Management Accounting Research Review

This assignment focuses on a critical review of recent research in the field of management accounting. It examines studies covering diverse areas such as environmental management accounting, value-based management, and the role of top executives in implementing these practices. The review also delves into methodological approaches, including mixed methods research, and considers the boundaries between intrafirm and interfirm management accounting research.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and requirement of different type of management accounting
system..........................................................................................................................................1
P2 Different methods used in management accounting reporting..............................................3
M1 Pros of management accounting system...............................................................................4
D1 Management accounting system and management accounting reporting.............................5
P3 Marginal and absorption cost techniques to calculate profit.................................................5
M2 Range of management accounting techniques subject to financial reporting documents....8
D2 Financial reports and interpretation of data for complex business activities........................9
TASK 2............................................................................................................................................9
P4 Disadvantages and advantages of different type of planning tool for budgetary control......9
M3 Use of planning tools and their application subject to making budgets.............................11
P5 How organisations are adapting management accounting system.......................................11
M4 importance of management accounting to solving financial problems..............................12
D3 How planning tools are implemented to solve the financial problems...............................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Managerial accounting is the form considered as management accounting in business or
organisational culture. The objective of this report is explain the dynamics of management
accounting, implementations of fundamentals management accounting in large business
infrastructures. Meaning of management accounting is explained with various type of
management accounting systems. Different type of management accounting reporting and
methods are defined in this report. Importance and advantages of accounting tools in decision
making and planning highlighted. Pros and cons in respect of various type of management
accounting tools are used for budgetary control process. Scope of cost accounting system defined
in this report in manufacturing industries. Absorption and marginal cost techniques are defined to
ascertain the amount of profit. Different type of planning tools are defined to control the cost and
forecasting the plans for better forecasting and planning. How organisations are adapting
management accounting systems and leading towards sustainable success. Issues and conflicts
are described subject to management accounting and financial reporting.
TASK 1
P1 Management accounting and requirement of different type of management accounting system
Covered in PPT
P2 Different methods used in management accounting reporting
Covered in PPT
M1 Pros of management accounting system
Management accounting system plays vital roles in accomplishing the goals and
objectives of organisation (Debnath, Bose and Dhalla, 2011). Reducing the cost of products,
improve the levels of management and operations, effectiveness in core business activities,
proper supervision and preparing accurate financial management reports are the major areas
where management accounting is used. Management accounting concepts helps in business
decisions and strategic planning to achieve desired goals of organisation.
D1 Management accounting system and management accounting reporting
Accounting and reporting are the two sections used in business organisation. Accounting
is the process which take place before reporting process (Dekker, 2016). Accounts are
maintained by accountants for the financial year and then reporting work is done in the end of
year. Accounting is a regular process whereas accounting reporting generally done once in a
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year. Management accounting are the part of managerial or accounting reporting and
management reporting is the part of decision making.
P3 Marginal and absorption cost techniques to calculate profit
Cost techniques are used to ascertain the cost of products and evaluating the amount of
profit for a particular time duration. There are various type of cost techniques are used in general
business context.
Marginal costing
this costing techniques is used in factory, manufacturing industries and product and unit
making companies. This cost accounting system contains all the variable expanses as direct
material, labour, factory expenses and overheads to calculate the cost of product and
profitability.
Absorption costing
This costing techniques is widely used in manufacturing and production organisation.
This cost technique contains both the variable and fixed expenses in respect of evaluating cost of
products and profitability. These are the cost techniques used in the industries in respect of
ascertain the variable and fixed cost of products. Direct and indirect expenses, fixed overheads in
respect of distributing the cost of operation and process to write off for upcoming years.
Uniform costing
This costing technique is used to ascertain the cost of product in same type of industries
and firms (Harris and Mongiello, 2012). This technique used in inter-firm and comparison
between same type of business organisations. This technique is used to decide the price, cost
control and relaxation in tax and charges levied by government.
Standard costing
this is one of the cost computing technique used to compare actual budget and standard
budget of production and sales. Various type of rules are used to calculate the variances and
differences in actual and standard budgets (Grafton, Lillis and Mahama, 2011). This techniques
also plays significant role in decision making and strategic planning process.
Budgetary control
Making budgets, forecasting future events and transactions are prepared in this
techniques. Comparison of actual budget with standard budget to find out variances this
technique remain very useful.
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Historical costing
This method is used to analyse the cost of product in respect of finding the historical cost
of product to analyse variances. Actual cost only be calculated after the measurement of
historical cost of the product.
Calculation of profit as per absorption costing (Figures in £)
For 1st year
Particular Amount
Sale 2600*85 221000
Opening stock 0
Variable manufacturing cost
Direct material 3500*13 45500
Direct labour :3500*10 35000
Variable overheads: 3500*7 24500
Fixed costs 92000
197000
Less: Closing stock 900/3500*197000 50657.14
Gross profit 74657.14
Distribution expense 24000
Administration expenses 89000
Interest expense 1100
PBT -39443
corporate tax 0
Net profit -39443
For 2nd year
Particular Amount
Sale 2600*85 297500
Opening stock 50657
Variable manufacturing cost
Direct material 3500*13 49400
Direct labour :3500*10 38000
Variable overheads: 3500*7 26600
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Fixed costs 92000
206000
Less: Closing stock 900/3500*197000 65052.63
Gross profit 105896
Distribution expense 24000
Administration expenses 89000
Interest expense 1000
PBT -8104
corporate tax 0
Net profit -8104
For 3rd year
Particular Amount
Sale 2600*85 272000
Opening stock 65053
Variable manufacturing cost
Direct material 3500*13 47450
Direct labour :3500*10 36500
Variable overheads: 3500*7 25550
Fixed costs 92000
Less: Closing stock 900/3500*197000 91089.04
Gross profit 96536
Distribution expense 24000
Administration expenses 89000
Interest expense 0
PBT -16464
corporate tax 0
Net profit -16464
Calculation of profit and loss by marginal costing technique (Figures in £)
For 1st year
Particular Amount
Sales 2600*85 221000
Opening stock
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Variable manufacturing cost
Direct material 3500*13 45500
Direct labour :3500*10 35000
Variable overheads: 3500*7 24500
105000
Less: Closing stock 900/3500*105000 27000
Contribution 78000
Less: Fixed costs 92000
Gross profit 51000
Less; Distribution expenses 24000
Administrative expense 89000
Interest expenses 1100 114100
Profit before tax(PBT) -63100
Corporate tax 0
Net profit -63100
For 2nd year
Particular Amount
Sales 2600*85 297500
Opening stock 27000
Variable manufacturing cost
Direct material 3500*13 49400
Direct labour :3500*10 38000
Variable overheads: 3500*7 26600
114000
Less: Closing stock 900/3500*105000 36000
Contribution 105000
Less: Fixed costs 92000
Gross profit 100500
Less; Distribution expenses 24000 24000
Administrative expense 89000 89000
Interest expenses 1100 1000
Profit before tax(PBT) 100500
Corporate tax 0
Net profit -13500
For 3rd year
Particular Amount
Sales 2600*85 272000
Opening stock 36000
Variable manufacturing cost
Direct material 3500*13 47450
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Direct labour :3500*10 36500
Variable overheads: 3500*7 25550
109500
Less: Closing stock 900/3500*105000 49500
Contribution 96000
Less: Fixed costs 92000
Gross profit 84000
Less; Distribution expenses 24000 24000
Administrative expense 89000 89000
Interest expenses 1100 0
Profit before tax(PBT) -29000
Corporate tax 0
Net profit -29000
M2 Range of management accounting techniques subject to financial reporting documents
Financial reporting is one of the critical and crucial work for an accountant. Financial
report is prepared with the help of various type of financial documents as cash flow statements,
financial position statement, income, profit and loss statements (Jamil and et. al., 2015).
Management accounting rules, principle and guidelines helps to frame the information in
particular format. GAAP and IFRS produce the rules and guidelines in respect of financial
reporting and accounting.
D2 Financial reports and interpretation of data for complex business activities
Financial reports are the main sources of getting the information and details to find
financial position of an organisation. Core banking and financial institutes and organisations
operates complex operations and situations (Kaplan, 2012). Management accounting helps to
communicate these complex situations in systematic manner. Risk management, measurement of
cost of capital and NPV are the methods used in financial reporting of banking and financial
industries.
TASK 2
P4 Disadvantages and advantages of different type of planning tool for budgetary control
There are various type of planning tools use to frame and design the budget.
Cost records: these are the records which contains the details and information. Purchase
register, sales are the main information considered in cost records.
Financial statements and records: Financial statements contains cash flow statements, income
and expenditure statements, financial position statements. Balance sheets and trial balances are
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the main resources considered in financial records. Basically these records are prepared in the
end of financial years.
Books and registers: there are separate books and records maintained to record the transactions
and activities on regular basis. There is a summarised report prepared to consolidate all the
recodes in single format.
Annual reports: These reports are prepared in the end of the year to ascertain the cost of capita
and evaluating the financial position of company. It is considered that the plans and objectives
decided as per the mission and vision statement of company.
Benefits of planning tools: Ascertain planning: It helps to make the business plans more effective and consecutive
manner (Otley and Emmanuel, 2013). This provides an outline subject to projected
plans. Expected income and expenditure are defined properly. Improving efficiency: it is a process considered effective in respect of controlling the
cost of product and enhancing the performance of organisation. Performance
management is the part of the managerial accounting which provides solutions and tools
to enhance the efficiency and performance of employees in organisation. building communication: It helps in building the proper communication system with in
the organisation to excreter the budgeted plan. In large business organisations
requirement of communication system remains high. It helps to produce the plans at each
and every level of business structure. Control: Budgets are prepared to operate the functions and management operations
ethically. There is budgeted plan is prepared to calculate the profit and analysing sales
units for specific period. Management participation remain high in budgetary control
process. Proper coordination: Effective and ethical management and operation are the first
requirement of ant business entity. Budget helps to evaluate the actions and plans before
the time and durations. Commission and authorities: there are authorities and legal structures made to control
the actions and activities related to process. Some set of aspects and assumptions are
made to control the cost of projected areas.
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 Motivation: Accurate and definite information helps to make out a proper budget and
effective strategies in budgetary process (Rababa'h, 2014). It motivates managers and
accountants to ascertain better growth and development opportunities. Profit maximising approach: budgets helps to calculating the cost of labour, material
and wages for the upcoming years on the basis of previous records. This process help to
maximise the profit of organisation reducing the cost. Beneficial in forecasting process: Forecasting is the main process of budgetary control.
There are various cost records, financial reports and statements are analysed to determine
the cost of product and services. There is an estimation made in respect of evaluating the
excess over expenditure and forecasting the profitability for upcoming years.
 Universal approach: this is considered as universal approach of calculating the profit and
reducing the cost of project for better forecasting. Not all the plans and budgets present
the fair and clear reports in respect of growth and development.
Disadvantage of planning tools Lack of participation: It is majorly seen in large organisation that the budgetary control
process contains the contribution of managers and accountants. There is a lack of
involvement and participation found in reset of evaluating the cost and making the plans
effectively. Managers, leaders and accountants are the only person remain part of
budgetary control process. Applied theory: basically the records and information are taken of past years and
duration. There are applied theories and used methods are used in entire process. It
reduces the uniqueness, creativeness and affectivity new thoughts and ideas for making
effective budgets. Unfairness: Budgets are not the grantee of continuous or sustainable success. This is the
process consume the time and resources at their maximum level (Suomala and Lyly-
Yrjänäinen, 2012). Budgets not provides a clear and fair image of desired success these
are based on assumptions and perspectives. Future uncertainties and complexities remain
uncleared in budgets. It is difficult to calculate the tax rates and growth in developing
economies which is one of the major draw back of budgetary control process.
 Reducing initiatives: Budgetary control process contains various type of methodology
and step by step formation. It start from getting the information, bifurcating them in
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appropriate sections and segments, allocation and appropriation of labour and overheads
properly. This process prevent existing employees and people to participates in budgeting
process.
Advantages of Variances
 it helps to identify difference creating factors between actual and budgeted outcomes.
 It is used to analyse budget deviations and financial performance of organisation.
 This is the process of analysing the difference between actual and budgeted income and
expenditure.
Disadvantage of variances
 Variances does not provide clear information regarding future events
 this depends upon financial results remain associated with quarterly closing and remedial
actions are considered essential subject to analysing accounting data.
 it does not gives clear information and details in respect of difference gaps
M3 Use of planning tools and their application subject to making budgets
Sources which are used to make the budgets and forecasting the further events are
considered as planning tools (Tessier and Otley, 2012). Cost records, sales and purchase
registered, financial statements, cost books, finance and insurance records, bills and receipts are
the main sources used to plan budgets. The initial informations and tools which are directly
implemented in planning and budgeting process are considered as prime tools and the tools
which are used to support the plan considered as subsidiary tools.
Zero based budgeting is considered as method which contains all expenditure subject to
justified new period. It is considered as a process starts from “Zero base”. Incremental budget
helps to interact the cost and expenditure with incremental amounts added for new budgets. This
budgeting tools helps to sort out the issues remain associated with previous period.
P5 How organisations are adapting management accounting system
Management accounting system helps the organisations to create and ethical business
environments. This system helps to remove the level of complexity and make the business
operations and activities feasible and flexible (Vinayagamoorthi and et. al., 2012). There are
various type of financial problems are faced by the organisation. The procedure of adapting
management accounting system in organisation depends upon the structure of organisation and
nature of operations and functions. Business scale and criteria has become vast and complex
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business stations creates uncertainties to develop the plans and strategies. Managers and
accountants face various type of finance and accounting accounting challenges as reducing the
cost of product to generate the profits. Control the leverage of equity and debts
It is considered by the example of an financial firm which deals in manufacturing and
production of food products in UK. As per financial analysis the accountants and finance
managers analyse that the capital structure of company needs to change for better return and
sustainable development (Windolph and Moeller, 2012). Current situation shows that company
has a 35% share of capital in equity and preference share capital and 55% share is debt and long
term debts. Managers want to expand the capital structure and meet the minimum criteria of rate
of return on investing. Now company has two options first is investing the amount in equities or
generating the finance requirement from extra long term debts.
This is the type of financial problem which need to deal by the managers with the help of
implementing rules and guidelines defined under management accounting system. Risk
management and financial accounting is one of the branch of management accounting (Zang,
2011). This provides simple methods subject to solving the problems. It is analysed that if
company invest the amount in equities then there are chances that company loose the ownership
and control. And if it opts the second option of generating the finance from debenture then it
would have to pay interest amount which may reduce the amount of profit.
As per above scenario the management accounting system is implemented in following
steps
 Analysing the requirement of investment and comparison of future feasibility subject to
evaluating plans.
 Measurement and analysis of business problems and relevant sources to sort out the
plans.
 Prepare a forecasted plan and evaluate the profit and loss from the projected information.
Management accounting played vital role in respect of growth of growth and
development of organisation. IKEA is one of the organisation which is getting benefits with the
help of management accounting. With the help of management accounting organisational
structure of organisation become eligible to bifurcate the sections of organisation. IKEA is one
of the retail industry. It implemented inventory management system which help organisation to
manage operations and management of organisation in systematic manner.
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M4 importance of management accounting to solving financial problems
Calculating the cash requirement for run and operate the business activities, making
financial position statements, find out the optimum requirement of finance to run the operations
are the key financial problems faced by business organisation (How to overcome financial
challenges, 2018). Management accounting system provides a path to measure the finance plans
and resolving the financial problems as making finance budgets, analysing the amount of liquid
cash for day to day and petty expenses.
D3 How planning tools are implemented to solve the financial problems
To achieve core competence in actions and achieve sustainable success are the main
objectives of any organisation. Organisation which deals in core financial process and banking
sectors, equities face various type of financial challenges. A best and cost effective finance plans
and sources are the main elements remain responsible to ascertain the cost of project and
evaluate the performance of organisation.
CONCLUSION
This report is prepared to explain the meaning of management accounting. Different
types of management accounting systems explained as per organisational type. Various type of
methods used for management accounting and reporting discussed briefly. Benefits of
management accounting rules and principles with effective management system also briefly
discussed in this context. Linkage of management accounting system with the management
accounting report defined effectively. Appropriate cost techniques as marginal costing and
absorption costing defined with practical over view. Range of management accounting
techniques discussed to produce financial documents and statements. Complex business
activities are defined in respect of financial reports are defined properly. Advantages and
disadvantages of various type of planning tools in budgetary control process elaborated as per the
organisational type. How planning tools helps in resolving the problems regarding financial
reporting and statements.
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REFERENCES
Books and Journals:
Abdel-Kader, M. G. ed., 2011. Review of management accounting research. Springer.
Bebbington, J., Unerman, J. and O'Dwyer, B. eds., 2014. Sustainability accounting and
accountability. Routledge.
Bennett, M. and James, P. eds., 2017. The Green bottom line: environmental accounting for
management: current practice and future trends. Routledge.
Bovens, M., Goodin, R. E. and Schillemans, T. eds., 2014. The Oxford handbook public
accountability. Oxford University Press.
Bryer, R., 2013. Americanism and financial accounting theory–Part 2: The ‘modern business
enterprise’, America's transition to capitalism, and the genesis of management
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Budding, T., Grossi, G. and Tagesson, T., 2014. Public sector accounting. Routledge.
Buhr, N. and Gray, R., 2012. Environmental management, measurement, and accounting:
Information for decision and control?. In The Oxford handbook of business and the
natural environment.
Burkert, M. and Lueg, R., 2013. Differences in the sophistication of Value-based Management–
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Debnath, S., Bose, S. K. and Dhalla, R.S., 2011. Environmental Management Accounting: An
Overview of its Methodological Development. International Journal of Business
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Dekker, H. C., 2016. On the boundaries between intrafirm and interfirm management accounting
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Grafton, J., Lillis, A. M. and Mahama, H., 2011. Mixed methods research in accounting.
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Harris, P. and Mongiello, M., 2012. Accounting and Financial Management. Routledge.
Jamil, C. Z. M. and et. al., 2015. Environmental management accounting practices in small
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Kaplan, R. S., 2012. The balanced scorecard: comments on balanced scorecard commentaries.
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Rababa'h, A., 2014. The Implementation of Management Accounting Innovations" The Case of
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International Review of Management and Business Research. 3(1). p.174.
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Vinayagamoorthi, V., and et. al., 2012. Environmental management accounting–A decision
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Windolph, M. and Moeller, K., 2012. Open-book accounting: Reason for failure of inter-firm
cooperation?. Management Accounting Research. 23(1). pp.47-60.
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Zang, A. Y., 2011. Evidence on the trade-off between real activities manipulation and accrual-
based earnings management. The Accounting Review. 87(2). pp.675-703.
Online
How to overcome financial challenges, 2018. [Online]. Available
through:<https://www.mymoneycoach.ca/blog/how-to-overcome-financial-problems-
difficulties>.
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