Management Accounting Techniques and Applications

This assignment delves into the world of management accounting, highlighting its effectiveness in resolving financial problems faced by companies. It examines several key techniques, including lean accounting, throughput accounting, transfer pricing, and traditional costing methods. The discussion emphasizes how these techniques surpass marginal costing in accurately calculating net profit and ultimately contribute to a company's financial well-being.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explain management Accounting and types of management accounting system required...1
P2 Explanation on various methods for management accounting reporting...............................3
TASK 2............................................................................................................................................5
P3 Calculate net profit by adopting absorption and marginal costing and explaination
difference among these management accounting techniques.....................................................5
TASK 3..........................................................................................................................................10
P4 Explanation on advantages and disadvantages of different types of planning tools that can
be used for budgetary control for organisation.........................................................................10
P5 Use of management accounting system for financial problem............................................12
CONCLUSION .............................................................................................................................14
REFERNCES.................................................................................................................................15

INTRODUCTION
Information regards to companies financial and non-financial which are used by managers
for making important decisions of the organisation in effective manner. Thus, information can be
providing the organisation in detailed involves mainly divisions, tasks, individual activities and
product etc. In the present research project, there is study on the different types of management
accounting and also discussion on types of methods for management accounting reporting
system. Further, there is a explanation on different types management techniques which used by
Dell company to make comparison on net profit. These are absorption costing and marginal
costing technique which is applied by firm. Along with that, there is detailed study on advantage
and disadvantages on various tools of budgeting. In research project the ending portion of
research project shows how management accounting system resolves company’s financial
problems in effective manner.
TASK 1
P1 Explain management Accounting and types of management accounting system required
To
Managing Director
DELL Company
Date: 24 June 2017
Subject: Management accounting system
Management accounting- It is a process in which there is an information collecting
from the financial as well as cost accounting to make analysis, interpret and present these
accounting information. Thus, it helps the management to make daily or short-term decisions.
The main aim of these accounting is assessing the risk, allocate the resources and make
presentation of financial statements. Therefore, the management accountants of Dell collect all
the financial information to make the day to day decisions that lead to run their business most
effective manner (Yalcin, 2012). Management Accounting is used by manager of organisation
for the purpose of make important decisions regard to firm. It is related to accounting
information gather for aim of controlling functions and make financial decisions effectively.
Different types of management accounting system that are essentials to the Dell company
Traditional cost Accounting: The method is used to allocate the cost of production of
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those goods that are manufacture by the organisation. The traditional method that majorly
include in it are the process costing, job order and batch costing. Therefore, the process is that
type of methodology used in the accounting that collecting the direct cost and allocating the
indirect cost that are used in the production process. Whereas, in the batch costing is similar
type of order costing in which each batch have a separate cost to give a batch number.
Lean Accounting: The lean accounting system is most useful for the Dell in the
management accounting system as it helps them to minimize the overall cost through remove
wastages in the organisation. Most of the Accounting adopt these type of system to obtain the
financial information immediately so, they can able to make necessary decisions for the firm.
Thus, these accounting is generally used by the manufacturing company through which they
can able to eliminate wastage, errors and increasing process. It facilitates the firm to understand
their financial position in effective manner (Tucker and Parker, 2014). Thus, this information
help them to make the favourable decisions and control the management function so, there will
be no financial loss for firm in future time period. It resultant into improves the company's
growth, sales of products increase and customer value.
Throughput Accounting system: This accounting system cannot be seen in the
traditional management accounting system as it mainly focus on the constraints that are under
the firm's production system. Thus, it helps the Dell to minimize all these constraints that
includes material, labour as well as production capacity that are insufficient. It impacts
positively on the company it will enhance the production capacity by minimize the cost for each
unit of output produced. There is a main advantages from throughput accounting system for an
organisation it influencing to mainly focus sales. For this reason , they make effective decisions
regard to product or services that directly leads to increase firm's sales effectively. Along with
that, the Dell company adopt the management accounting system encourage them to focus on
the entire system rather than on particular areas of investment. It able them to find out the cost
of production that incurred from the manufacturing of laptops and tablets etc. The cost involve
in it are related to salaries of workers, insurance and utilises etc. Further, these accounting
improves the expenses that are incurred while investing by three ways include minimize fixed
cost of direct materials and enhance the throughput.
Transfer pricing- It can be define as per the taxation and accounting if company
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transfer any kind of movable and immovable products across boarders. They are liable to follow
all rules and regulations for the pricing transaction from country to another. The products can
be transfer cross boarder are services, loans, intangible property (Scapens and Bromwich,
2010). Further, transfer pricing allow company to follow rules that allow tax authorities to make
adjustments prices for the transaction across boarders. They are generally happened when two
organisation which are same part of MNC group it can be explained with example if the Dell
company is a US based company. Thus, the company buy some equipment as well as tools to
make final product from the French based company UK. It establishes a transfer pricing when
both the parties buy something from on e country to another.
Truly,
Management Accountant
P2 Explanation on various methods for management accounting reporting
To
Managing Director
DELL Company
Date: 24 June 2017
Subject: Management accounting reporting
There are different methods adopt by the Dell company for management accounting report that
are as follows-
 Job cost reports: Company adopt these reports that able them to maintain organisation
job cost information. The information can be in various types are period-sensitive
account balance data and after that reviewing these job information. These can be
broken down into various units as well as labour and another data relate to financial.
Further, with the help of the information able company to generate the company's detail
information for the particular job. The reports can be summarizing into financial
information, transaction data through account, budget revisions and also sub ledgers that
are regard to the specific job. It facilitates the Dell company to make comparison among
the job cost data with the estimation cost. It also help the organisation to track cost and
revenues that are incurred on job as well as enable them to established report of
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profitability through jobs.
 Sales report: It is another method of management accounting report in which company
record all information regard to sales that are made on particular time frame. The sale
report provide the sales information regard to volume of sales per item, how various
current account were link and expenses involved in selling products such advertising
etc. These sales report facilitates the Dell company sales manager to analyse the
requirement to enhance its profits of goods or services (Setthasakko, 2010). They also
find out gap arise in actual sales performance with the expected sales of company's
products or services. Thus, if there are any deviations arise then they can make further
improvements regard to enhance the sales and attain the equilibrium. It also gives
company to finding our the market growth opportunities after analysing the sales report
and enhance sales volume accordingly. Therefore, company face any problem regard to
sale decline for a long time it means the customer's demands changing. It indicated the
company to stop selling its existing products and repackage these goods for new purpose
in another target market. It also helps the sale manager of an organisation to track the
record of sales activities that company spent time to meet the sales goals. The main
advantages of the sales report for Dell company is that to stop them to go on wrong
areas and also enhance sales of product for future time period
 Cost accounting: In these accounting assist company to collect, record, classify,
summarize, allocate as well as evaluate different alternatives to control cost that arise
within organisation. The information regard to cost helps organisation manager to
control the recent business operations and made plan for the future course of an action.
The main purpose of these accounting system is that to capture firm's production cost
through evaluating the cost relate to input and also fixed expenses. It assists them to
measure cost independently and make comparison among input outcomes to the
expected and actual outcomes to help manager to determine company's financial
performance.
 Further, these accounting include methods for measure cost of procedures, projects,
products etc. for reporting true amount on the statements of financial. It also aids
company to make effective decision of business and make plan as well as control firm's
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function in most effective manner. It can be explained with help of example the RL
Maynard company adopt cost accounting methods for the purpose of determined the
unit cost (Englund and Gerdin, 2011). These are related manufacturer's good or services
to report on firm's balance sheet as well as income statement as a cost of good sold.
Further, it also assists management to make analysis of cost-volume profit relationship,
variance analysis for revenue and cost, capital budgeting and standard costing etc.
 Budgetary report: The management adopt the budget report to make comparison on
actual and expected budget performance at the end of accounting period. Thus, it mainly
differs from actual and expected performance of budget and may inaccurate sometime at
the starting period. The Dell Company used budget report to make comparison and it
shows information in the income statement. It is listed on both side of Profit and loss
account revenue and expenses it mainly involves selling, administrative and other
expenses. Therefore, with the help of budget report they analyse the favourable and
unfavourable variable that are just opposite each other. It can be determine the company
condition if the actual number is more than the budget numbers it means favourable
variances. Whereas, if the actual number are bad than the budget numbers that shows the
unfavourable variances. The budget report can be reviewed by the company's manager
its depends upon their suitability that can be on daily, weekly and monthly basis.
Further, main advantages from the budget report is that it provides indication to
company how much money they required to invest on organisation. For this purpose it
ensure employer to arrange funds from various sources so, in future they does not face
any issue regard to financial.
Truly,
Management Accountant
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TASK 2
P3 Calculate net profit by adopting absorption and marginal costing and explaination difference
among these management accounting techniques
The company determine its financial position by considering its Profit and loss statements
that are highly based upon fixed period. Thus, these statement attempts to know the various
activities that are relate to organisation that directly develops expenses as well as expenses
(Pitkänen, H. and Lukka, 2011). There are two type of management accounting techniques adopt
by the company are mainly absorption as well as marginal costing. In the present scenario, the
income statements of a company can be made by the various ways that are as follows:-
Table1- The company adopt marginal costing that means that shows either decrement or
increment as per the company cost of production that are mainly arise when there is an additional
extra unit is determined.
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From the above table it has been interpreting the net profit by adopting marginal costing
and absorption costing that is discussed further. There is two methods used in the income
statement by Dell company. In table first there is calculation that are based upon the marginal
costing that indicating that organisation profit is earn at the ending period is £12600. Along with
that, in another second table shows the firm profit that is £ 9300. In these both methods the
company net profit is favourable that are made over a some period. It can be asserted that in the
marginal costing and absorption costing method both provide the net profit that is different from
each other. In the marginal costing the profit amount is £12600, which are taken as for
consideration in the account of variable expense. Therefore, in the income statements in which
there is a total expenses company incurred at time cost of production is £ 1800 (Kotas, 2014). On
contrast, the absorption costing method, the profit amount is less than the marginal costing net
profit it is due to fixed as well as variable expenses that are taken by the company. It incurred at
the time of cost of production. It can be clearly explained that both marginal costing and
absorption costing techniques have their own process of calculating the net profit that are differ
from each other.
It has been also asserted that in the business practical conditions it can be said that
absorption costing is more effective than the marginal costing that are adopt by the company.
Further, it also clearly shows that in both the marginal as well as absorption costing there is both
type of expenses are taken into consideration either variable and fixed variable expenses. It is
helpful for company to get the information that shows financial position of a company. In
contrast to this, in the marginal costing method they take the variable expenses in cost of
production. Therefore, it does not show the accurate information about the company financial
position. For this purpose firm adopt the absorption costing methods for computing the net profit
of an organisation.
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There is an difference among the marginal and absorption costing that are as follows-
Basis of difference Marginal costing Absorption costing
Meaning It is a that that type of tool that are
used by company to determine the
company's cost of production that
are concerning with expenses of
variable which are generally
incurred in the production process.
In these absorption costing
technique are used by company for
the purpose of determine cost of a
firm that are incurred through
various different expenses
Recognition of cost In these marginal costing in
which there is only variable
expenses incur in the cost of
production
In this absorption costing
company the company are mainly
concerning all the type of expenses
are fixed and variable on cost of
production.
Calculation of
profitability
In the marginal costing used to
determine the net profit with the
help of profit volume ratio
(Ahadiat, 2013 ).
In the Absorption costing method
used by the company to with the
help of fixed as well as variable
expenses that is resultant into
fluctuation in firm's profitability.
Impact on unit cost In the marginal costing the cost
per unit of product are not highly
affect the outcomes among
operning and closing stock
Inclusion of fixed expenses
overhead that are highly impact on
the cost per unit of product it is
possible only when there is any
variance in both opeping and
closing stock.
Difference in amount
of profit
In the marginal costing method,
the calculation on profit amount is
more as it minus that are variable
In these method of absorption
costing indicate less net profit and
there is not necessary to involve all
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expenses. types of expenses in calculation.
Aim The marginal costing is adopt by
the organisation to the internal
management as it assit them to
make effective decisions and
improvements in management
within the firm.
The methods is applied by
company for the purpose of
reporting of outsider management.
Thus, it assit to enhace the
management and also maintain
stock levels in an effective
manner.
TASK 3
P4 Explanation on advantages and disadvantages of different types of planning tools that can be
used for budgetary control for organisation
To
The Managers Date: 1st August 2017
Subject: Advantage and disadvantage of different planning tools
In the budgetary control is that procedures are adopt by company for the purpose analysing the
actual information with the expected data on the budget. Thus, on the basis of comparison made
by the Dell company they finding out the deviations and organisation take the corrective
measures to minimize the error. It help the management to identify how the manager of a
company utilizing cost control, budgets and various operations in a specific time period (Scapens
and Bromwich, 2010). It is the most important tool of management accounting for planning as
well controlling business activities. Company budget is made preparation that is based upon the
past accounting information and concerns the expectations of future. Therefore, there is some
advantages and disadvantages of budgetary control that are as follows-
Advantages
 It helps organisation to coordinates the various activities among all type of departments.
 They transfer strategic plans turn into action for the future period.
 It also delivers the performance base of the company.
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 It help the company to make allocation of cost through which they layout and design
 It effectively allocates the company's resources that are in clear manner and justified.
 It also gives a better option to make actual action through reallocations.
Disadvantages
 It creates major problems when the budget are rigid and mechanical.
 Budget create dissatisfaction for employees if there is a lack of participation..
 It also mainly create problem of unfairness
 It also develop feel of competition among the workers due to politics generating.
 The budget is initiative that reduce the innovation at the lower level and create
impossibility of create high amount of money through innovate ideas.
Budgetary control for planning tools
In the budgetary control it mainly involve the outcomes of budget that are to be
implemented (Lukka and Modell, 2010). There are some tool that are used to control budget
which are as follows-
 Responsibility accounting: It reveals the responsibility that individuals have to perform in
their job in respect to the business firm.
 Variance analysis: The tool reflects the deviation that is in firm sales and cost across
different product categories in respect to Dell. It is the one of the important tool that
reflects extent to which firm perform good or bad in its business.
 Zero base budgeting: It is the tool or method of budgeting under which management itself
determined value of components of budget. In this regard past year data is not taken in to
account and at own discretion and on basis of experience, the Dell prepares zero based
budget.
 Adjustment of funds: Under this, funds are adjusted according to needs of the business
firms and strategy is formulated to ensure that cash will be used in appropriate manner in
the business.
 Cash budget: This is the one of most common budget and under this cash, inflows and
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outflow sources are evaluated. Projections are made in the mentioned budget by taking in
to account past one. Thus, it can be said that mentioned budget help firm in controlling its
expenses.
 Production budget: Under this budget, projection is made about number of units that will
be produced in the upcoming period on monthly basis. Sales budget is taken in to account
for preparing production budget.
P5 Use of management accounting system for financial problem
To
The Manager Date: 1st August 2017
Subject: Use of management accounting systems
Throughput accounting system: It is a term of management accounting, which are used to
measure the financial performance. Throughput accounting is way to measure all financial aspect
in an organisation. It mainly discusses on cash factor. Throughput accounting is differed from the
cost account in cost accounting we measure overall cost investing in company but in throughput
account mainly focus on cash , which means mainly focus on what revenue ratio is generated and
how much we lose. Throughput accounting helps to measurement of overall financial
performance. Throughput accounting is provided proper accounting performance measurement.
In this costing system, solving problems and this process will be help to provide proper
information to performance. Where as in this system management helps to provide performance
measurement and help to managed their overall performance level in an organisation. This model
is also helping in financial problems that can be occur in organisation. It is an effective way to
resolving any kind of problem in an organisation.
Lean accounting system: Lean accounting is a term of management accounting
where managed all over the manufacturing environment nd in this accounting system
management will focus on the cost factor. Like indirect cost or direct cost. In this
accounting system measure all of the occurring cost in an organisation (Ambe 2016). This
accounting system is less complex accounting system. Lean accounting is managed by
the managers and make sure about minimization of all the direct expenses in an
organization.
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With regard to this, Dell company can respond financial problem through increase
indirect cost and decrease in overall productivity. Control over the lean production
company increase their performance and increase revenue. Lean accounting system help
to solve various problems in arising in organisation and lean accounting system is helpful
to manage manufacturing process. It helps to reduce indirect expense and help to control
stock production inventory.
Transfer pricing: In this accounting system company transfer its product to subsidiary
company, where the company transact with the other subsidiary company. Transfer price is also
known as transfer cost. Most of the time transfer cost increase addition cost and time consuming.
Extra labor will be required to execute this system. Moreover, transfer prices sometimes create
dysfunctional behaviour between among employees and organisations. Transferring cost
accounting system is expensive system rather than others. Dell company adopts that management
accounting system that help them in provide raw material to subsidiary firm, and it can also help
to solve financial problem in an organisation.
Traditional accounting system: Traditional accounting system is help to assign
overhead costs and traditional accounting system is helpful to produce any type of products. It is
a way to used solved so many big problems in financial aspects. With the help of traditional
costing management helps to identifying problems and effective way to produce more products.
Traditional accounting is effective process to respond the financial problems, which are related
to report, costing, budgets, cash flows and many more financial aspects. Most of the organisation
are followed the traditional accounting system. It will be help in improving reporting system and
enhance the value of the system.
CONCLUSION
Summing up the whole report, it has been concluded from the research project report is that
the management accounting is useful for Dell Company as company’s manager can collect
information. It able them to control cost, plan business activities and make important decisions
regard to organisation. Further, there is also analysis that managerial decisions are very crucial
for companies that lead to minimize cost and generate more revenues. It has been also analyse
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that management techniques of Absorption costing are high effective than marginal costing to
compute net profit. Thus, the main advantages of management accounting techniques is that they
able to resolve financial problems of company. The effective techniques are lean accounting,
throughput accounting, transfer pricing and traditional costing method.
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REFERNCES
Books and journals
Macintosh, N.B. and Quattrone, P., 2010. Management accounting and control systems: An
organizational and sociological approach. John Wiley & Sons.
Lukka, K. and Modell, S., 2010. Validation in interpretive management accounting
research. Accounting, Organizations and Society, 35(4), pp.462-477.
Scapens, R.W. and Bromwich, M., 2010. Management accounting research: 20 years on.
Ahadiat, N., 2013. In search of practice-based topics for management accounting
education. Available at SSRN 2355853.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Pitkänen, H. and Lukka, K., 2011. Three dimensions of formal and informal feedback in
management accounting. Management Accounting Research, 22(2), pp.125-137.
Englund, H. and Gerdin, J., 2011. Agency and structure in management accounting research:
reflections and extensions of Kilfoyle and Richardson. Critical Perspectives on
Accounting, 22(6), pp.581-592.
Setthasakko, W., 2010. Barriers to the development of environmental management accounting:
An exploratory study of pulp and paper companies in Thailand. EuroMed Journal of
Business, 5(3), pp.315-331.
Scapens, R.W. and Bromwich, M., 2010. Practice, theory and paradigms.
Yalcin, S., 2012. Adoption and benefits of management accounting practices: an inter-country
comparison. Accounting in Europe, 9(1), pp.95-110.
Tucker, B. and Parker, L., 2014. In our ivory towers? The research-practice gap in management
accounting. Accounting and Business Research, 44(2), pp.104-143.
Hülle, J., Kaspar, R. and Möller, K., 2011. Multiple Criteria Decision‐Making in Management
Accounting and Control‐State of the Art and Research Perspectives Based on a
Bibliometric Study. Journal of Multi
‐Criteria Decision Analysis, 18(5-6), pp.253-265.
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Ambe, C.M., 2016. Environmental management accounting in South Africa: Status, challenges
and implementation framework.
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