financial facts
of the company. As the company involves in manufacturing of goods, which belongs to FMCG
group, the company is required to make management of the financial results and performance on
the basis of the market demand. In the Unilever Inc, the objective of management accountants
are to compute the per unit cost of sales along with the computation of the variable costs and
fixed costs.
As opined by Micheli and Mari (2014), manufacturing companies are needed to include the
managerial accounting tools in order to put control on the different cost centers. In this context,
the researcher is required to mention that as the company manufactures a large number of goods,
the comopany is required to prepare managerial accounting statements for each of the cost
centres. In managerial accounting, the accountant is required to analyse variances and prepare
budget. Moreover, the marginal costing is also to be found as important for the management
accountants to compute the profitability and breakeven for a product (Cornelissen, 2014).
Therefore, the researcher could mention that the managerial accounting helps to make financial
planning and this process is heklpful in case of large sclae manufacturers. The management
accounting system of the company follows the computation of total cost of production and the
cost of sales. On the other hand, the management accounting system of the company woulf
facilitate the manufacturing managers to reduce the maintainable fixed costs.
Cost accounting system
In management accounting, managers could ascertain per unit cost of production. The influence
of fixed and variable costs could also be identified in cost accounting mechanism. Moreover,
cost accountants could also use the marginal costing approach in order to put control over the use
of variable costs in the production process. In this context, the researcher could mention that The
company could consider the marginal accounting system to compute the breakeven of the
products that the company manufactures. In this context, the researcher is required to mention
that the breakeven point could help the management accountants of the company to compute the
the number of units to be sold by the selling manasgers to make no profit and no loss. As stated
by Hill et al. (2014), in marginal costing, variable costs are considered as product related cost
and the fixed costs are assumed as time specific. Therefore, marginal costing could help the
management accountants to eliminate the fixed overheads from the production process of the
manufacturing companies.
Job costing:
Job costing facilitates the managers to compute cost for a certain job. Costs for different jobs
could be ascertained by using this approach of costing and planning.
As stated by Brown (2013), management accountants could compute the job cost by considering
the fixed and variable costs of the production process. In this context, it is to mention that the
company could consider job-costing system for putting control on the marginal costs related to
job.
Inventory management system:
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