Management Accounting: Tools and Techniques

This assignment is focused on management accounting, covering various tools and techniques used by managers to solve financial issues and enhance performance. It includes references from books and journals that discuss the application of management accounting in different contexts. The assignment is likely to be used by students in a course or program related to accounting or business.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
Part A...............................................................................................................................................1
P1 Essential requirement of different type of management accounting system.........................1
P2 Different methods used for accounting reporting ................................................................3
M1 Benefits of management accounting system and their application by the organisation.......4
D1 Critical evaluation of management accounting system and management accounting reports
.....................................................................................................................................................5
P4. Different planning tool used for budgetary control with their advantages and
disadvantages..............................................................................................................................5
P5 Comparison in which management accounting systems are used by the organisation..........7
M3. Different planning tools and their application for preparing and forecasting budgets........8
D3. Evaluation of planning tools to respond financial problems................................................9
CONCLUSION:...............................................................................................................................9
REFRENCES.................................................................................................................................10

INTRODUCTION
Management accounting refers to the process of analysing various sections of
organisation and providing information related to finance to managers (Bennett, and James,
2017). This provides help in forecasting future and making effective decisions. The major
purpose of this tool is to plan appropriately for the future requirements. The company which has
been selected is Jaguar Land Rover engineering company. It is one the most reputed company of
UK that deals in designing, manufacturing and sales of vehicles. It was founded by William
Lyons in the year 1933 and it's main headquarters is in Whitley, England. Topics which has
been discussed in the following report are different types of management accounting systems
used by the company to handle variety of functions such as Price optimisation, Cost accounting,
Inventory and Job costing along with accounting reports, planning tools advantages and
disadvantages. Further comparison between the two organisation while dealing with financial
problems using such system. This Report will explain how applying these tool can help the
organisation in achieving growth.
Part A
P1 Essential requirement of different type of management accounting system
Management accounting is a method that analysis financial information of organisation in
order to plan effectively for the future requirements of business. It is vital for every company to
adopt this process as this helps in providing strong base to the organisation and helps in
achieving the goals. Being an accountant of Jaguar it is compulsory to manage company's
finances and making plans for the purpose of further growth (Christ, 2014). Jaguar is a well
known established brand it has variety of functions that are handled by different systems of
management accounting, their essential requirements in the company are discussed below:-
Cost accounting- This system is concerned with estimating cost incurred on various
stages of production which are later being compared with the revenue generated on output.
Jaguar design,produce and develops vehicles therefore this system is used by the company to
estimate the expenses occurred in every phase so that managers can decide strategies that needs
to be adopted to generate higher returns so that cost can be covered and profits will maximise.
This systems also essential as it helps in ascertaining the financial position of business by
keeping track of every cost that has been put in terms of money, time and efforts.
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Price optimisation System- It is a system that uses mathematical analysis and keeps
check of customers response towards the changing prices. This is used for setting appropriate
prices for the products and services offered by the company. Thus it is based on the cost of
manufacturing product their demand and level of competition in the market. Jaguar has adopted
this system to set charges for the different models of cars and gaining customers attention. This
system is essentially required as it helps in determining what expectations does customers have
from the brand (Drake, Roulstone and Thornock, 2016). It is very important to adopt this system
as organisation suffers from losses due to ineffective pricing. This is used to maintain the
appropriate balance between the value and profit.
Job costing System- It is a system of managing cost associated with different jobs that
are being performed by employees in the organisation. This system is being adopted by Jaguar
for the purpose of handling and maintaining expenditure associated with manufacturing of cars.
Different types of cost such as direct material, labour and overhead are required to be retained by
using this system. It helps companies in reducing expenditure and effective management of
funds. Cost accountant analyse the cost allotted to each job and providing that information to
billing department for the purpose of issuing invoices. Decisions are then taken by the managers
weather to increase the cost or decrease it.
Inventory Management system - It refers to the process of keeping track of raw
materials, assets and supplies along with finished products. This system is used by the Jaguar to
manage the inventory level of company by listing orders their deliveries and sales of products. It
is essentially required for maintaining the complete information of items such as their location,
availability and prices. For example various online shopping websites this system to track the
inventory and sync it with the sales for the shipment purpose. Therefore organisation needed to
adopt this method in order to control the storage of goods. There are three types of inventory
system such as Last in First out in which goods that are recently received used first for the
production purpose. Second is First in first out under which goods received previously are used
for production, last is Average cost method where cost of inventory is calculated on the basis of
average cost of goods that are being sold.
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P2 Different methods used for accounting reporting
Accounting reporting refers to process of listing, analysing and acknowledging the
information related to operations of business. Data generated by preparing various reports helps
in ascertaining the revenues and expenditure made by the organisation along with the amount of
profits that are being earned. Each report represent different information which is used for the
purpose of planning, decision making, controlling and evaluating the performance of company. It
should be prepared by skilled employee as even single mistake can project wrong image which is
not good for the business.
There are various types of accounting reports which are being discussed below:-
Cost managerial report- These reports are prepared for analysing the expenditure made
by the company in the production of goods and services. Expenses of Jaguar is related to the
direct, indirect and overhead on the construction of cars. Managers compare the cost of
production with the selling cost and then take measures to reduce the expenses if they are too
high (Fayol, 2016). They also set prices for the products based on the information delivered by
these reports therefore it is beneficial to prepare such reports for the maintenance of different
types of cost.
Account receivable report- These reports are created by the organisation for keeping the
track of credit transactions. If the company is dealing mainly with creditors then it has to
maintain this report for acquiring data about the amount needed to be paid by the clients. Jaguar
manages determines credit policy with the help of preparing these report. Managers of Jaguar
manages the credit memos and invoices issued to customers. In this way company manages to
save itself from the defaulters as the complete information regarding those who has not made
payment along with the accurate amount can be determined through this. Increasing the
profitability of business is it's main advantage.
Performance report- such reports are prepared for the purpose of analysing the
performance of organisation. It provided detailed information related to how well are different
departments are performing. Jaguar determines the performance of each division of the
organisation along with employees and take corrective measures to improve them. Managers
discuses the issues that are occurring and communicates with workers. Decisions related to
rewards like bonus , incentives, promotion are also taken on the basis of these reports. This helps
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in increasing the productivity of the company. Preparing these reports are beneficial as through
this significant improvement in the overall performance of organisation can be made.
Budget report- It is one of the essential reports of organisation that are prepared to
compare the actual performance with the budgeted figures (Fullerton, Kennedy and Widener,
2014). This helps in determining weather the organisation is working as per the set standards or
not. Jaguar maintains finances by formulating this report which helps management in evaluating
the if the company has achieved targets or not and then take decisions about increasing or
decreasing budgets. It ensures that tasks are being completed with in the boundaries of set
amount. Revenues and expenditure related to business operations are estimated on the basis of
this method. It is beneficial to create these reports as they provide aid to managers in decision
making regarding cutting cost and negotiation with the suppliers.
M1 Benefits of management accounting system and their application by the organisation
Management accounting system are the methods which are used to analyse the various
processes of organisation. These are the techniques that helps in the evaluation and measurement
of business performance.
Management accounting
system
Use Benefit
Inventory system It is used to control the
inventory level of Jaguar by
maintaining the record of
stocks and articles that are
used for manufacturing
purpose (Hsu and Lin, 2016).
It is beneficial to adopt this
system as provides guidance to
the Jaguar about the
information of products for
example the location of an
item where it has been stored.
Cost accounting system This system is used by the
Jaguar to manage the expenses
of company incurring on
manufacturing the different
models of cars.
It provides benefits to Jaguar
by analysing extra amount of
cost that has been spent.
Job costing system This system is used for the
purpose of analysing the cost
The main benefits of this
system is that it helps Jaguar
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associated with different types
of jobs performed by the
employees.
land rover in controlling the
wastage of funds, time and
efforts by eliminating those
jobs or tasks which are
irrelevant.
Price optimisation system It is used set appropriate prices
of goods and services
produced by the company.
This provides benefits to
jaguar by meeting the
demands of customers and
increasing the profitability of
company.
D1 Critical evaluation of management accounting system and management accounting reports
Jaguar Land Rover uses various management systems in the operation of business like
price optimisation system which is used to set effective prices as per the expectations of
customers. Costing accounting method is used to generate data on the expenditure incurring on
producing wide range of products (Jefrey, 2018). Job costing system is used to identify the
expenditure associated with different task that are being performed in the organisation.
Management accounting reports such as Performance report are also prepared to analyse the
performance of business along with account receivable report that allows managers to take
decisions related to tightening the credit policy in order to protect organisation from loss of
money occurring due to non payment of clients.
P3 cost analysis
Annex (A)
Budget 2019 2020 2021
Cost
Centre
Budgeted
production
overhead
costs in £)
Basis of
production
(overhead
absorption)
Cost
per
Hour Hours Cost Hours Cost Hours Cost
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A 66000 22000 3 24200 72600 26620 79860 27500 82500
B 75000 15000 5 16500 82500 18150 90750 19500 97500
C 83600 41800 2 45980 91960 50578
10115
6 51500
10300
0
Interpretation – On the basis above the calculation it has been analysed that company has
prepared their budget where has divided cost centres on the basis of budgeted production and
actual production related to absorption overhead. During to manufacturing process the job
number 427 has manufactured that time reveal information related to job like direct material
requisition and direct material return to stores. Direct labour has been divided according to
different cost centres such as A, B and C respectively. For job number 427 provided all detailed
information regarding three budgeted year 2019, 2020 and 2021. It is divided into two columns
hours and cost. There are calculated according to cost per hour and calculate total cost and
understand three year profit and loss to manufacturing company. Here cost per hour are for A –
3, for B – 5 and for C – 2. These are multiply by different rate which are given in the question to
particular cost centre. After than calculate total cost of A – 72600 in 2019, 79860 in 2020 and
82500 in C. For B – 82500 in 2019, 90750 in 2020 and 97500 in 2021. For C – 91960 in 2019,
101156 in 2020 and 103000 in 2021.
Annex (B)
(a) Labour hour: -
Product X = £6000*1 = £6000
Product Y = £8000*2 = £16000
Labour hour = £2,64,000
------------
22,000
= £12 per hour.
Overhead absorption on labour hour: -
X Y
Overhead absorption = 1*12 = 2*12
= 12 = 24
Total Overheads = £6000*12 = £8000*24
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= £72,000 = £192,000
(b) Using ABC approach: -
Machine hour per period:
Product X = £6000*4 = £24,000
Product Y = £8000*2 = £16,000
Cost driven rate: -
Production set up = £179,000 = 2893 per set up.
60
Order handling = £30,000 = 416.666 = 417 per order
72
Machine cost = £55,000 = 1.375 per order
40,000
Overhead using ABC approach: -
X
Set up = 15*2983 = 44,745
Order = 12*417 = 5004
Machine cost = 24000*1.375 = 33,000
Total 82749
Y
Set up = 45*2983 = 134,235
Order = 60*417 = 25,020
Machine cost = 16000*1.375 = 22,000
Total 181,255
Introduction – As per the above calculation it has been described that there are applied
conventional absorption costing for labour at appropriate rate and also apply ABC approach for
calculate cost driver. Firstly there are calculated labour hour to both products, product X and
Product Y so there are labour hour 12 per hour. Total overhead calculate to both products after
that apply ABC approach in order to set up - 44745, order – 5004 and machine cost – 33000.
P4. Different planning tool used for budgetary control with their advantages and disadvantages
Budget considered as a approximation of cash outflow as well as inflow or income or
expenses over a specified time period. This is generally prepared by company to allocate
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finances for various activities and methods after analysing the expenditure, revenue and
profitability of last years.
Budgetary control is refers as a kinds of management control under which a systematized
comparison of actual expenses as well as revenue is performed with pre-examined incomes and
expenses in order to assess the suitableness of prearranged figures of revenue and expenditure.
This process is useful to track and manage the budget that is ascertained for functions as well as
methods. It is performed by examining the differences among actual and desirable outcomes for
deciding how effectually budget is prepared within company. In Jaguar Limited it is utilise by
manager in order to recognise variances in budget as well as link up these variance with
performance for formulating effective policies and strategies to minimise this variances (Kolk
and Perego, 2015).
Jaguar Limited required to maintain as well as control the budgeted figures and also the
different methods and functions to attain sustainability into growth and increase profit. Firm
should formulate a organised plan to control budget which is needed to assure that activities are
performed effectively and efficiently. Some of the essential tools that is used by Jaguar Limited
to set up budgetary control are mentioned below:
Scenario Planning Tool:
This is the tool which formed a organised as well as structured way to develop
framework for strategic planning of a company. It assists to formed a base for assuming possible
effects of business surroundings in company. Jaguar Limited should apply this tool for
identifying or recognising potential occurrence that can impact the business segments of firm in
future.
Advantages:
This is considered as a flexible tool as it can be changes according to the stimulated
condition.
Disadvantages:
Practical implication of scenario planning tool is too much time taking.
Contingency tools:
This type of planning tools assists in recognising as well as allocating risky factors which
can impact the performance, activities, operations, growth of the company in future (Labro,
2015). Jaguar Limited can use this tool to analyse and evaluate the financial position in respect
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of gross as well as net profit situation and performance of different functions of organisation.
Respective firm need to examine this kinds of factors and develop effectual and proper strategies
to resolve them quickly.
Advantages:
This tool assist in finding extra as well as possible resources if any kinds of complexities
develop during the activities or functions related with present or already recognised resources.
Disadvantages:
Contingency planning tool is costly as well as time taking.
Forecasting tools:
This planning tool is apply by business enterprise for creating a structure for upcoming
events as well as occurrence with the assistance of recent and previous adjustment in trends. For
effectual outcomes of this tools, reliable and relevant information are to be utilise by the firm's
internal and external sources. In Jaguar Limited management can apply forecasting tool for
amassment of upcoming trends that can effect the organisation in future in pessimistic way.
Advantages:
This is helpful to find out any type of upcoming uncertainty as well as opportunities that
can affect the decision making of the business.
Disadvantages:
Practically, it is difficult to predict upcoming occurrences and events so with the help of
this tool company can not made the reliable estimation.
Annex (c)
Year X PV@ 12%
Dis Cash
Flow Y PV@ 12%
Dis Cash
Flow
0 -5000 -8000
1 2500 0.893 2232.143 1500 0.893 1339.286
2 1000 0.797 797.194 2000 0.797 1594.388
3 1000 0.712 711.780 2500 0.712 1779.451
4 500 0.636 317.759 1000 0.636 635.518
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5 1500 0.567 851.140 1000 0.567 567.427
6 1000 0.507 506.631 2500 0.507 1266.578
Total 5416.647 7182.647
Payback Period = Initial Investment
Average Cash Flow
Project X = 5000 = 4
1250
*Average Cash Flow = 7500 = 1250
6
Project Y = 8000 = 4
1750
*Average Cash Flow = 10500 = 1750
6
NPV: -
Project X = Dis Cash Flow – Initial Investment
= 5416.647 – 5000
= £416.647
Project Y = Dis Cash Flow – Initial Investment
= 7182.647 – 8000
= - £817.353
Interpretation: From the above calculation payback period of project X is 4 while average cash
flow is 4 it has been. As from the evaluation that Project Y contains negative balance of -
£817.353. so it is recommended that organisation should not adopt the project Y because it has
negative returns however project X retains a positive perspective.
P5 Comparison in which management accounting systems are used by the organisation
Financial problems refers to the situation which the organisation faces due to
insufficiency of finances (Salterio, 2015). These are major issues which companies has to
overcome as availability of money is necessary for the survival of business. Jaguar land rover is
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leading automotive company in UK but from the past few years it is facing huge financial losses.
The Two main issues related to finance are as follows:-
Decrease in demand- Jaguar is facing declining demands of it's products and loosing
billions of money (Luft, 2016). New innovative models needed to be made by the company for
the purpose of increasing sales and accountant are required to manage funds by keeping track of
money flow.
Unforeseen expenses- As jaguar is already facing losses it is using money which has
been kept in reserve to deal with contingencies. Due to this the company is no longer in a
situation to deal with unforeseen expenses which can occurred at any point of time.
There are two main approaches used by the company to discover such issues which will
be discussed in the following section.
Key Performance indicators (KPI):
This is considered as an analytical tool that aids in identifying performances in
equivalence to target of business. It also explain the manner to attain targets in effective way.
Key performance indicators are categorised in two parts that is high level KPI as well as low
level KPI. Through high level KPI whole organisational performance can be measured whereas
Low level KPI importance upon employees as well as staff performance in particular
departments like marketing, sales and so on. In Jaguar Limited, KPI are applied to increase the
effectiveness of particular function and resolve the issues that occurs in specific task (McVay,
Kennedy and Fullerton, 2016). This approach is used by Jaguar's managers in identifying
unforeseen expenses by analysing the position of business. They can deal with such uncertainties
by guiding them in right direction.
Benchmarking:
Under this techniques comparison is made between the company's practices with
competitors best policies which can be functioning within the organisation's industry or outside
of it. This helps in ascertaining the strengths and weakness of company. It is used by Jaguar as
tool to determining decrease in sales managers can understand where the company is lacking by
analysing the performance of company (Schaltegger, and Burritt, 2017). This also helps
responding to financial problems as managers of jaguar use this method to identify reasons
behind declining demands of it's products and continuous loss of sales.
Comparison between Jaguar Land Rover and Royal Royce:-
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Jaguar Land Rover Royal Royce
This company uses Job costing system to keep
track of cost incurred in activities such
designing, developing and manufacturing of
products and solving decrease in demand
problems by eliminating unnecessary cost.
Inventory management system is adopted by
the Royal Royce for maintaining the stock
level by keeping records of all the items.
Cost accounting system is used by the Jaguar
in dealing with unforeseen expenses by
accurately estimating the expenditures.
Royal Royce uses Price optimisation system is
used to set effective prices for the goods that
are being manufactured by the company.
M3. Different planning tools and their application for preparing and forecasting budgets
After analysing various planning tools of budgetary control it is clear that it assists the
management of Jaguar Limited for managing the methods which is related to budget planning as
well as preparation. These tools facilitates a structure of blue print formulation in order to
maintain overall activities which are straitly or incidentally helpful to ascertain the growth and
performance of respective firm. Company management can also use these tools to find out
opportunities and potential threats (Leung, 2016). For effectiveness of planning methods these
budgetary control plays a crucial role.
D3. Evaluation of planning tools to respond financial problems
In Jaguar limited, manager adapt different systems of management accounting to resolve
various financial issues like firm is facing problems of loss of money due to decrease in sales so
personnel manager of respective company have adapt scenario planning tool, contingency tool
and forecasting tool for identifying the appropriate reasons for it's problems that helps in
providing assistance to managers by maximising the efficiency through working capital
management (hields, 2015).
CONCLUSION:
As per the above report it has been concluded that management accounting is useful to
summarise as well as investigate whole essential data financial transaction which occurs in
company at the time of accounting year. This is a crucial methods which aids manager of the
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firm to obtain relevant data regarding operation and activities so that effectual decision making
are done. Also different system like inventory management, cost accounting and many more are
used for controlling as well as reducing cost and resources mismanagement. Various reports such
as job costing, inventory management etc. report are prepared by the manager so that they can
measure as well as appraise performance and also control cost that are included in particular job.
Various kinds of planning tools like forecasting, contingency and so on are applied to formulate
effectual budgets. Manager utilise many accounting tools which assist them to solve the financial
issues that are advantageous to enhance performance as well as profitability.
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Routledge.
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role of management control systems. Management Accounting Research. 31. pp.75-85.
McVay, G., Kennedy, F. and Fullerton, R., 2016. Accounting in the lean enterprise: providing
simple, practical, and decision-relevant information. Productivity Press.
Salterio, S. E., 2015. Barriers to knowledge creation in management accounting
research. Journal of Management Accounting Research. 27(1). pp.151-170.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts
and practice. Routledge.
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Accounting Research. 27(1). pp.123-132.
Tucker, B. P. and Lowe, A. D., 2014. Practitioners are from Mars; academics are from Venus?:
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