Management Accounting Research and Practice

This assignment delves into the field of management accounting, examining both its theoretical foundations and real-world applications. It requires students to analyze various research articles and publications that shed light on current trends and challenges in management accounting. Topics covered include the impact of technological advancements, sustainability reporting, risk management, and the evolving role of management accountants in organizations.

MANAGEMENT
ACCOUNTING

Report
From: Management Accounting Officer
To: General Manager
Subject: To write a report to GM covering management accounting reporting and its various
systems together with various cost accounting techniques and planning tools. Their
implementation can assist in attaining organisational objectivities.

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirements of its different types...........................1
P2 Different methods used for management accounting reporting.............................................4
TASK 2............................................................................................................................................6
P3 Marginal and Absorption costing...........................................................................................6
TASK 3............................................................................................................................................3
P4 Different types of planning tools used in budgetary control..................................................3
TASK 4 ...........................................................................................................................................5
P5 Organisation response towards financial problems by using management accounting.........5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8
2

INTRODUCTION
Management accounting is one of the most crucial and difficult task of business
organisation. It is the process that involves identification, analyses and presentation of financial
data. The planning, decision making and control can only be performed well with the use of
information provided by management accounting. It generally involves the methods and
concepts necessary for the purpose of effective planning, to choose best alternative action of
business, and to overall control the performance of firm. Data is gathered by by financial
accounting department and presented in such a manner that best suit managerial needs and
objectives. It also contributes in reviewing policies decisions of an enterprise. Unicorn Grocery
is an cooperative firm, headquartered in England. They follow flat organisational structure and
with the same equal rates of pay. The system of management accounting provides administration
with the reports and useful information that help in aspect of decision making. It thus, support
administration to build up strategies to gain competitive advantage over its rivals.
TASK 1
P1 Management accounting and essential requirements of its different types
Management accounting helps to know the possible causes of profit and loss of business
organisation. It generally studies the impact of factors that influence profitability. It involves
concept of Ratio analysis, Cash flow and fund flow statement, Marginal accounting, Cost-
volume-profit analysis, Budget and Budgetary control etc. It provides benefit of successful
planning and analysis. Making financial information more reliable and useful is the key aim. For
the smooth functioning of business operations, managers have to take several decisions based on
the information available. Management accounting fulfil such requirement of business managers.
Unicorn Grocery is a firm that engaged in providing quality products to its customers.
Administration of such business organisation need effective decisions such as purchase decision
of products. Such grocery stores buy in bulk from their suppliers. Which suppliers have good
relation with the enterprise and up to what extent they will provide goods on credit, their past
history are all seen by manger before taking any decisions. Such information is provided by
management accounting by preparation of accounts payable reports. Manager need information
related to availability of cash, account payable and receivables balances and revenue generated
from selling products. Organisation prepare budgets such as cash budget, purchase budget, sales
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budget etc. to set fixed amount of resources to spend in various operational activities of business
firm. Management accounting contributes in strategies formulation and helps to gain an edge
over its rivals.
Today activities of economy is complex. The competition become cut-throat and to deal
in such dynamic environment need effective decisions. The modern administration focuses not
only in cost ascertainment but allocation of expenditures and controlling them. It will helps in
increasing profitability of firm. Unicorn Grocery needs best strategies to deal with rivals present.
Management accounting helps in determining financial cost, managerial performance etc. It also
suggest ways to improve earning capabilities of business. A manager needs to perform various
managerial function such as planning, organising, staffing, directing and controlling.
Effectiveness in such functions is the essence of business. A manager need to take several
decisions on a daily, monthly, quarterly basis. They needs presentation of information, reports
and massive amount of time to be spent while making decisions. Earlier accounts are prepared
annually, but modern techniques concentrates on their preparation on a daily, weekly and
monthly basis. Such techniques of accounting can be termed as management accounting. These
accounts are prepared in such ways that performance could be compared with budgeted data. If
find any deviations, immediate actions needs to be taken. The management accounting is termed
as such system of accounting that contributes to administrations in complex decisions. Different
types of management accounting can be classified as follows-
2

Cost accounting system- Cost accounting system is one of the most important form of
accounting. It helps in determination of cost of products and offering by firm. Unicorn Grocery
needs to ascertain profitability of products and offerings. It helps in valuation of stocks and cost
control. It is also known as cost accumulation method. It assess each step of input cost and
records such cost individually to estimate the overall cost of production and per unit. Unicorn
grocery can able to know which firm's product give more profit to them with the help of cost
accounting. Cost accountants are professionals who manage such system of accounting. Costing
system Contribute to preparation of financial statements.
Inventory management system- Companies like Unicorn grocery need to manage their
inventory on a daily basis. They needs to identify how much stock came in and went from from
store. It is important for manger to have eye on everything involved in inventory management
system. It is one of the stock control technique of accounting. Also future contingencies must be
kept in mind. Wastage of products should be reduced or eliminated. The inventory control is
possible with the effective usage of availability of resources.
3

Job costing- Job costing is the method of keeping track of cost of each job. What is the
cost of job performed by an individual in a specific project is identified. It is one of the major
form of accounting. To estimate the cost of work given to particular employee working in an
organisation. Unicorn Grocery have more than 50 employees and how much cost they are
incurring for performing each task is known by job costing. It enables efficiency of work at
performing particular job. Each job is different and must needed to be performed as per customer
specification. It also consider both direct and indirect cost involved in same job.
Price optimisation- Price optimisation is the determination of response by consumers of
products and offerings towards price fluctuations. It is a kind of mathematical analysis and of
utmost importance for an organisation. It includes cost of operations, stocks and historical prices
of products and offerings. It computes the variance arises in demand of products and services in
adaptation of different prices. Thus, company can able to keep pricing level as per targeted
segments. The strategies adopted by an organisation towards pricing is important. It also evaluate
the value generated to customer for the prices he/she paid.
P2 Different methods used for management accounting reporting
Management accounting helps in monitoring performance of business organisation.
These reports are prepared as and when required even on daily basis also. It depends on time
sensitivity and kind of project a business is dealing in. generally reports are prepared on a daily,
weekly, monthly and quarterly basis. The management accounting reports gives complete view
regarding performance of business organisation. These reports are of utmost importance for
businessmen. Unicorn grocery also need to prepare various reports to achieve their targets within
specific period of time. No matter what nature of business an organisation is dealing in,
preparation of such reports are must. This contributes to achieve greater profitability, and reduce
their debt and helps in improvement of financial stability. While financial reports are only
limited to financial statements, management accounting helps in managerial functions of
business. The kinds of management reports differ and based on the information that an
organisation required in definite time frame. These reports are generally prepared by finance
professionals acquiring suitable qualifications. The different methods used for management
accounting reporting are as follows-
Budget reporting- A budget is generally termed as profit plan. Availability of resources
with an organisation is limited. In order to better allocate them and control the cost incurred on
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various expenditure, Budget preparation is done. There may be different kinds of budgets such as
sales budget, cash budget, purchase budget, capital budget etc. These budgets provide business
with the targets that needs to be attain in a given period of time. Extensive research and past
records are needed for preparation of budgets that best fit to firm. It is one of the formal
quantitative plan prepared on a daily, monthly basis. Budget creation process is effective only
with the involvement of employees. It is, thus used to control financial performance of business
concern.
Accounts receivable reporting- The accounts receivable reporting is also essential for
those organisations who supply their products and services on a credit basis. Debtors are current
asset of firm. An organisation needs an overview of Credit balances of such debtors. In order to
make better relationship with customers of products or services, selling on credit basis is must.
These reporting need past history of such debtors then calculating the amount due with them. It
also helps in boosting collection process of company.
Accounts payable reporting- Accounts payable reporting helps in keeping records of
creditors. What amount needs to be paid and on what date is determined by preparation of such
reports. Organisation generally make purchases in bulk. They buy goods on a credit basis. The
period of credit is usually 30 to 90 days. Unicorn groceries like to maintain healthy relation with
suppliers. This will be possible if company pay their creditors on time. The enterprise have their
goodwill in market and in order to keep such reputation paying off creditors in time is important.
Inventory costing reporting- Inventory costing reporting deals with the stock in and out
from warehouses and stores. It is done to eliminate the wastage of stocks (Higgins, 2012). It is a
major kind of reporting in management accounting to determine inventory valuation and control.
These reports are off utmost concern for management. By seeing reports, manager identify how
much more they have to buy. They helps to collect data on inventory costs, labour and other
overheads.
Job costing reporting- Job costing concentrates on valuation of cost of a job involved in
a specific project. It identifies whether the cost incurred by an organisation in such task is
favourable or not. If not, then important strategies needs to be build to tackle the same. It helps
managers to evaluate performance of a job and their profitability. Effectiveness in job
performance will lead Unicorn Groceries towards success. It also addresses revenue generation
from same job in a given project.
5

Performance reporting- Every enterprise sets up their targets of performance which
they want to achieve in a specific time frame. Performance evaluation is the assessment of
performance of various operations in the functioning of business. A business has several
departments, each component should be taken care off to improve the overall profitability of
firm. It is basically done by comparing planned targets and actual performance. Balanced
scorecard is a tool used for such purposes. Employees of firm are assessed based on measures
such as sales or profit. Performance reporting also provide information to stakeholders of
company such as creditors, employees, suppliers, customers and government.
TASK 2
P3 Marginal and Absorption costing
Unicorn groceries have to use effective costing methods in this dynamic environment.
These methods of costing are useful for managerial decision making. The brief description of
marginal and absorption costing are as follows-
Marginal costing- Marginal costing refers to ascertainment of marginal cost. Calculation
of fixed and variable cost is done to take appropriate decisions with regards to production. It is
type of accounting system where variable cost are charged to cost per unit. Also fixed cost are
written off. This normally include direct material, direct labour, direct expenses and variable
overheads. Marginal cost is the cost of additional unit produced (Baldvinsdottir, Mitchell and
Nørreklit, 2010). It will not change fixed cost. But variation is there on variable cost. Fixed cost
are of less importance in marginal cost. It helps to provide additional cost for producing one
more unit of product. The main factor that is calculated is Contribution and profit-volume ratio.
Absorption Costing- Absorption costing is a technique of decision making. The net
profit is the major element in such costing. Here both fixed and variable cost are considered by
absorption for total production. Usually cost are partially divided to various centres to evaluate
cost of production. Such costing method is known as full absorption costing. It gives emphasise
on fixed cost while determining profitability of firm (Fullerton, Kennedy and Widener, 2014). It
is conventional method of costing. It is one of the most suitable method of valuation of stock.
Activity costing, process costing and job costing are types of such technique.
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Calculation as per Absorption costing.
Working notes:
Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £2
Fixed cost £3
Total £16
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*19 = £13300 100*16 = £1600
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £2100
Fixed overhead: £2000
Total £100(over absorbed)
Administration Cost: In this budgeted cost is £800 and Actual cost is £700
Selling cost: In this budgeted cost is £400 and Actual cost is £600
Net profit using absorption costing £ £
Sales
(-) Cost of Sales:
Opening stock
Manufacturing
Closing stock
(Under)/ Over absorbed fixed prod.
O/h
Gross Profit
0
11200
(1600)
21000
(9600)
11400
1

Less Expenses
Variable sales expenditure
Fixed administration expenses
Fixed selling expenditure
Over absorption
Net Profit
600
700
600
(100) (1800)
9600
Working 1: Calculate variable production cost £
Direct material 6
Direct labour 5
Variable production O/h 3
Variable production cost 14
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*14 = 9800 100*14 = 1400
Net profit using marginal costing £ £
Sales value
Less: Variable costs
Opening stock
Manufacturing
Closing stock
Contribution
Less Fixed costs
Variable Production expenses
Administration cost expenditure
Selling cost
0
9100
(1300)
2000
1300
21000
(7800)
13200
2

Net Profit
600 3900
9300
The net profit earned by using marginal costing approach less then absorption costing.
The amount of 300 pounds is the difference which is ascertained by using both approach. All the
figures in both methods are treated in same way except closing stock and fixed assets. In
marginal costing, fixed cost is deducted without allocating it on every produced unit but in
absorption costing total cost is divided on every manufactured product (Foster, Hart and Lewis,
2011). The balance of closing stock is another factor behind the variance amount i.e. 300 pounds.
The fixed expenses which are spend by cited company on unsold stock is included in marginal
costing but they will not be treated in present year under absorption costing as they are not sold
in present year. Unicorn grocery adopt absorption costing in their organisation because it shows
correct net profit and it is the right approach for this firm.
TASK 3
P4 Different types of planning tools used in budgetary control
Budgets are important for Unicorn groceries for the effective management of an
organisation. Budgets is a kind of profit plan, it is planning that shows what targets a firm needs
to accomplish and in what frame of time. General time for budget is 3 months to a year. An
enterprise may build up budgets for units, divisions and departments of business. It also acts as a
yardsticks for measurement of performance (Caglio and Ditillo, 2012). Budget is always
prepared for future course of time. It is time consuming process and requires large number of
professionals. Historical data and current status are checked before preparation of any budget. It
is also called as foundation for control. A budgetary control is a technique whereby actual
performance is compared with planned one, if any variance or deviation occurred. It needs to be
reduced or eliminated quickly. Improved budgets are also important for having smooth
functioning of business organisation. It forces administration to look overhead and set out
detailed plans to be accomplished in a given time period. It contribute to enterprise by giving
direction to different operations. It is planning of various aspects of business to be controlled
(DRURY, 2013). The various types of planning tools used in budgetary control are as follows-
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Cash flow budget- It is generally identifying how and when money comes in and goes
out during specific period of time. It contributes to manage cash wisely. Cash flow consider
factors related to current assets and current liabilities i.e., debtors and creditors. It consider the
fact that whether business has ample cash in hand to effectively operates its functions and the
possibilities of cash generation in future course of time (Herbert and Seal, 2012). For example-
Unicorn groceries might reserve fund for future contingencies and if balance left, it will be used
in promotional activities of goods and services.
Master budget- It is a composition of company's individual budgets. It helps to
determine complete picture of financial activity and health of business organisation. It helps to
evaluate overall performance of enterprises and its individual elements. It is mainly used in large
organisations to keep individual managers aligned. The master budget include budgeted financial
statements and balance sheet to be prepared by management professionals. It contributes to
overall strategies formulation. The master budget involves elements such as sales, income,
operational expenditures. It include interrelated budgets from various departments. Thus, it is
one of the important type of planning tool in budgetary control.
Static budget- Static budget is an important type of tool used in budgetary control. It
involves overhead cost and expenses. This type of budget usually involves components where
sales revenue will never impact operational expenses. Every aspect of division functioning in an
enterprise have limited resource to spend (Kotas, 2014). Exceeding the same make it difficult for
a manager to plan budgets accordingly.
Operational budget- Operational management is one of the essence of administration. It
covers revenue and expenses on the day to day basis. Revenue consist of income from various
sources such as revenue by sale of goods and offerings. While expenses define cost of goods and
overhead expenses. It is prepared on weekly and monthly basis and of utmost importance for
managers of the firm. Managers make adjustment by seeing their targets. Every business firm has
several number of operations. Effectiveness in performing the same will help business to achieve
its goals and objectives in specific time.
Financial budget- It defines company's strategy for the management of assets, cash flow,
income and expenditures. It overall evaluates the picture of company's health. Financial stability
is the main concern for an organisation like Unicorn groceries. It also determine from where
company going to receive income and possible outflow in the form of expenditure whether
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recurring or capital expenditures (Macintosh and Quattrone, 2010). It also contributes to
leverage performance of organisation. Management of capital assets also have impact on
financial health of business enterprise. Since resources availability with an enterprise is limited,
so effective financial budget is important.
Capital expenditure budget- Capital expenditure refers to purchase of fixed assets such
as plant and machinery, building etc. The company now-a-days prepare specific budget for the
purpose of acquisition of fixed assets. The large investments are generally associated with such
budgets. Hence it is of utmost importance (Merchant, 2012). It gives estimates with regard to
capital resources of organisation. The estimated cost of acquisition, expansion and replacements
are considered.
TASK 4
P5 Organisation response towards financial problems by using management accounting
The number of financial problems for many organisation is continuously increasing
because companies are taking heavy risks and they are trying to expand their market in an
aggressive way. Financial problems are related to various issues like high amount of the debt on
company, poor liquidity etc. A firm faces numerous challenges in day-to-day operations. The
environment is obviously dynamic. An organisation needs to build several strategies to remain
competitive. Management accounting is really important for manager to perform managerial
functions such as planning, organising, staffing, directing and controlling. Decisions are made by
business managers on such informations. Also budget preparation is of utmost importance.
Unicorn groceries prepare various budgets such as cash budget, sales budget, purchase budget,
capital expenditure budget and static budget etc. these budgets acts as a guidelines to deal with
effective planning in such complex environment. Unicorn groceries have to prepare these
budgets for smooth functioning of various operations of business. There are various tools and
techniques used by management accountants to deals with such complex environment (Otley and
Emmanuel, 2013). Management accounting information helps an enterprise in the following
ways-
Provides credibility- This is one of the advantage of management accounting system. It
provides credibility of information that acts as a guidelines for organisation to tackle with
dynamic environment.
5

Value creation- management accounting provides useful information to managers. Thus,
overall contributes to value creation of firm. A manager perform several functions in business
operations such as planning, organising, staffing, directing and controlling. Effective
implementation will create advantage for the firm. Decision making function is also of utmost
importance. In order to have good and positive image in market, strategies are needed to build in
the same way.
Link strategy and system- Management accounting link strategies and system.
Management accounting provide administration with the useful information. These information
will help to frame strategies to be implemented for attaining advantage in this dynamic
environment. Linking of strategies and system of management accounting is needed to attain
specific goals and objectives of an enterprises (Quinn, 2014).
A manager in an administration take various decision in business organisation. The
reports prepared under management are helped in taking right decisions at the appropriate times.
Several tools such as ratio analysis, budget and budgetary control, marginal and absorption
costing, cost- volume profit analysis, cash flow and fund flow statements are used by
professionals to generate various necessary information and results of business firm (Scapens
and Bromwich, 2010). Also the tools and techniques used in management accounting changed
from time to time. Modern methods give more emphasise on lean management and optimum
utilisation of resources. Innovation and creativity have made severe impact on various system of
accounting. Management accounting is one such system have impacted by such factors. Changes
in the accounting fields are vast and widen the scope of system to generate decision making
reports and information (Soin and Collier, 2013). The modern era of accounting and traditional
approaches can be classified by taking into accounting two organisation i.e. Unicorn Groceries
and Vectair holdings-
Unicorn Groceries Vectair holdings
Unicorn groceries are using modern techniques
of accounting such as following techniques
such as lean management.
Vectair holding follow up traditional method.
Although issues and problems are generated
and solution cannot be found easily.
Key performance indicators, financial No such techniques are available with firm to
6

governance are newer ways to tackle day to
day operational problem and issues.
deal with various operational problems.
Manager have advantage in performing
managerial function due to useful information
and reports.
Manager find difficult to make decisions
quickly because of lack of tools and techniques
availability.
The modern measures can be described as follows-
Key performance indicators- Indicators that determine performance of an organisation
are of utmost importance. The manager have to decide the factors that help in assessment of
firms performance. It overall contributes to attain specific goals in given frame of time.
Effectiveness of components of operations can also be known by key performance indicators
(Ward, 2012).
Bench marking- Making regular improvement in various elements of business is crucial.
Bench marking tool help in the same process. The actual performance are being compare to
planned one (Van der Stede, 2011). If found any deviation, it needs to be sort out quickly.
Financial governance- the auditing is an important task for management of firm.
Unicorn groceries have to give emphasise on financial governance to smoothly run their
organisation as per standards.
CONCLUSION
At the end, it can be concluded that every organisation use various of management
accounting because they help in making significant decisions which decided future of the
organisation. Besides financial data, management accounting also focuses on other significant
factors like market condition. Reports are made for analysing the work which his already done
by the company. Every form of reporting has their own importance and an organisation should
make reports according to the requirement of the top level management. Some enterprise prefer
marginal costing approach for finding net profit while other go with absorption costing. Both of
them different because of two reason, treatment of fixed assets and closing stock. Planning tools
are necessary for growth of the company, they assist manager at the time of budgetary control.
Most of enterprises understand that bring down wastages of resources can improve their
7

profitability. Various planning tools help in accomplishing this work. Financial problem can be
tackled by concentrating on financial governance, KPI along with benchmarking.
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REFERENCES
Books and Journals
Baldvinsdottir, G., Mitchell, F. and Nørreklit, H., 2010. Issues in the relationship between theory
and practice in management accounting. Management Accounting Research. 21(2).
pp.79-82.
Banerjee, B., 2010. Financial policy and management accounting. PHI Learning Pvt. Ltd..
Caglio, A. and Ditillo, A., 2012. Opening the black box of management accounting information
exchanges in buyer–supplier relationships. Management Accounting Research. 23(2).
pp.61-78.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Herbert, I.P. and Seal, W.B., 2012. Shared services as a new organisational form: Some
implications for management accounting. The British Accounting Review. 44(2). pp.83-
97.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Macintosh, N.B. and Quattrone, P., 2010. Management accounting and control systems: An
organizational and sociological approach. John Wiley & Sons.
Merchant, K.A., 2012. Making management accounting research more useful. Pacific
Accounting Review. 24(3). pp.334-356.
Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control.
Springer.
Quinn, M., 2014. Stability and change in management accounting over time—A century or so of
evidence from Guinness. Management Accounting Research. 25(1). pp.76-92.
Scapens, R.W. and Bromwich, M., 2010. Management accounting research: 20 years on.
Soin, K. and Collier, P., 2013. Risk and risk management in management accounting and
control.
Van der Stede, W.A., 2011. Management accounting research in the wake of the crisis: some
reflections. European Accounting Review. 20(4). pp.605-623.
Ward, K., 2012. Strategic management accounting. Routledge.
Foster, W., Hart, L. and Lewis, T., 2011. Costing study of two-year accelerated honours degrees.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting practices.
Journal of Operations Management. 32(7). pp.414-428.
Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Hirth, L., 2013. The market value of variable renewables: The effect of solar wind power
variability on their relative price. Energy economics. 38. pp.218-236.
Parker, L.D., 2012. Qualitative management accounting research: Assessing deliverables and
relevance. Critical perspectives on accounting. 23(1). pp.54-70.
Online
management accounting. 2017. [online]. Available through
<http://www.mbacrystalball.com/blog/accounting/management-accounting>.
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