Principles and Practice of Management Accounting

Principles and Practice of
Management Accounting

Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
P1 Different kind of MA system............................................................................................3
P2. Different methods of MA reports:....................................................................................5
M1. Benefits of MASs:...........................................................................................................6
TASK 3..........................................................................................................................................14
P4. Advantages and disadvantages of different types of planning tools..............................14
Advantages.....................................................................................................................................15
M3. Planning tools role to make accurate forecasting and preparing the budgets...............16
TASK 4..........................................................................................................................................16
P5. Comparison of enterprise to use MAS and techniques to overcome financial issues....16
M4. Importance of MAS in the context of solving financial problems................................18
D3. Role of planning tools in overcoming from monetary issues........................................18
CONCLUSION..............................................................................................................................19
REEFRENCES..............................................................................................................................20

INTRODUCTION
Management accounting involves the framework and guidelines for the compilation of
documents and statements to help management executives in decision-making processes of the
organization. This is a larger and more diverse area which also contains managerial reporting and
accounting procedures supporting organizational practices and strategies (Chandar, Collier and
Miranti, 2012).The study discusses about each crucial aspect of managerial accounting and its
core requisites/requirements of its concerned systems in context of enterprise named Alpha
Limited, manufacturing entity and has only just 50 staff members. Alpha’s turnover per year is
around GBP500,000. Corporation has expertise in making local-made pizzas and founded in year
2001 as a small pizza corporation. With rapid growth in business company now is focusing to
open its franchising business.
TASK
P1 Different kind of MA system.
Managerial accounting, which is sometimes recognized as the management accounting,
is defined as the provision and use of accounting information supplied by a company's
executives, bookkeepers and accountants. This enables them to start taking the feasible decisions
about any ongoing problem that arises within the entity (Fiondella, Macchioni, Maffei, and
Spanò, 2016). This also helps them ingratiate themselves with the management regulation
processes that prohibit them from making any incorrect decisions that may impact the
corporation's functions. This opts for a forward-looking strategy that anticipates future from the
corporation's previous performance. Accordingly, managerial accounting lets a leader in a
company or the company as a whole make the correct decisions in areas of concern.
It is crucial to discuss about systems of MA which offers defined structures to convert raw
data and details into management relevant information. MA system may be defined as vital
mechanism which is implement by managers in organisation to generate and obtain major and
accurate information for supporting their managerial decision-making tasks. Alpha has also
implemented several major systems of MA within premises, as discussed below:
Inventory management system: Holding inventories/stock is never attractive, since excessive
inventory often amounts to increased operational expenditures. Modern manufacturing
corporations like Alpha also use the inventory management systems to assure they simply keep

the necessary volume of inventories that will support their processes without dealing with the
unnecessary costs of keeping additional inventory (Granlund and Lukka, 2017). Adoption
of inventory management systems is essential drivers of productivity for operations. Cost
reduction is one of ways of measuring the organisation's performance. The company's inventory
management techniques like LIFO, FIFO and Average cost method allow them to minimize costs
related to inventories. This system requires thorough information of inventories and methods
used in recording inventories. Following are several methods used by organisation for valuing
inventories, as follows:
LIFO: LIFO presumes that items which have created their manner to stock (after buy, produce,
etc.) will later be first sold while those that are early produced or purchased will be last sold.
Consequently, LIFO allocates cost of new stock to costs of sold commodities and costs of older
stocks to end of inventory (Hirsch, Seubert and Sohn, 2015).
FIFO: This method assumes that first bought stock is presumed to be first sold. This approach is
just opposite to LIFO method. Here first items sold are assumed to purchased first in particular
sequence.
Average Cost: This method employs a simple average rate to value closing stock. Here average
cost is assessed by use of weights. Here no assumption required to be taken like LIFO and FIFO
method.
Cost Accounting System: This system act as vital framework which concentrates on the
managing costs and allocates costs. Various costs and expenditures are elements that define
profit estimation. Especially manufacturing entity such as Alpha often tries to minimize the cost
per pizza in order to accomplish more profitability. Such system requires thorough analysis and
evaluation of different costs incurred within organisation (Horton and de Araujo Wanderley,
2018).
Job costing system: The accountability and administration of products and processes that are by
essence or in other aspects entirely different is challenging but the deployment of a system of job
costing may ensure that tasks linked to these goods are reported and handled smoothly. This
framework is beneficial for manufacturing firms such as Alpha which have wide range of
processes and product items. For eg, in Alpha limited corporation, their management are
enforcing such accounting system with intention of maintaining control over costs of jobs
associated with the varying activities and procedures. This system requires effective

categorisation of job processes and proper allocation of multiple costs to such prespecified job
processes.
Price optimisation system: This can be categorized as system of MA that is basically
connected to the products and services' pricing phase. It acts as supporting framework for
determining the prices of products in Alpha limited as it determine the prices by evaluating the
effect of suych price on demand as well as customer response. Corporations need to change the
commodity prices in accordance with marketing research. As in Alpha limited business, their
sales department has fix Pizzas prices as per market superiority and consumer requirements.
Essential Requirements of Management Accounting:
Accuracy: The information which is required for different management accounting
systems should be accurate. Vagueness and ambiguity in management accounting information
leads to inaccurate forecasts and interpretations which hinders the overall effectiveness of
management accounting.
Reliability: One of the most essential requirement of management accounting is that the
information which is being used by the management for decision-making related to everyday
operations is originating from a reliable source. Information from unauthentic and unreliable
sources is not significant for managers to make forecasts.
Relevancy: It is also very essential for the managers of an organisation to determine
which information is relevant and useful for making any conclusion or interpretation. A lot of
information is accumulated in the management accounting process which doesn’t have any
influence on the decisions and operations and such information should be ignored by the
managers.
Regularity: Irregularity and inconsistency in the information required by managers
hinders the effectiveness of management accounting systems and hence, it is imperative as an
essential requirement of management accounting to ensure that information is provided to the
managers regularly and timely.
Organisational structure: Structure of an organisation and channels of communication
within the company affects the flow of information which is essential for management
accounting. A strict chain of command and communication channel within the organisation
might stem the effectiveness in the flow of information which is not a desirable situation for

management accounting. Hence, it is vital for managers to ensure that organisational structure
allows the exchange and free flow of information to the managers.
P2. Different methods of MA reports:
The word MA reporting method can be defined as reports which constitute valuable
information concerning to all facets of financing and management. This reporting method offers
quick analysis of organisation’s performance. Generally, unit managers within organisation use
these methods to report critical analysis and information to top level managing officials
(Kastberg and Siverbo, 2016). Managers in Alpha prepare various types of reports as a part of
entire management accounting mechanism, as follows:
Inventory report: It may be characterized as a style of reporting which involves essential
information relating to the opening and closing of the balances of different types of inventories
within Alpha, namely raw resources items, finished goods items etc. Such a report contains all
information of methods used for determining stock volumes like LIFO, FIFO and weighted
average system. In the aforementioned Alpha limited business, executives are using such report
to keep in contact about how much materials they have at end of a single day.
Performance report: This report method that includes the main performance-related details for
each employee in detail. This is required by managers in companies to make rational judgments
about growth of the employees. The absence of this report will mask the overall output of staff.
Besides employee performance records, it also provides key information such as output of
different functions and activities performed, etc. In case of the aforementioned Alpha limited
corporation, the managers prepare this report in attempt to maintain and improve performance of
employees and set policies for them.
Budget report: This is a report which contains precise detail about budget success and actual
outcomes. through this report, the Financing division would be enabled to determine the
discrepancy between real and estimated efficiency. The managers produce this report towards
tracking deviations and keeping an additional finger on final results within the framework
of above-mentioned Alpha limited corporation. Information of this report act as basic foundation
of entire established budgetary system and managerial control as it allocates areas of deficiency
in system (Prencipe, Bar-Yosef and Dekker, 2014).
Accounts receivable ageing report: It can be represented as a report which offers extensive
figures on overall account receivable balance that is to be collected by enterprise and how much