Cost & Management Accounting Functions

This assignment delves into the essential functions of cost and management accounting. It examines how these disciplines contribute to informed decision-making within organizations by analyzing various concepts, practices, and their impact at different organizational levels.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................4
P1 Explanation of management accounting................................................................................4
P2 Methods of management accounting ....................................................................................6
TASK 2 ..........................................................................................................................................8
P3 Calculation of cost as per marginal and absorption costing methods....................................8
TASK 3..........................................................................................................................................11
P4 Budgetary-control planning tool's advantages and disadvantages in Imda Ltd' s case........11
TASK 4..........................................................................................................................................13
P5 Comparison regarding adopting of management accounting system..................................13
CONCLUSION..............................................................................................................................15
REFERENCES .............................................................................................................................15

INTRODUCTION
Management accounting used by every business so as to have growth and development of
the business which will assist in achieving success. This tool is used by the firm in regards with
identification of the information, calculation of it, communication and review in order to achieve
targets which are made by firm. It is termed by another name which is called cost accounting.
There is difference between financial and management accounting, which is like support is given
by management accounting to the managers of the firm for taking important decisions (Otley, D.,
2016). On the other hand financial accounting is helpful for outsiders to provide information so
that independent plans and decisions can be made by them according to the demand. This report
is also on the concept of management accounting, and is on the case of Imda Ltd., which is a
manufacturing company. This report will analyse the broad concepts and meaning of
management accounting as there is a coverage of finance, accounting and management with the
support of advanced techniques to achieve objectives and targets. In order to have proper
management accounting in an organisation, high level expertise are needed who will help in
various plans related to funds and resources.
TASK 1
P1 Explanation of management accounting
Management accounting is termed as the provision of information which helps to
implement it in an organisation and is in relation with the Imda's accounting managers. It assist
managers to take appropriate decisions so that they can perform several duties and activities in a
firm in an effective manner, which will also support in handling control and administration
functions. This information is related with the financial information of the firm to assist
managers and financial accountants. Information related to management accounting is higly
confidential and is used by the concerned person only. Accounts give suggestions to the
managers regarding financial actions in a firm (Zoni, Dossi and Morelli, 2012). This information
is related with the funds and finance of the firm which needs to managed properly in order to
attain needed resources which will be helpful to perform various activities in present as well as in
future. It also helps in planning, controlling, organising and maintaining various activities that
are carried out in a firm for the needs and satisfaction of employees and customers.

Accounting supports managers and the directors in order to have necessary decisions by
providing appropriate knowledge and information regarding financial position and performance
of Imda Ltd. It helps to analyse the cost calculation which can be determined on the basis of
firm's operations. Officers of the management accounting aims to provide information of finance
which is in relation with different departments like sales, marketing and management. It is used
to find link in the sales and profit. Mangers will also be able to make internal decisions which
will be helpful for the growth of the firm. Management accounting is the kind of methodology
used to make management reports which helps to assess necessary money and resources required
to develop project, and also for making long term and short term decisions (Taticchi, Tonelli and
Cagnazzo, 2010). There are different various kinds of management accounting system which
supports in the goodwill of the company. Requirement of management accounting is there for
various purposes and such requirements can be explained as follows: Management accounting as per traditional basis: It is most used and a necessary
management accounting which is used by many firms. It is used in the firm to focus on te
cost regarding production and job order. This method is very supporting for the Imda Ltd
as with the help of it firm will be able to assess cost of resources, production and labours.
As the mentioned entity is the manufacturing company, so it makes use of the job order
costing for its major projects. This technique is helpful for tracing resources which are
available.
 Lean management accounting system: This is the type of management accounting
system which is used by Imda Ltd. In order to perform change regarding administration,
management, control, measurement and accounting which supports in the thinking as
well as lean manufacturing (Seaman and Williams, 2011). It is revolutionary as main
concentration is not just on cost, but it is on the making of strategies which are needed for
the control of management cost. Cost reduction strategies can be made with the help of
lean management accounting system which assist personnel manager to take necessary
decisions.
Difference between management and financial accounting
Areas Management accounting Financial accounting
Proficiency It gives report regarding issue
and their solution.
It gives report
regarding profitability.

Accumulation It gives elaborated information
such as profits by goods etc.
It gives information
with the help of already
existing or historical
data.
Method It is related with the bottleneck
operation's location.
Attention to whole
system is given by so as
to make profits.
Time It makes forecasts and budgets
to give timely reporting.
It is concerned with
previous year financial
results of the firm.
Assessment It is not related with the firm's
historical data or pre existing
information like entity's
financial statement, and it
helps in different activities like
controlling, organising,
planning etc. (The Differences
Between Financial Accounting
& Management Accounting.
2017).
It make assessment of
proper valuation
regarding liabilities and
assets, and it provides
information related to
funds and finance of the
firm.
There are several management accounting systems: Cost accounting system: It is used to make cost estimation which supports in defining
inventory, profit and cost control. This types of structure is used to make analysis of cash
flow. Job costing system: This kind of system is supportive when several jobs are there. In this
there is the involvement of indirect and direct job costs. It provides information related to
job cost and production. Batch costing system: In this different groups or batches are made and is similar to order
costing system. Every batch contains identical units but are different from one another.

 Inventory management system: This process is used for managing inventory in an
organisation. It is a type of software where every information regarding stock in being
recorded.
 Price optimisation system: It supports in demanding changes at various levels and then
combine data with inventory and cost level.
P2 Methods of management accounting
Activities of management accounting assist and supports managers and accountants to
gather the data or information in order to examine it, which will support Imda Ltd., in making
profits and firm's sustainability. Management accounting is also helpful to determine the
products cost. Reporting of management accounting is an essential part for the mentioned entity
in the process of development. Various methods are there which are helpful for the management
accounting reporting and also assist in the development and success of the firm. It provides
information through which various strategies, plans, process and development can be made in
order to perform operations of the business effectively and efficiently. There are various
methodologies which are in relation with the management accounting. If the firm will not make
use of management accounting activities in their business, then there may be increase in the
product's cost and decrease in the marginal cost (Pondeville and et.al., 2013). Job costing system: It is used to gather information cost of the particular production
process or activity. This type of data will be helpful in recollecting the goal in order to
present cost data to the various clients under accord where there is repayment of cost.
This technique supports in different situations where there is change in job. It makes
involvement of directs and indirect costs. It is in similarity with the methods of contract
and batch costing and is used in the construction industries, manufacturing industries etc.
It also helps to find information for production and cost of job. Sales Report: Record of calls and sale of product made by company in specific time is
recorded in sales report. It includes sales volume data, new and current accounts,
statistical data of sales. Inventory report: It is the summary of assets or items which are used by business,
industry or organisation. It supports to give stock account and different items supply.

 Account receivable report: It provide details of balance due from individual's
subscription. It helps to analyse worthiness of consumer receivable and credit and also
assist in forecasting payments collection by consumer.
 Performance report: This kind of report helps in management of project communication.
It involves collecting and disseminating of project's information, status of stakeholder,
utilization of resources etc.
These all methods of management accounting and systems are used in order to
understand the various reporting and system which are used in the process of management
accounting in a firm for the effective decisions.
TASK 2
P3 Calculation of cost as per marginal and absorption costing methods
Firm's benefit can be controlled with the help of various techniques which are there in
management accounting. Imda Ltd is the manufacturing company who manufactures mobile
phone chargers. Net profit of the firm can be calculated with the help of income statement, which
can be defined as the financial statement of the firm which will provide financial information of
company in a particular period (Meira and et.al., 2010). It is also defined as the statement of
profit and loss, operating statement and statement of earning. Income statement of the mentioned
company will help in presenting financial results of the firm. It is a type simple and
straightforward report for presenting ability of the firm regarding generation of the cash.
Accounting scorecard regarding financial activities of the firm can also be generated with the
help of it. Net profit can be calculated with two costing methods like marginal and absorption
costing methods.
 Absorption costing: According to the method of absorption costing, various costs which
are identified with the help of different sorts of product methodology are absorbed on
product's cost. With the help of this costing, mentioned firm will be able to find out its
inventory value. Estimation is the major component of the management accounting.
Absorption costing is termed as cost strategy of management accounting for analysing all
the expenses which are in relation with the product and is required for the accounting
principles (Macintosh and Quattrone, 2010). It includes various components like direct

material, variable overheads, fixed overheads which are included in the cost of product.
All fixed expenses are not considered by absorption costing.
Statement of income according to absorption cost :
£ £
Sales 700 x 35 21,000
Less: Cost of Production 16 x 700 11,200
Less: Closing stock 16 x 100 (1,600)
9,600
Less: Over- absorption of fixed production
overhead
(100)(W3)
Production cost of sale 9,500
Gross Profit 11,500
Less: Variable sales overhead 1 x600 600
Less: Fixed Costs; Administration cost 700
Selling cost 600 1,900
Profit 9,600
 Marginal costing: It is the type of costing technique which helps in reflecting the
additional cost that is involved in the production of extra units. Marginal cost cab be
calculated with the help of change in the total price by dividing change in the output or
product. It also helps in reflecting the rate at which total product's cost change as there is
enhancement in the output by one unit (Lee, 2012). Although, there is no change in the
fixed cost irrespective of modification in production unit. It got influenced by the
product's variable cost.
Statement of income as per marginal costing:
£ £
Sales 700 x 35 21,000

Cost of Production 13 (W2)x 700 9,100
Less: Closing stock 13(W2) x 100 (1,300)
Variable cost of sale 7,800
Contribution 13,200
Less: Variable sales overhead 1 x600 600
Less: Fixed Costs; Production overhead 2,000
Administration cost 700
Selling cost 600 3,900
Profit 9,300
Working notes:
W1
Fixed Production overhead absorption rate (OAR)= £1,800/600 =
£3 per unit
W2
Calculation of cost of production:
Marginal Absorption
Direct material 6 6
Direct labour 5 5
Variable overhead 2 2
Fixed production overhead 0 3
Cost of production per unit 13 16
W3
Adjustment for over or under absorption of overheads
Actual production overhead £2,000
Absorbed production overhead (700 x 3) £2,100
£100
The following information are also given in the question

Selling price £35
Direct materials £6
Direct Labour £5
Variable Production overhead £ 2
Actual production for the month 700 units
Actual sales for the month 600 units
Closing stock for the month 100 units
In marginal costing, variable cost is there related with the production process and division
of overhead in two categories that is fixed and variable cost. Calculation of profit can also be
done with the help of profit volume's ratio. In absorption various different costs are there that
gets assigned to the products. Over head's division is on the basis of three categories that is
distribution and selling, production and administration. Allocation regarding variable and fixed
cost is there for the process of production. These two methods assist Imda Ltd in the calculation
of the net profit, through which company can determine their financial performance which will
support in the various future projects (Laine, Paranko and Suomala, 2012).
Techniques of management accounting like absorption technique which is used by the
firm regarding expense's calculation. This technique is helpful in the process of income
statement. Fixed production of Imda Ltd is £200 and its gross profit is £9800. Another technique
is of cost volume profit, by which overall's firms profit can be analysed.
TASK 3
P4 Budgetary-control planning tool's advantages and disadvantages in Imda Ltd' s case
Budgetary-control planning tools can be defined as the estimation of the inflow and
outflow of the money in a particular time frame. It is the type of plan which is there for the
achievement of desired targets and also for the measurement of the performance (Kokubu and
Kitada, 2015). In the legitimate plan which is used for spending, everything is described in it and
with the help of budget, overall cost can be handled by Imda Ltd and can also prepare further
budgets which will be helpful in utilising financial resources in an appropriate manner. In
coordination, each and every division of the department is having its own plans regarding
expenses with the aim that they will achieve the expected results according to the budgets. With
the help of the budget, risk can be eliminated and handled in proper manner. Budget is the action

which is defined in quantitative terms and is in relation with the financial requirements. In the
budget planned expenses, liabilities, assets and resources are included which may be needed for
the process of production. With the help of it different tactics and strategies can also be prepared
which will help in future projects and plans. Different budgetary-control planning tools are there
which assist firm in making different types of budgets. These can be explained as follows: Master Budget: It is the essential budget and covers each and every component which is
in the financial year. This supports to give the whole picture of the financial activities
along with firmness (Gates, Nicolas and Walker, 2012). It also covers different
components like resources which are required for the production, sales activities and
profit related to it, cost of working and the cash flow in order to help firm to design
various targets and objectives which is helpful in order to improve performance of the
firm. Aggregation of all low level budget is there in master budget. It also make
involvement of the cash forecasting and budgeted financial plans and statements. It is a
kind of interconnected budget which includes statements from each department. Operating budget: This type of budget is helpful in maintaining daily cost which is there
in firm related to production, sales and marketing activities and also maintains firm's
operations. It has been designed in order to analyse everyday working and operation cost
as this helps to determine perfect report regarding overall cost which is incurred in
various activities. Cash flow budget: This is a kind of budget statement which is prepared in order to know
the actual flow of the cash, which may be inflow or outflow. Its is prepared in order to
analyse the expenses and profits of the firm related with the daily activities. It also helps
in determining future picture of the firm regarding profit and expenses (Chenhall, 2012).
 Financial budget: Financial budget is being prepared for the in order to determine the
funds which will be needed by the firm for the different activities and operations which
are being carried out. This kind of budget is helpful to analyse the financial resources
which may be required for the purpose of future projects.
Advantages of budgetary plans:
 Budgetary plan is helpful for the management in order to outline convenient and advance
investigation regarding various issues. It also gives perfect review to the several
departmental managers before taking decisions (Cardoni, 2012).

 It is also supporting in order to consumption and income of the firm.
 It helps in giving various devices by which regulatory objectives and strategies can be
evaluated on time and rules can be determined for whole firm.
 Budgetary planning tools helps to control various assets and cash in the productive way. These budgetary tools also assist management or administration in order to decentralize
responsibility without the loose in the firm's control.
Disadvantages of budgetary-control planning tools:
 Budgeting is not always accurate as it is generally made on the
approximations ,assumptions and ideas. Therefore it may give difficulty in the future
planning as it will not give accurate idea (Breuer, Frumusanu and Manciu, 2013).
 The different utilities and accomplishment of budgeting is dependent on the coordinated
enthusiasm and efforts of employees which are there in various departments. All
individual should make their contribution in the planning of the budget. Budgetary plans
should be followed by top level management.
 A budget is the kind of tool which neither accepts or takes management control. Budget
can't get substituted by management and should be used by the firm in order to satisfy its
limits.
 Establishment of budgeting methods needs genuine vitality and appropriate capabilities
and skills which is generally not available in may firms.
Budgetary control planning tools helps Imda Ltd in the solution of financial problems by
which firm can achieve success and growth (Brandau and Hoffjan, 2010). It also determines that
investment of the money is done by firm on appropriate places which will help in generating
profit.
TASK 4
P5 Comparison regarding adopting of management accounting system
Provisions of financial data can be provided with the help of management accounting as
well as also assist Imda Ltd in giving different advices and strategies which is needed for the
development and growth of the firm. Managers make various necessary decisions which are
useful for the implementation and execution of different plans in order to enhance firm's
performance (Boyns and Edwards, 2013). It also gives contribution in providing different tools

that will assist Imda and the management in getting various solutions regarding problems which
will affect the operations of the firm positively, there are number of activities and operations
which are performed in an organisation and gets support from management accounting reports,
used by managers of the mentioned entity. It is also determined that the techniques of
management accounting related with the cost & financial accounting and with the future projects
is performed by management and is compared with Nisa retail store's technique which is also in
the line of manufacturing.
As per the process of financial accounting, if supervisors of the management accounting
make use of the existing data which is related with the financial statement of the firm, then
various methods which are used by Imda Ltd in order to have effective decisions for the number
of problems are used which will also give impact on the development. Methods and the
techniques which are used by Nisa retail store and Imda Ltd., are as follows: Ratio analysis: Various financial data and figures are analysed with the help of ratio
analysis method which is used by mentioned entities. It also assist in future decisions and
forecasting (Bebbington, Unerman and O'Dwyer, 2014). Comparative financial statement analysis: Effective decisions and strategies are created
with the support of analysis of the comparative financial statement. In this data of one
year is compared with the data of another year which helps in making research on the
different variances.
 Analysis as per cash flow and fund flow: Imda Ltd. Managers use this tool i.e. analysis
of the cash and fund flow in order to manage funds and the financial resources as
problem is being faced regarding funds availability and therefore management of the
financial position is needed which is supported by analysis of fund flow (Baldvinsdottir
Mitchell and Nørreklit, 2010). It also assist in tracking cash movement in order to
maintain availability of cash.
As per cost accounting process, managers of the firm make use of different methods. Cost
management is the major problem in each and every organisation. Therefore it is necessary for
the cited entities to make proper management of the cash in order to make cost effective services
and goods. Marginal costing: There are different methods and concepts which are included in the
marginal costing that assist in giving solutions to the various problems. Supervisors of

management accounting of Imda and Nisa retail store takes help of cost volume profit
which comes in marginal costing (Arjaliès and Mundy, 2013).
 Cost variance analysis: Variances can be obtained with the help of obtained and desired
figures. They can be positive as well as negative variance which can be administrated
accordingly. If the there is no achievement of the budgeted figures then it means there is
negative variance.
As per the future information, Imda and Nisa retail store takes help of techniques of
management accounting in order to resolve various problems regarding future's project. Various
other issues can be analysed by the cited entities which can affect future related operations.
Several returns are analysed by the entities that are created by the different operations and
activities of the future projects. These methods or techniques can be defined as the budgetary-
control and budgeting.
If there will be appropriate management accounting then it will help in generating
organisation's value as well as assist in solving problems. It is basically internal costing function
which will support Imda Ltd in decision making process (Anderson and Sollenberger, 2011).
Various decision in a firm can be like investments, business operations and productions.
System of management accounting used by an organisation so as to make response in
regards with financial problems can be defined as follows: Key performance indicators (KPI): These are the quantifiable measures which supports
in evaluating firm's success, employees etc. so as to achieve objectives of performance.
This tools also helps in having big improvements. Benchmarking: The benchmarking objectives are supportive in understanding and
evaluating current scenario of business related to best practices. It also supports in
making identification of performance areas where improvements are needed. Budgetary control: This system is used by managers for effectively utilising budget so as
to monitor and control activities and costs. Managers use this to set financial and
performance goals with the help of budget.
 Financial governance: This is the type of system used for describing various ethical
code of conduct related to finance. It is used by organisation to check whether the finance
information in company is proper or not.

CONCLUSION
As per the above mentioned report it can be analysed that various methods of
management or cost accounting is helpful for the goodwill and growth of the firm. These
methods can be like budgetary control planning tools, absorption and marginal costing and cost
volume profit analysis. Imda's management accounting supervisors will assist in preserving
firm's financial position and can also create and develop different strategies with the help of
methods and techniques i.e. financial statement analysis and ratio analysis. Less workforce is
required in Imda for the administration of the activities which assist managers to make budgets
so that there will be proper allocation of resources and tasks in an effective and efficient manner.
Income statement of the firm is being generated in this report with the help of absorption and
marginal costing methods which helps in analysing net profits. Management accounting
techniques also helps in achieving desirable results.

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