Principles and Practice of Management

This document provides an introduction to management accounting and its different systems, such as cost accounting, inventory management, job costing, and price optimization. It also discusses various methods for management accounting reporting, including cost reports, performance reports, and budgets. Additionally, it explains the advantages and disadvantages of using different planning tools for budgetary control. The content is relevant for students studying principles and practice of management.

Principles and Practice
of Management

Table of Contents
INTRODUCTION...........................................................................................................................5
LO1..................................................................................................................................................5
P1 Explanation of management accounting along with different types of management
accounting systems......................................................................................................................5
P2 Different methods for management accounting reporting.....................................................7
LO2..................................................................................................................................................9
P3 Calculating costs under different management accounting techniques.................................9
LO3 ...............................................................................................................................................14
P4) Explain the advantages and disadvantages of the different types of planning tools which
are used for budgetary control...................................................................................................14
P5) Compare the organizations which are adopting the management accounting systems and
respond to the financial problems ............................................................................................16
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Management accounting is an effective process of evaluating, planning for making
financial data, budget and reports (Jermias, Gani and Juliana, 2018). This present study is based
on Alpha Ltd which is a medium size manufacturing company as it has approximate 50
employees and generate revenue of about £500,000 per year. It is famous for producing
qualitative and delicious pizzas. It has made an effective growth and now making plan to
intensify its franchising business. This report is going to show different system of management
accounting which helps manager in making effective decision and maintaining a balance
between demands and supply. It will also show different management accounting reports which
also helps manager in controlling activities for reducing cost and accomplishing goals within set
budget. Further, this study will discuss importance of balance score card by making differences
in 2 companies and also will analyse the way of solving financial issues with these tools.
LO1
P1 Explanation of management accounting along with different types of management accounting
systems
Management accounting is known as cost accounting in other words which is an effective
procedure of analysing business operational cost and operations in order to make internal
financial report. The main aim of management accounting system and keep track of all
information's and data is to reduce cost and making an effective decision. In an organization,
there are several decisions are being made by focusing on cost as each activity is being run with
the help of cost and amount (Eldenburg and et.al., 2019). It represents accounting informations
and business activities of internal management for regulators and stakeholders. For working as a
trainee management accountant in a medium size company, it is important to have knowledge of
management accounting and its all types. It is a critical process of analysing, measuring and
communicating economic data in order to make an effective informed decisions by the users of
data as per the American accounting association. There is some differences between
management accounting and financial accounting. There are different types of management
accounting systems which are being shown below:
Cost accounting system: It is a framework that can be applied by Alpha Ltd for
analysing approximate the cost of its products with the main aim of valuation of inventory, cost

control as well as profitability analysis. This costing system allocation is being done by 2
methods and dependency such as: activity based and traditional costing system. The main aim of
this system is to analyse and identify costs of production cost of the company by weighing input
cost of each production step. It offers several analytical tools such as: marginal costing, standard
costing, inventory control that are being applied by management for discharging reproductively
efficiency (Schaltegger and Burritt, 2017). In general business manager of the company depends
upon the accounting informations because each activity of the company like marketing, HR is
being performed and explained via cost.
Inventory management: It is all related to raw materials and inventory for controlling
the ordering usage and storage of components which are being used in the production process.
This inventory management system has a combination of some steps such as application of
barcode scanners, mobile devices and desktop software. In other words it can be said that it is a
system of controlling as well as overseeing quantities of final products for sale. The main aim of
using this system is to minimize overstock and under stock situation and reducing cost. For
making this system successful, it is important for the manager to track total quantities across the
stocking location or warehouses, they can have insight and make themselves able to take an
effective decision related to inventory. Inventory and raw materials is the key of the success of
the company that have direct impacts on products sells. There are several functions required to
be followed for this successful system such as: creating purchase orders, relocating that and
disposing of inventory. After all these primary functions, they also need to make sales orders,
picking, packaging and shipping of products. Some benefits of inventory management is to
improve the bottom line of the company, increasing accuracy and authenticity of inventory,
reducing costs and improving company workflow.
Job costing system: There are different departments and batches of products which
require to have manufacturing costs for performing production activity and this system is used
for allocating that cost to each item. In some situations cost are being refunded to customers and
for making its effective, company requires to submit that cost informations to customers. This
system is also being used in determining accuracy of the estimating system of the company. This
information can further also be used for assigning inventorial costs in order to processed
products. Successful implementation of this system requires to have enough informations related
to direct materials, overhead and labor.

Price optimization system: It can be defined as an application of mathematical analysis
to the company in order to identify the reaction of customers to various prices for their products
through different channels. It is also being used for determining the best price which can help
them in accomplishing their goals of maximizing operating profit (Zhu and et.al., 2017). They
also identify the best and alternatives through the highest achievable performance.
P2 Different methods for management accounting reporting
Managerial accounting mainly focuses on internal informations which are being collected
via financial accounting (Bardach and et.al., 2015). Management accounting relies on financial
statements with the help of balance sheet, income statement and cash flow statement. The main
aim of implementing management accounting is controlling, planning and decision-making. So,
it can be said that different forms of accounting reports can be applied by companies or Alpha
Ltd for evaluation of corporate informations. Different methods for management accounting
reporting includes:
Cost reports: Management accounting calculates the total cost of manufactured items of
the company. It is being completed by taking all inputs or raw materials overhead, cost paid to
labourers as well as other extra costs. All considered cost are being divided into amount of goods
purchased. All necessary informations are being added in summary form in the cost report. The
importance of this cost report in an organization is it allows manager of the company to view the
actual cost value of products and selling prices. It assists managers' plan and control profit
margins (Maas, Schaltegger and Crutzen, 2016).
Performance reports: Management accountants apply cost budget for analysing and
identifying the differences between actual revenue and expenditures to the budgeted amounts.
All computed differences are then evaluated while making new budgets by adding all
informations concerning those amounts which is listed on the performance report. This report is
being created and calculated each year but there are some large companies who create this
reports monthly or quarterly. The main aim of making this report is to analyse the actual position
and performance level of the company by comparing with determined results. After analysing
position and differences, they make changes in their strategies and performance for getting more
effective results. This report also help managers in making an effective plan for the future
demands in production and cost increases (Vasseur, Hui and Tolle, 2015).

Budgets: Budget preparation is the main important function and key element of
management accounting. Managers made and prepare budget on the basis of previous and last
year of budget. They take previous budgets as a forecasting for the future. This budget shows
lists of all expenses and revenue sources which helps to manager to the great extent in taking
effective decision. Accountant also tries to accomplish companies and management accounting
goals by staying within the budget amounts (Wickramasinghe, 2015). The main aim of manager
of creating budget is to save money and performing all activities within determined cost and for
this purpose they even employ new vendors for supplying raw materials to them. It is the best
way of saving money and working within budget. They do not only decrease costs but also looks
for those ways which can help them out in increasing sales.
There are several benefits of using management accounting reports which are discussed as
below:
Helps in selection: For making an effective decision and taking competitive advantages
it is important for the company to have accurate informations. All these described reports have
only accurate and relevant informations which helps the company in choosing one profitable
alternative (Maas, Schaltegger and Crutzen, 2016).
Provide accurate informations: The main purpose of making all management
accounting reports is to provide informations to different levels of management. This
management consists of supervisor, foreman, department management, special officer etc. All
these people get accurate informations such as: cash flow, fund flow from these reports.
Helpful in control system: Target has being set on which employees need to work.
Management has to perform controlling function and need to see whether employees are working
as per the planning and given target or not. Reports are also being made in a way which can help
manager in measuring the actual performance with the budgeted targets. If they find any
unfavourable variances then they find reasons and appropriate actions for reducing that variance
and making them successful. So, it can be said that all these reports work as like a control tool
which is beneficial for making controlling function easy.
Role in profitable operations: Some reports of management accounting shows and
highlights the direction in which business is expected to move in and the level of operation. On
the basis of this type of report, management can give a clear cut and accurate instructions by
telling that how to increase the profitability for employees (Leuz and Wysocki, 2016).

LO2
P3 Calculating costs under different management accounting techniques.
Problem 1
Calculating Profits as per different costing techniques
Marginal costing
marginal costing is the costing of item to its variable cost. Production cost of the item is
analyzed which is including the material cost and direct labor cost as well. It would increase the
volume of the production and the sales of the production as well. It is dividing the variable cost
from the product cost and the variable cost is calculated on each item. Fixed cost is written off in
the marginal costing of the product. It is calculated on the individual product on per unit which is
produced in factory.

Absorption costing
In the absorption costing is the method of calculating the cost on product which is
produced by the company and also the indirect expenses as well. It is including the
manufacturing the cost of the products which are produced in the factory. The cost of the
products includes the direct material and direct labor as well. Overheads are also included in the
absorption costing.

2.Schedule for reconciling the net operating profit of under variable and absorption costing

problem 2
A. BEP in units and in GBP

B. Contribution Margin Ratio

2. Company expects a sale of 20,000 units for the next month.
In case company expects for selling 20000 units for next month
Income statement in case of machine installed and not installed

LO3
P4) Explain the advantages and disadvantages of the different types of planning tools which are
used for budgetary control.
Budgetary control is helping the company to achieve the targets and to keep control over
the expenses. Budgets are prepared for controlling the cost of the future dates and to find the
actual cost which has occurred by company. It is keeping the record of how much at the
company has to spend and how much company has spended. Budget is prepared for coordinating
the between the different departments. Operating the cost centers and monitoring the working of
the department in the effective way (Appelbaum and et.al., 2017).
Advantage of budgetary control
There are some advantages of setting the budget like it is set for maximizing the profits.
Budgets is prepared for analysing the expenses which have to be occurred and which has been
occurred. The difference is the profits which can be increased by company. These profits can be
increased by following the budget and eliminating the unnecessary expenses. Through these it
would set the coordination among the employees which are working in the company. Finance
department is giving the budgets to all the departments which has to be followed by the
departments. Budget to the departments is given according to the work done by the departments.
Like the production department is given big budgets and compared to the departments. It is the
tools for measuring the performance and working in the effective way (Usenko and et.al., 2018).
Performance of the employees and departments is recorded and monitored by the way of
budgetary control techniques. In the budgetary control techniques the weakness are identified
and the resources are not wasted and not eliminated as well. It is reducing the cost of the
products and the cost of products is in control which is not Levying the burden on the working of
the products. Corrective action is having the management take the corrective action for working
effectively. In the absence of the budgetary control systems at the end of the financial period
would affect company in large. Economy is fluctuating in the effective way and so it is affecting
the budgets which is given by the company to the other departments. Economy is increasing and
the budgets company is gaining profits through maximizing the profits at the large scale.
Budgetary control systems has various tools which are helping the company to measure the tools

and work in the effective way for improving the sales as well. Performance of each department is
monitored and it is reported to the top-level managers (Tan Zhang and Khodaverdi 2017).
Disadvantages of budgetary control
In the budgetary control has some limitations liken the uncertain future is affecting the
budgets. Future is always uncertain and budget is prepared for future, so in some cases budget is
reared but the budget given can be insufficient for work and in some cases budget given can be
sufficiently. Budgetary revision are required from time to time. Revision is required because
budget need to be revised accurately because in some case it would need the proper revision.
Budgetary department is increasing the conflict among the employees which are working in
company. The conflicts between the departments would affect the company performance and it is
having the impact on the employee work. Budgets is depended on the top-level managers which
are working in company. These top-level managers are working in the effective way and these
are issuing the budgets to the departments. Through the budgetary control it is discouraging the
efficient employee which are working in company.
Tools and techniques used for budgetary control
Pricing strategies which can be used by the company as budgetary control and prices of
products and demand and supply is affecting the company these would not only affect the
employees which are working in company but the customers would be attracted towards
company by low pricing strategy (Childress and et.al., 2015).
Costing systems
In the costing systems normal costing and standard costing is used by company for
maximizing the profits. Cost systems is depended on the activity of costing and job costing and
batch costing as well. These costing systems is also including the process costing and cost of the
products has been used by company at the large scale.
Strategic planning
In the strategic planning it would include the swot and pestle analyze which is analyzed
the internal and external factors which are affecting the company. Balance scorecard analysis is
also used by company for analyze the financial position of the company in the market. These
tools are helping the company to grow and achieve the long term goals (Carstens Richardson and
Smith 2016).

P5) Compare the organizations which are adopting the management accounting systems and
respond to the financial problems
These companies are working according to the customers, and they are facing the
problems relating to the strategies and also financial problems as well. Companies are facing the
various financial issues which are rising because of increase in bad debts and wrong calculation
of inventory as well. These analyses are working in the effective way and it is helping the
company to achieve the long term targets. The comparison is done between the organization
which are alpha ltd and Tesco.
Basis Alpha ltd Tesco
Management accounting
systems
Company is using the balance
scorecard for managing the
financial issues and for
company is looking the
financial status of the
company.
Tesco is using the ABC
costing which is also known as
the activity based costing.
These are accounting methods
which is helping the company
to solve the financial issues
and solve the problems.
Key performance indicators In the key performance
indicators the employees need
to work in the effective
manner and concentrate on the
key performance indicators. It
is helping the company to
increase the sales and achieve
growth.
The management using the
costing techniques for
overcoming the financial
problems but these would
affect the products market.
Company is fixing the price of
the products and using the
techniques for attracting the
customers.
These tools are helping the company to identify the problems and working the effective
way and the company is using the tools, like the key performance indicators and using the other
tools for solving the financial problems in the effective way. Company is using the tools like
balance score card and activity based costing as well (Kerzner 2017).

Balance score card
company is using the balance score card in strategic management performance and
identifying the internal business functions as well. It is used to provide the feed back to the
companies which are working effectively. It would provide the results regarding the financial
problems and give the quantitative results for working effectively. Alpha ltd is using the score
card for identifying the and improving the performance with the various functions and balance
scorecards is consisted of the four main concepts like the learning and growth, business
processes, customers and finance. These are four main part of balance score card:
learning and growth could be analysed by the training programs and knowledge
resources. Employees are provided with the effective knowledge and use the strategies for
providing the team knowledge and face the competition in market.
Business prices would include the investigating of the products which are well
manufactured and also analysed the gap and delays in the production of the product.
Customer perspective is collected by the feedback and reviews of customers. Customers
must be stable with the price and quality and price of products which are sold in market.
Financial data includes the data of the sales and expenses and the income generated forms
selling the products. These financial information would be in the form of the dollars' ad it must
include the budget variance and income targets as well (Walker 2017).
Activity based costing
In the activity based costing it would be identified that the cost of each product is
identified and the products and service as well. Cost if each activity is of products and services is
recorded in the activity based costing. In the activity based costing it would be concentrating on
the cost allocation of the product and it is focusing on the fixed cost and variable cost as well.
The direct labor and material are affecting the company and these would have the impact on the
cost of the products. Fixed cost is that part of the cost of product which is fixed and it would
never be fluctuated or changed. Variable cost is that part of the cost of product which is
fluctuating continuously and never fixed for certain period.
In ABC costing it would be identified that the ABC costing would need the training
rearrangement and it would identify the requirements and it would so identify the activities and
drivers. These would create the cost and operational flow diagrams as well. It would need to
collect the data regarding the product and the cost which are occurred on the product. It would

need the requirements for validating the records and management reports as well. Once the data
and collected and interpreted the costing would be identified and the fixed and variable and
organizational costing on the products would be divided accordingly (Sponem and Lambert,
2016.).
CONCLUSION
From the above study it has been summarized that management accounting played a vital
role. It is an effective method by which organizations evaluate actual cost of each activity and
resources and operations by keeping financial records and budget. It has shown some reasons of
making different types of management accounting system and records such as it helped out to
manger in making effective decision for the business and estimating future scope and cost. It
provides accurate data and informations of accountant by which they improve business
performance. It has also shown some importance of balance score card and activity based cost
which helped company in solving financial related issues which occur due to wrong inventory
valuations and bad debts. Some management accounting reports like budget and cost reporting
also helped company in controlling activities of employees and analysing variances between
actual and determined performance.

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