Importance of Management Accounting

This article discusses the importance of management accounting in decision making and improving efficiency. It explains how management accounting differs from financial accounting and how it helps in forecasting and planning for the future of the company. It also highlights the role of cost accounting in identifying and reducing unnecessary costs. Overall, it emphasizes the significance of management accounting in guiding the actions and strategies of an organization.

Online Exam

In submitting this work, I affirm that my work adheres to the scholarly and intellectual standards
of honesty and integrity. I affirm that this work is my work only and that in the preparation of
this work I have not consulted any person. I affirm that I have not plagiarized or misrepresented
the ideas or language of someone else as my own and that I have fully and accurately attributed
any ideas or text of others to the sources and documented each source.

Question 1:
a. Breakeven point of the Sandals for Solent Ltd.
Contribution per unit:
Amount per unit (£)
Selling price £5.75
Less: COGS
Direct labor £1.35
Direct Materials £1.75
Other direct costs £0.40
Contribution £2.25
Breakeven point in units:
= ¿ cost
Contribution per unit = £ 180,000
£ 2.25 = 80,000 Units
Hence, it can be concluded that Solent Ltd. requires to sale atleast 80,000 units of Sandals to
cover its fixed expense and to attain the situation of no profit no loss. Besides this, company
should also add marginal safety to calculate Breakeven point; so that it could avoid the situation
of out of stock.
Breakeven point in revenues:
= Breakeven point in units × Selling price
= 80,000 × £5.75
= £460,000
Therefore, it can be concluded that; Solent Ltd. requires to generate atleast £460,000 revenue to
cover its fixed expenses; but company will not able to record neither profit nor losses.
b. Calculate the profit made on sales 90,000 units
Amount per unit
(£) Units Total (£) Total (£)
Selling price £5.75 90,000
£517,50
0
Less: COGS

Direct labor £1.35 90,000
£121,50
0
Direct Materials £1.75 90,000
£157,50
0
Other direct costs £0.40 90,000 £36,000
£315,00
0
Contribution
£202,50
0
Less: Periodic cost
Fixed cost
£180,00
0
£180,00
0
Net Profit £22,500
Therefore, company will earn £22,500 profit by selling 90,000 units.
c. New profit figure
Amount per unit
(£) Units Total (£) Total (£)
Selling price £6.00 94,500
£567,00
0
Less: COGS
Direct labor £1.40 94,500
£132,30
0
Direct Materials £1.90 94,500
£179,55
0
Other direct costs £0.40 94,500 £37,800
£349,65
0
Contribution
£217,35
0
Less: Periodic cost
Advertising campaign £12,500
Fixed cost
£180,00
0
£192,50
0
Net Profit £24,850
Hence, after improvement of product; Solent Ltd. will get revised profit of £24,850 which is
£2,350 more than that of previous profit.
d. Limitations of break-even analysis
Break-even analysis seems to be a very important and useful guide to decision making. Overall,
the break-even charts are moderately simple to construct and provide data to managers on return

on break-even forecasts, margins of safety and profit and loss at different output levels. Besides
this there are some of the limitations of breakeven analysis which have been discussed below:
1. Break-even analysis is based on the assumption that all costs and expenses may be unfairly
divided into fixed and variable segments. In practice, however, it may not be possible to achieve
a clear separation of costs into fixed and variable types.
2. Fixed costs are expected to remain constant across all stages of transition. It should be noted
that fixed costs generally move beyond a certain level of activity.
3. Variable costs are expected to vary depending on the size of the product. In practice, they
move, in uncertainty, in sympathy for the size of the product, but not in direct measurement.
4. The suspicion that sales value remains unchanged provides a direct line of potentially invalid
income. The cost of selling an item is based on certain variables such as market demand and
grace, conflict and so on, so it almost stays constant.
5. It is difficult to predict that only one item will be delivered or that the combination of items
will remain unchanged over time.
6. Assigning fixed costs to a range of items is a problem.
7. Trading conditions are not expected to change, which is wrong.
8. The sums of creation and application are expected to be equal and there will be no change in
opening and closing supply of finished products, these are not very practical speaking.
9. The return on investment of the original investment does not reflect the level of capital
employed in the organization. To be sure, the capital employed is an important indicator of the
profitability of a concern.

Question 2
(a) Critically discuss why management accounting is necessary, given that
most businesses have to prepare financial accounts in accordance with the
law.
Managerial accounting, also known as management accounting, defines the use and arrangement
of accounting data required by administrators, accountants and auditors of an association.
Encourages them to make informed choices regarding any emerging problems in society; it also
helps them familiarize themselves with administrative control capabilities that prevent them from
taking any off-base options that could harm the organization's operations. He chooses a positive
approach that predicts the future of the group's previous presentation. It was not based on
authentication models that discouraged administrative choices during execution. It is specifically
designed to support management in making important choices and is not disclosed to investors or
credit institutions. It is usually deeply classified (Bromwich and Bhimani, 2005).
So keeping Managerial accounting helps an individual in the company or society as a whole to
make the right choices in areas of interest. It is necessary to consider the aspects of accounting
that influence the behavior of the people who make up the company. The associations regularly
decide on decisions and options regarding the quantity and type of data to be provided to the
representatives and based on the data provided, staff will continue to make judgments and
choices.
Appropriateness of Managerial accounting
Managerial accounting is the type of accounting that provides financial data to administrators
and leaders within an organization or association. Administrative accounting, for example, week-
to-week or daily planning, is used to help leaders make choices that increase the suitability and
viability of the association.
Management accounting is not the same as financial accounting as cash related accounting is
based on the provision of quarterly or annual balance sheet data to financial experts, investors,
tenants and others outside the society. On the other hand, internal accounting is used internally to
improve internal efficiency (Bromwich and Bhimani, 2005).

Managerial accounting involves forecasting and planning to project the financial direction of the
company in the coming months and years. These plans often include revenue projections but also
cost. This high-level agreement usually involves producing a capital finance plan, which
eliminates any profit costs to be incurred at a later date (RS and Atkinson, 1989). The spending
plan may include costs and projections for the purchase and construction of new hardware.
Management accounting is used to analyze the benefits of cost savings for new initiatives and to
provide ongoing reporting on existing activities. These commitments may include specific cash
or capital costs as a new obligation to finance them. Therefore, bookkeeping is critical to ensure
these initiatives are implemented within a financial plan and in a cost-effective manner while
being equally productive.
Estimation and execution through administrative accounting will allow the primary
administration to gradually decide on options. Estimating performance against assumptions and
spending plans helps exorbitant aggression and allows an organization to remain competitive.
Importance of Management accounting
Several associations rely entirely on budget accounting data to make a decision. The rationale
behind this study was to determine whether the use of executive officers and cost accounting in a
society could provide administrators with meaningful data that would help them to take over and
influence the presentation of Government money. The findings showed that data execution and
cost accounting tools can certainly give managers to decide on efficient and centralized options
that will help them gain the upper hand and added benefit. Moreover, there is no doubt about
their importance in society.
The Management accounting framework as the most important source of data is essential for
achieving the company's vital goals. Like these lines, there will be gaps and shortcomings in the
framework, reducing efficiency and effectiveness and creating a number of problems in society.
The executive accounting framework as a large subset of balance sheet and non-cash data
agreements provides a variety of data types for messengers, especially managers from any
association. Given the plausible results and the capabilities and barriers of each practical
connection, board accounting is a means of control, evaluation and judgment, as opposed to past

performance and managing future opportunities, moderately good and measuring the level of
capacity, operational capacity and effective activity. of any size, dimension and shape.
Accounting is not required by law. So it can have its own structure as the organization's
prerequisites unfold. So if your organization feels that some departments need more internally
and externally, they can do so unprotected.
This introduction includes indicators, spending plans and top-down analyzes. So it helps the
administration to organize the commercial activities. Budget accounting is the introduction of
accounting data for partners and controllers. Displays the budget position for the entire time.
Another key function of action accounting is to assist managers in setting item costs by
providing all data relating to costs, market segments and profit. Similarly, action accountants can
help determine the life cycle of existing items as well as the rationality of new items. Board
accounting is a comparison of cash related accounting.
Cost accounting is a large subset of administrative accounting that focuses specifically on
capturing the total costs of creating an organization by valuing the variable costs of each creation
progress, just like the fixed costs. It enables organizations to identify and reduce unnecessary
costs and increase benefits (Horngren, Sundem, Elliott and Philbrick, 2002). Accounting related
to cash, expenses, business audit, financial matters and so on are some management accounting
tools and methods (known as expense accounting or board accounting) as part of accounting that
takes care of evidence, estimating, analyzing, and translating accounting data so that they can be
used well to help leaders make basic choices to address productively the activities of an
organization.
Executive officers and accounting machines update a company's money display, but it's not that
simple. This study found that proper use of on-board and cost accounting tools can result in a
better budget for the company. This is consistent with a well-known experimental demonstration
that accounting methods are linked to performance. Similarly, Baines and Lang field-Smith
(2003) found that organizations that rely more on non-cash accounting data developed their
presentation (Corbett, 1998).
Management accountants (also called managerial accountants) sometimes take the lead in and
around a company as they think about the needs of the company. . This improves information

and evaluations. Cost accounting is the way to make assessments and transform that information
into information that will eventually be used to guide the dynamics. Interim Management
Accounting is the second part of a program aimed at anyone just starting their business, fund or
accounting journey and need to expand their loyalty (Corbett, 1998).
Interestingly, accounting reviews and results are included to use business pioneers to
dynamically lead and manage the organization more successfully. Administrative accountants
handle many aspects of accounting. These include margins, requirements, capital planning,
modeling and decision making, valuation and cost of items. Accountants conduct an income
analysis to determine the financial impact of business options. Most organizations record budget
data based on accounting.
Managers can then use this information to implement changes and improve efficiency to the
creation or contract stage. When an accountant administers the revenue analysis, he or she thinks
about the flow of money in or out of a particular business option.
Some of the other importance of Management Accountant has been discussed below:
Small and medium-sized businesses, especially those in the early stages of development, need
vibrant and robust options to renew their revenue and market intensity. Therefore, clan leaders
must have an understanding of all aspects of business in order to decide on another business.
Board accounting provides execution and budget information that allows leaders to further define
plans as indicated by accessible data.
Implementing relevant cost analysis
Relevant cost analysis allows you to set aside all costs that cannot be selected and pay attention
to the main thing at that particular moment. According to each model, consider accepting an
unusual request in the last seven days of the month. He has to decide the cost of that request very
quickly so that the factor lies exactly in the information relevant to that particular request. As
payment rates, manufacturing equipment rentals, and other fixed costs are now being called up
for normal month-to-month manufacturing costs, the non-standard demand should include the
costs of materials and labor required. to create them (Burns, and Vaivio, 2001).
Set workable creation options

At times when another element or sub-element is required; it is difficult to decide whether it is
better to create unity on your own or hire an outside creative group to promote unity. This is
where administrative accounting can help them reach an option based on the cost appropriateness
of each option. Making the right choice can save you money, but it can also save your entire
business from a potential budget disaster. Sometimes it's more mediocre than changing your
quota creation lines than buying a unit; Be that as it may, there are occasions when an outside
provider can attract more money (Burns, and Vaivio, 2001).
Making effective production decisions
To plan for the future, the owner of the organization needs to know about his current situation
and follow examples related to the group's money-related activities. This will enable them to
make long-term plans for their business based on relevant data. Owners can significantly
increase their creative boundaries, as action accounting can allow them to access data when it is
generally reasonable to start the development cycle (Contrafatto and Burns, 2013).
Improvements take money, time, and often you have to stop creating for a while. Without proper
data, they could settle for a terrible choice and in the long run pay more for improvements than
they have planned.
Planning future business development
Another major benefit of accounting management books is the ability to come up with a solid
financial plan with every penny set exactly where it should be. Reviewing past actions,
unfinished years, and future initiatives plays an important role in determining a financial plan.
The organization must cover all aspects of its business when formulating the financial plan and
ensure it is adequately funding all areas of its operations to operate appropriately. has been
solved. Therefore, they won't be organized with extra cash or leave a shy office when needed.
Rational resource consumption ability
There are limited funds which are used regularly by the organization. Consistently there are
fewer funds to spend, so the organization must support usage. In business, the executive
accountant goes through the money to find various materials, experts and goods necessary for a
perfect delivery time. Accounting for executives can help them decide how to spend less money

to encourage their creation without affecting the nature or attractiveness of the items (Baines,
and Langfield-Smith, 2003).
By examining the work, materials and various costs, the owner can see how to get more with
less. For example, he can choose whether to reduce the number of representatives in a particular
office or move some of them to a place where more work is needed. Updating an item from time
to time can encourage the creation of less material without affecting the purpose and nature of
the item (Kaplan, 1984).
(b) Critically discuss the techniques by which the management accountant can
achieve the above objectives.
Financial accounting is a valuable tool for the board and external clients, such as investors,
potential owners, banks, customers, agents and government. It provides data on the outcome of
its activities and the financial position of the company. An accounting framework is in place to
make critical and accurate data accessible to all those committed to the association's government
support. Prerequisites for a larger part of them are met by budget accounting procedures. Be that
as it may, the administration needs more detailed data than traditional budget accounting can
offer. The focus of the administration, however, is not previously on what lies ahead (Ezzamel,
and et.al., 2003).
Management accounting aims to help association leaders identify and evaluate the side effects of
their options. It is also known as cost accounting or administrative accounting. It involves the
design of measurable budget reports and data to assist in the adoption of long-term management
options within the association. Management accounting reports contain all the essential
information regarding an organization’s income, income derived, stock subtleties, records
payable, liabilities and other related measures (Burns and Baldvinsdottir, 2007).
Some of the techniques of management accountant have been discussed below:
1. Financial Planning:
Financial planning is the demonstration of the pre selection of budget exercises that are essential
for the sufferer to achieve his essential goals. It involves deciding on the long-term and
momentary budgetary goals of the effort, designing cash arrangements, and building a money-
based approach to achieving the goals. The functioning of liquidity-related methods cannot be

underestimated in order to maximize returns for the capital employed (Krishnan, 2015). Cash
procedures can identify with determination of the amount of capital required, sources of
financing, management of commitments and salary behavior, proceed as a guide in the exercise
of liability and capital value and determination of the interest rate best in various facilities. .
In the financial planning technique, the managers plan to advance the primary financial
objectives of the organization. However, it also involves deciding which methods to use to
achieve this. Management decides how much capital will be needed, how the organization will
create the funds, and how the payment will be distributed. This strategy is useful as it recognizes
the overall financial standing of the organization. Money management is a different topic with
high expectations.
2. Analysis of Financial Statements:
The survey is an attempt to determine the importance and importance of information about the
tax relationship with the aim of assessing future income potential, the ability to pay prices And
improvements in the responsibilities and profitability of a strong profit strategy. . The procedures
for this review are similar tax summaries, model reviews, cash flow claims, and allowance
reviews. This test will lead to the inclusion of data that will help business leaders, financial
experts and tenants (Szendi and Elmore, 1993).
This approach involves defining and discussing only money-related information that may be of
benefit to the board. It includes a number of exercises, for example, model analysis, income
analysis and allowance analysis. These reports help leaders determine revenue, income,
mandatory improvements, and whether the association will be able to continue with the mishaps
that should occur.
3. Historical Cost Accounting:
The historical cost accounting provides information passed to the administration identifying
itself with the cost of each operation, cycle and office and therefore could be verified with
normal expenses. This audit can be useful to the administration for cost control and future
liquidation (Szendi and Elmore, 1993).
A historical cost is a percentage of the high value used in accounting where the estimated return
on the asset report is posted at its specific cost upon receipt by the organization. The planned cost

strategy is applied to facilities based in the United States under strict accounting guidelines
(GAAP).
4. Standard Costing:
Standard costing is the basis of Standard costs in the most efficient working conditions,
correlation between the real and the normal, verification and analysis of variables, so that you
know the causes and identify and remedy the duty move it in so that unfavorable things don’t
happen again. This idea is important for controlling costs (Szendi and Elmore, 1993).
Standard costing are the method of estimating the cost of a construction cycle. It is part of cost
accounting that a manufacturer uses, for example, to plan their costs for the next year at different
costs, such as direct materials, direct labor or overhead. These representatives will be able to
compare normal and actual expenditure. The difference between ordinary expenses and actual
expenses is called. Such close proximity shows a trend based on what is recorded in the welfare
plan. In the event that actual costs are more valuable than normal costs, overall, operators can
expect a lower-than-expected gain. Given the potential for real costs, however, the board may
see a greater than initially expected benefit.
5. Budgetary Control:
The management accountant uses budget control equipment to organize and control the various
exercises in the sector. Budget control is an important method of coordinating business activities
in a unique way, which is to achieve a high level of profit. As part of budget control
mechanisms, future cash flow requirements are assessed and organized with efficient solutions. It
is used to control money views related to money. Business activities are coordinated as a
separate method (Clinton and White, 2012).
By the time an organization receives the actual results of the presentation, the administration
goes against that and the presentation / principles set out in the financial plan. The goal is to find
out what the actual performance is in relation to the expected show and to what extent the show
is off course. The group will examine the reasons behind the move in the real show and take
corrective action. For example, the organization may find that contracts did not increase by 12%
due to the lack of staff observed by the industry. As a result, the group is undergoing an upgrade
move to improve the performance of execution of the planned activities. Therefore, the

organization may choose to increase its staff to a certain level in order to obtain the appropriate
increase in contracts.
6. Marginal Costing:
The management accountant uses the strategy of marginal costing, differential costing and break
even analysis for cost control, decision-making and benefits expansion. The marginal cost
method is similar to monitoring progress for costs and contracts due to changes in construction
volume. Administrators use the initial investment analysis and different cost accounting tools of
action in this strategy. The reports generated in this way are used dynamically and maximize
their benefits (Clinton and White, 2012).
7. Funds Flow Statement:
The management accountant uses the technique of funds flow statement to break down changes
in the position of a commercial enterprise balance sheet between two dates. It shows where
resources in the industry come from and how they are used in the industry. It will be a great help
in reviewing and controlling the budget, future guidance and similar reviews. In the process of
accounting for the flow of activity, directors review the status of the organization’s balance
sheet. They remember where resources come from and how they are used in the organization. As
a result, the flow of investment resources and revenue analysis will help them control costs and
anticipate future ways to make better use of the money (Clinton and White, 2012).
8. Cash Flow Statement:
A funds flow statement that depends on an increase or decrease in working capital is very useful
in defining long-term budgets. It is very unlikely that there will be sufficient working capital as
found in the definition of asset flows and yet the organization may not be able to meet current
liabilities when payable. This could be due to the collection of documents and the expansion of
exchange account holders. In such a situation, the income classification is more valuable because
it provides reliable data on income and growth.
Cash flow statement is an important tool for controlling money as it constitutes sources of money
and employs money in a company for a period of time, such as a month or a year. It is a useful
tool for analyzing the liquidity of the effort. Money management starts with one start and the
next through this review. Furthermore, it is possible to find the explanations behind monetary

equality and the changes between two periods. Monitor business money and money development
over time.
9. Decision Making:
Once there are several options for performing a particular task, it will be important to choose the
best one on similar terms. This requires choice over administration. Management accounting
helps the administration through lower cost methods, capital planning, cost differentiation to
choose the best option that will maximize the benefits of the company (Clinton and White,
2012).
Businesses are complex. It is necessary to evaluate a number of components, factors and
conditions before making any financial choices for the society. There may be some options
before the game board. Dynamic methods help them choose the best ones. A number of board
accounting tools are used, for example, variable costs, capital planning and lower costs to select
the right option to maximize the profit in the industry (Clinton and White, 2012).
A business problem can be understood by choosing one of the better and more productive
alternatives. In order to choose this alternative, the associated costs are considered. Therefore,
accounting data is used to address the business problem that arises from the increasing
complexity of the nature of the business.
10. Revaluation Accounting:
The management accountant, in this way, undertakes to support and preserve the capital of the
countryside. It covers the impact of cost changes on the preparation of budget summaries. The
concessions are based on the revaluation according to the revaluation accounting strategy so that
the capital is spoken correctly while respecting the benefits. Helps determine the reasonable
return on capital employed.
The revaluation is used to adjust the accounting estimate of the fixed income to estimate the
current market. This is an alternative to International Financial Reporting Standards, but is not
permitted by Generally Accepted Accounting Principles. When a company renovates a fixed
structure, it transfers it to its reasonable value, minus the resulting accumulated depreciation and
the cumulative inconvenience. An association cannot use revaluation solely on resources on an
individual basis. Instead, it is implemented in fully equipped classes.

If a revaluation results in a decrease in the carrying amount of a fixed asset, recognize the
decrease in profit or loss. However, if there is a credit balance in the revaluation balance for that
benefit, note the reduction in the total other salary to balance the credit balance. The reduction
seen in other major salaries reduces the rate of any revaluation surplus that the company may
have in value.
11. Statistical and Graphical Techniques:
The management accountant uses a variety of factual and graphical methods to make the data
more relevant and to integrate it into a structure so that it can assist administration in a dynamic
way. The strategies used are Key Card, Sales Card: and Earnings, Investment Card, Serial
Programming, Statistical Quality Control and so on.
There are a lot of statistical techniques used to eliminate edge problems. The strategies for least
square, redistribution and quality control and so on are just a few examples of measurable
methods.
12. Communicating:
The success or disappointment of the administration depends on reality, whether the critical data
is given to the administration in the right structure at the right time, to allow them to complete
the organizational, control and dynamics elements in a way stable.
The management accountant will prepare the basic reports for the dissemination of data to
various levels of the board, through valid verification of the information to be entered, the
correlation of the information and the choice of the method of ad change. Lack of
communication or lack of direct communication between the representatives and the
administrator can be a particular limitation for regulatory accounting. Leaders need to get the
perfect data at the right time. This allows them to properly perform the dynamic organizational
and control elements. Free communication movement is an undoubted requirement for better
functioning of society.

References
Books and Journal
Baines, A. and Langfield-Smith, K., 2003. Antecedents to management accounting change: a
structural equation approach. Accounting, organizations and society, 28(7-8), pp.675-698.
Bromwich, M. and Bhimani, A., 2005. Management accounting: Pathways to progress. Cima
publishing.
Burns, J. and Baldvinsdottir, G., 2007. The changing role of management accountants. Issues in
management accounting, 3, pp.117-132.
Burns, J. and Vaivio, J., 2001. Management accounting change. Management accounting
research, 12(4).
Clinton, B.D. and White, L.R., 2012. The role of the management accountant: 2003-
2012. Management Accounting Quarterly, 14(1), p.40.
Contrafatto, M. and Burns, J., 2013. Social and environmental accounting, organisational change
and management accounting: A processual view. Management Accounting
Research, 24(4), pp.349-365.
Corbett, T., 1998. Throughput accounting: TOC's management accounting system (pp. 41-80).
Great Barrington: North river press.
Ezzamel, M., Scapens, R.W., Baldvinsdottir, G. and Burns, J., 2003. The future direction of UK
management accounting practice. Cima Publishing.
Horngren, C.T., Sundem, G.L., Elliott, J.A. and Philbrick, D.R., 2002. Introduction to financial
accounting (Vol. 8). Prentice Hall.
Kaplan, R.S., 1984. The evolution of management accounting. In Readings in accounting for
management control (pp. 586-621). Springer, Boston, MA.
Krishnan, R., 2015. Management accountant—What ails thee?. Journal of Management
Accounting Research, 27(1), pp.177-191.
RS, R.K. and Atkinson, A.A., 1989. Advanced management accounting. Prentice-Hall Inc.
RS, R.K. and Atkinson, A.A., 1989. Advanced management accounting. Prentice-Hall Inc.
Szendi, J.Z. and Elmore, R.C., 1993. Management accounting: are new techniques making in-
roads with practitioners?. Journal of Accounting Education, 11(1), pp.61-76.