Importance of Management Accounting for Business Success

The provided assignment emphasizes the importance of management accounting in facilitating a company's success. It discusses different types of financial reports and planning tools that can help monitor budget and manage financial activities effectively. The document also touches upon common financial issues faced by organizations, such as lack of funds, and how effective management accounting systems can lead to sustainable success.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems................................................................................................4
P2 Explain different methods used for management accounting reporting................................6
M1 Evaluate the benefits of management accounting systems and their application within an
organisational context.................................................................................................................8
D1 Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes..............................................................8
TASK 2............................................................................................................................................8
P 3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................8
M2 Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents...................................................................................................13
D2 Produce financial reports that accurately apply and interpret data for a range of business
activities....................................................................................................................................13
TASK 3..........................................................................................................................................14
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control......................................................................................................................14
M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets....................................................................................................................15
TASK 4..........................................................................................................................................16
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.....................................................................................................................16

M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success..........................................................................................17
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success..............................................................17
CONCLUSION..............................................................................................................................18
REFERENCES .............................................................................................................................19
.........................................................................................................................................................1

INTRODUCTION
Management accounting also known as managerial accounting is a chain of activities to
analyse cost of business and their operations to build financial reports, records and various kinds
of accounts to take appropriate decisions to achieve organisational goals and objectives. In other
words, it is an important act to make sense about financial and cost data for translate it into
meaning information and data in an organisation. This report is based on AIRDRI which is
founded in 1974 by significant advancement of hand drying industry by finding out gaps. This
report is based on management accounting and necessary requirements for management
accounting systems. It also includes kinds of methods used for management accounting reporting
to get fruitful for an organisation. It also includes calculation of various kinds of cost by
preparing income statement of both marginal and absorption cost. Further it includes advantages
and disadvantages of planning tools for budgetary control and in ways by organisation adopt
management accounting systems to resolve financial problems.
TASK 1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems.
Management accounting is one of most important part of accounts in which application
of knowledge, tools and techniques with concept should be prepare to get accurate accounting
information (Banerjee, 2012). Accounting information proved helpful for organisation to
formulate plans and policies and to control organisational operations for making effective

decisions by using resources for safeguard assets. Management accounting is an process and
presentation of accounting and data related to economics that helps in evaluating performance of
management for building strategies, to compare things in better way with budgeting and
forecasting.
Essential requirement of management accounting systems:
Inventory management system:
Inventory management system helps in track goods in the whole supply chain that supply
goods and services to ultimate consumer base. Inventory management system covers from
production to retail, warehouse to shopping and includes movement of goods or stock in
between. Inventory management system proved helpful to track supply products and services
from which path goods passes through (Cadez and Guilding, 2012.). It is very much potential
for transfer management that helps to manage multiple sites simultaneously to coordinate each
and every activity in proper way while move products at place where it is important. So
inventory management is very much potential for an organisation to deal in effective manner.
Cost accounting system:
Cost accounting system also known as product costing system that is an framework used
by various firms or organisations to get estimate about cost of products and services to analyse
profitability, valuation of inventory by controlling cost in proper way. In context of AIRDRI they
use various kinds of cost accounting system to coordinate each and every activity to estimate
accurate cost of products and services that is an critical task for an organisation. It helps in
estimating closing values of materials, finished products and work in progress and many more in
positive way.
Price optimisation system:
Price optimisation is an accounting tool that proved helpful in pricing fields to evaluate
various applications that enables in set prices (DRURY, 2013. ). It helps to calculate in some
manner demand varies as price changes by combining data and information on basis of cost and
inventory levels to recommend best prices that enhance pricing. In context of AIRDRI with help
of price optimization system organisation can be able to set best price as per demand and supply
of goods and services in best way.
Job costing:

Job costing involves sum up of cost of materials, labour and overhead cost for a specific
job cost. This is an best tool and techniques that helps in tracing cost for an individual by
examining various factors in better way (Fullerton, Kennedy and Widener, 2014). It enables to
accumulate various kinds of cost and data at small unit such as materials, labour and overhead
associated within it. In context of AIRDRI they by using job costing can be evaluate various
factors that associated with their cost and their structures in better way.
Distinction between management and financial accounting:
There are difference in management and financial accounting that are as follows:
Aggregation:
Financial accounting depicts the whole or entire results about business on other hand
managerial accounting reports on detailed manner in which includes profits of products, product
line and geographical region of consumers.
Efficiency:
Financial accounting majorly related with complete profitability of a business on other
hand managerial accounting concerned with about factors that cause problems and ways to
resolve them in positive way.
Reporting focus:
Financial reporting concerned with creation of financial statements that are distributed in
both internally and externally in an organisation. On other hand management accounting
concerned with operational reports that distributed within organisation.
As after observing the difference in both these terms useful for an organisation to gain important
insights and results out of it.
P2 Explain different methods used for management accounting reporting.
For an organisation there are various kinds of management accounting reporting that
helps in internal concentration of data in internal manner through financial accounting (.Herbert
and Seal, 2012). It helps in taking important decisions and planning with controlling data and
statistics. All these methods that use by an AIRDRI helps in management accounting reporting to
get desirable goals and objectives in proper way.
Budget Report:
Budget report is an kind of internal report proved useful for management by comparing
and estimating budget projections to achieve actual performance that received during a period of

time. It also proved useful in comparison of actual budgeted performance with actual
performance during a accounting period in best way. As budget are financial reports that helps in
estimation about future projects that are often in accurate in nature. During an accounting period
managers and others compare with budgeted numbers that prepared in beginning of a period for
actual results that incurs. In context of AIRDRI by preparing budget report organisation can be
able to predict about future projections in better way so that important measures should be
adopted.
Performance report:
Performance report refers to work performance to analysing, creating and sending to
respective stakeholders of an organisation that involved in performance reporting regarding a
project in better way (Hilton and Platt, 2013.). In other words performance report is an outcome
of an activity that helps in comparing actual results with budgeted or actual standards by
observing variance in these terms I positive way. That kind of report helps in taking appropriate
decisions in condition of unfavourable variance. There are some examples regarding
performance report that helps to AIRDRI that are as an personnel get annual performance report
to deal with various activities with appropriate action plan to achieve organisational goals and
objectives.
Accounts receivable report:
Accounts receivable report is one of most important aspect for an organisation that helps
in list out about unpaid consumer invoices and unused memos of credit as per data ranges
(Kaplan and Atkinson, 2015.). It is one of primary tool proved helpful for collection personnel
to evaluate various kinds of overdue that are undue in nature. That kind of report used by
management to evaluate effectiveness of various credit and collection functions takes place in an
organisation. That report also very much helpful in estimating bad debts that are build for
allowance for doubtful accounts in better way. In context of AIRDRI they use various kinds of
budget report to accumulate right kind of knowledge and information to reach at desirable
outcomes in proper way. There are various kinds of factors that help in evaluation of costing and
management of tools with techniques that helps in evaluation of inventory management to get
fruitful results.
Inventory management report:

Inventory management report is very much essential for an organisation to deal in
effective manner to accumulate data and information regarding to manage stock in proper way.
One of best way to using and understand right kind of inventory management reports so that
accurate results should be accomplished. Accurate and up to date and appropriate inventory
management is very much important to find out trends, weaknesses and strengths to fill gaps to
gap the inefficiencies in better way (Kotas, 2014.). To get important knowledge and information
about profitable products by ensuring that each and every level performing well at optimum
level.
So all are the important tools and techniques for management accounting reporting to get
potential results in better way.
M1 Evaluate the benefits of management accounting systems and their application within an
organisational context.
Management accounting systems are very much important for an organisation with their
various systems that are cost accounting with help of it AIRDRI can easily estimate cost of
manufacturing products and services. With help of inventory management organisation can be
able to improve their efficiency and effectiveness in proper way by reducing cost. With help of
job costing duplication of work should be eliminated in proper way so that organisational results
should be accomplished in proper way. Job costing system also helps in knowing each and every
aspect related to product in better way.
D1 Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes.
Integration of management accounting systems and management accounting is very much
important for an organisation to integrate both of them to achieve organisational goals and
objectives. In context of budget report
Budget report Budget report is very much important for an organisation to deal in
effective manner. With help of it organisation can be able to evaluate
ratio of income and expenditure in better way. In context of AIRDRI
by effective budget building can be able to take important decisions by
predict future in well manner.
Performance report Performance report is another crucial factor for organisation to

evaluate performance of an individual by identifying strength and
weaknesses of an individual in positive way to get desirable outcomes.
TASK 2
P 3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs
Marginal cost- It indicates to a accounting system in which variable costs are replaced to
cost units and fixed costs of the time period are written off in full against the accumulation
endeavour. This coat is also known as variable cost that include labour and material cost and an
computation portion of fixed costs (Banerjee, 2012).. In organisation where average cost are
fairly invariable, marginal cost is normally equal to average cost. It is the most common kind of
costing method that underline on a organized categorization of expenditure in to fixed and
variable. Fixed and variable endeavour per unit which is calculated to consider only variable
production overheads, within this method after categorisation of expenditures or costs.
Absorption cost- It is a method of accounting which demesne the whole and entire cost
of producing and manufacturing a service (Kotas, 2014.).. It can be a method of analysing and
calculating the cost of a good and service that are manufacture by a company to take into account
indirect expenditures as well as direct costs. Within this method, all the overheads related to the
process of manufacturing which is regardless of their nature are replaced ton unit cosy of the
goods. In AIRDRI, this cost can be calculated by the management of the company. Within it, the
cost per unit is direct substantial, direct labour, changeable overheads and determinate
overheads. Fixed overheads per unit is deliberate by dividing total fixed operating cost by the
number of units produced.
Marginal costing
Selling per unit price 50 15000 25000
Less: Various Marginal Costs
Per unit Direct materials cost -8 -2400 -4000
Per unit Direct labour cost -5 -1500 -2500
Per unit variable production overheads cost -3 -900 -1500
Contribution 10200 17000

Less: Variable selling commission 5% of sales revenue -750 -1250
Fixed Cost
Fixed selling expenses -4000 -4000
Fixed admin expenses -2000 -2000
Fixed Production cost -4000 -4000
Net profit -550 5750
Absorption Costing:
May June
Sales 50 15000 25000
Less: cost of sales 26 -9880 -13000
Gross profit 5120 12000
Under/over absorbed production overhead 1000 -200
Less: S&D expenses
Fixed selling expenses -4000 -4000
Fixed admin expenses -2000 -2000
Less: Variable Sales commission 5% of sales revenue -750 -1250
Net Profit/loss -630 4550

M2 Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents
By using various different tools and techniques of management systems help in offering a
structure and framework for effective and systematized display of financial information (Otley,
2016. ). These tools and techniques can be used and applied by employees of the management
and cost accountants to monitor or calculate the financial performance of the organisation over a
specific period of time. In context of AIRDRI, different tools and techniques of management
accounting can be used by the management of the company to calculate and determine the
financial information of the organisation's products and services. It help in offering a vast and
detailed or relevant information data about the firm's performance to senior level mangers for
taking business decisions.
D2 Produce financial reports that accurately apply and interpret data for a range of business
activities
From the above mentioned calculation it has been observed that Absorption and marginal
method both are very important to utilise the system of management accounting and to prepare
financial reports to get important kinds of output. The income statement of respective firm state
that in month of may net loss is -550 and in month of June net profit is 5750 with help of
marginal costing tool. On other hand by using absorption costing net profit in month of may is -
630 and in June is 6550. from the above analysis it has been analysed that net profit or loss is
more while using absorption costing tool.
TASK 3
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.
Budget is a financial plan for a definite time period often for a year. In financial plan
sales volume and revenue, resource quantities with various kind of cost and expenses with many
more variables are major part of budget ( Lambert and Sponem, 2012. ).
There are various kinds of planning tools for measurement and control of financial plan with
their advantages and disadvantages that are as follows:
Budgetary control:

Economic control refers to how well managers and other higher authority utilize finances
to evaluate or monitor cost and operations in a given accounting period (Otley and Emmanuel,
2013.). Budgetary control is a chain of activities in which managers set financial and goals to
perform in well manner by budgets, comparing with actual results and by adjust performance in
well manner. In context of AIRDRI they prepare economic control to set financial goals and
objectives in proper manner by discussing with higher authority.
Budgetary procedure:
Budgetary procedure refers to the process that helps in creating and building a perfect
economical by following a series of steps that helps in achieving organisational goals and
objectives in systematic way (Otley, 2016. ). While preparing the financial plan organisation
have to follow a series that are preparation of budget, enactment of budget, execution of budget
and parliamentary control over finance. In context of AIRDRI they follow a systematic path to
build a effective budget to get accurate result in proper way.
The various planning tools used in the budgetary control by AIRDRI are as follows:
Zero based budget:
Zero based budgeting is a method of budgeting in which all kinds of expenses that are
justifiable in each period should be consisted. That process starts from Zero base after analysing
each and every function by analysing needs cost associated with a project.
Advantages:
Zero based accounting is helpful to ensure that every penny should be spend in every
accounting period. That cost helps to justify operating cost and expenses by ensuring that
organisation should generate revenue in proper manner.
Disadvantages:
That kind of fund is resource intensive that takes lot of time and money to review at very
closely by justifying elements of budget after that modify existing budget in proper way.
Master budget:
Master budget is an management's strategic plan for future perspective of an organisation.
In that aspect operations of an organisation should be charted and completely predicted for
future (Parker, 2012). Master budget proved useful for management of an organisation and
officers for strategic decisions.
Advantages:

One of most important aspect of master financial plan that it gives owner of business a
overview of organisational budget. As small budgets for each and every department included all
budgets and earning in proper way.
Disadvantages:
The major disadvantage of that low-priced is that in it lack of specificity as amount that
written on master economical are sum of expenses of all department's expenditure and earnings.
So it specifically not able to reveal income and expenditure of each and every department in
proper way.
M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets.
For an organisation different kinds of planning tools and techniques plays very much
crucial role to deliver right kind of knowledge and information for organisational development
and growth. In context of AIRDRI master and zero based budget while operating is very much
important for an organisation to effectively formulate and forecast financial plan to get right
income and expenditure information of each and every department in proper way. So all
planning tools provides necessary information in allocation of data and resources that available
for an organisation.
TASK 4
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.
For an organisation to respond in positive manner is very much important while they
suffer from any kind of problems. It is often happened in organisation that they suffer from
various kinds of financial problems that are as problems with effectiveness of management
accounting systems to resolve problems:
Risk management:
Risk management is an important tool to evaluate peril factor that associated with
particular project in an organisation (Renz, 2016.). In absence of risk management organisations
not able to predict future threats that associated with organisation that hinders self interest of
SYSPAL which is an stainless steel hygiene equipment manufacturer. While risk is not accessed
in proper way by organisation then it creates problem.

Cash Flow management:
Cash flow management is a chain of activities in which tracking of incoming and
outgoing of money should be evaluated in proper way ( Soin and Collier, 2013.). Cash flow
termed as change in money of business from one point to another. Cash flow helps to keep track
of various activities and flow while changes takes place. In context of SYSPAL sometimes they
fail to measure cash flow of businesses in proper manner that hinders self interest of an
organisation to get desirable goals and objectives.
To resolve these issues in an organisation some kinds of approaches proved helpful that are as
follows:
KPI:
Key performance indicator provides measurable value which depicts about how much
effectively an organisation can achieve organisational goals and objectives (Ward, 2012). By
using key performance indicator use it at multiple levels to get success to achieve targets in
proper way. With help of key performance indicator organisation can be able to reform in
existing system and problems related to it.
Benchmarking:
Benchmarking is an important process to measure performance of product and services of
an organisation (Weetman, 2013.). AIRDRI by setting standards in proper way evaluate their
performance in positive way.
Comparison Between AIRDRI and SYSPAL:
AIRDRI SYSPAL
Issue: In context of AIRDRI they face problem
of measuring of risk management in which
they are not able to evaluate factor of risk
associated with project in better manner.
Issue: In context of SYSPAL organisation
suffer from problem of cash flow management
in which they not able to evaluate inflow and
outflow of cash in their organisation in proper
way.
Approaches: To remove that problems
organisation have to use key performance
indicators that helps in set goals and objectives
accordingly organisation minimize risk that
Approaches:
To resolve problem of cash flow management
organisation have to set standards by adopting
benchmarks in effective way to get right kinds

associated with a project. of results.
Accounting tools and their importance:
Accounting tools and techniques are very
much important for an organisation to deal in
effective manner. in context of AIRDRI and
SYSPAL that both uses the same management
accounting tool that are key performance
indicator to hire and appoint additional sales
and other staff members by promote to existing
customers to purchase more products and
services.
On other hand SYSPAL which also uses the
same management accounting tool but for the
different use that are to enhance their revenue
that should be reviewed on the monthly basis
and to measure progress as per money spend to
enhance revenue.
In context of SYSPAL Benchmarking to set
standards by evaluating the pre determined
goals and objectives to get optimum kinds of
output.
M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success.
Managerial accounting helps to resolve financial problems by accessing products and
services in best way. It by set standards and benchmarks helps to organisation in evaluating risk
factor with the projects in best way (Wickramasinghe and Alawattage, 2012). It by giving
computerized system that helps in accumulate information regarding revenue and expenses that
helps in taking best decisions in case of any financial crises in an organisation. By giving
necessary knowledge and information about potential needs and wants for an organisation to
deliver right kind of value to their potential end users.
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success.
Planning tools and techniques are very much important for an organisation to respond in
positive manner with accounting problems. In financial problems concerned with cash flow
management, risk management and many more that hinders self interest of an organisation to
deal in effective way. By setting proper goals and objectives organisation can be able to resolve
financial problems and sustain for long time in marketplace. By best decision-making
organisation can be able to settle major problems that faced by an organisation so that desirable
objectives and goals should be achieved in proper way.

CONCLUSION
As per the above defined information, it can be concluded and analysed that management
accounting is an effective tool and techniques to monitor the profit and cost which is invested by
the firm during the production of the goods an services. Different types of management
accounting systems like inventory management, cost accounting system, job costing and others
are also beneficial to evaluate the accounting reports. Different methods of management
accounting reporting like budget report, performance report, accounts receivable reports,
inventory management reports etc. are effective for monitoring budget. Different types of
planning tools like budgetary control, budget procedures and other are effective for managing the
financial activities which are beneficial for calculation profit and productivity of the company.
There are different kind of financial issue are faced by the organisations, like lack of fund and
others which create impact on the profit and productivity of the organisation in unfavourable
manner. If the company use effective management accounting systems then it can respond and
lead the firm to sustainable success.

REFERENCES
Books and journals:
Banerjee, B., 2012. Financial policy and management accounting. PHI Learning Pvt. Ltd..
Cadez, S. and Guilding, C., 2012. Strategy, strategic management accounting and performance: a
configurational analysis. Industrial Management & Data Systems. 112(3). pp.484-501.
DRURY, C.M., 2013. Management and cost accounting. Springer.
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.
Herbert, I.P. and Seal, W.B., 2012. Shared services as a new organisational form: Some
implications for management accounting. The British Accounting Review. 44(2). pp.83-
97.
Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Lambert, C. and Sponem, S., 2012. Roles, authority and involvement of the management
accounting function: a multiple case-study perspective. European Accounting Review.
21(3). pp.565-589.
Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control.
Springer.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014.
Management accounting research. 31. pp.45-62.
Parker, L.D., 2012. Qualitative management accounting research: Assessing deliverables and
relevance. Critical Perspectives on Accounting. 23(1). pp.54-70.
Renz, D.O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Soin, K. and Collier, P., 2013. Risk and risk management in management accounting and
control.
Ward, K., 2012. Strategic management accounting. Routledge.
Weetman, P., 2013. Financial and management accounting. Pearson.
Wickramasinghe, D. and Alawattage, C., 2012. Management accounting change: approaches
and perspectives. Routledge.

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