Management Accounting Practices and Applications

This assignment delves into the multifaceted realm of management accounting. It examines various management accounting practices, including absorption costing and marginal costing, and explores their practical applications within organizations. Students will analyze the role of management accounting in decision-making processes, understand its influence on operational efficiency, and evaluate its significance in contemporary business environments.

Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................1
SECTION 1......................................................................................................................................1
LO 1.................................................................................................................................................1
1. Explain why management accounting is important in the decision making process for
improving the performance of the company...............................................................................1
2. Describing the different types of management accounting systems used for management
accounting reporting and their integration in the context of business........................................3
3. Critically eluate the benefits of management accounting system in organisation..................5
4...................................................................................................................................................6
a) Absorption and variable costing techniques in P&L..............................................................6
B) Supportive calculation in the each technique.........................................................................9
C) Reconciled the statements of profit and loss in the given techniques. ..................................9
SECTION 2 ...................................................................................................................................10
LO 3...............................................................................................................................................10
PART A.........................................................................................................................................10
1. Compare and contract three planning tools used in the management accounting. ..............10
LO 4...............................................................................................................................................12
PART B..........................................................................................................................................12
2. Compare the ways in which management accounting will be applied and its effectiveness.
...................................................................................................................................................12
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is the process or tool to identifying, measuring, analysing,
interpreting the organisational goals. Management accounting is the essential part for the
companies to take action regarding new investment, for portfolio management. Present report
based on the Management Accounting, it is the continuous process in the organisation to make
effective flow of funds. Furthermore, This present report separate in two sections, In section one
it will focus on the essential requirement of different types of management accounting, methods
used for management reporting or calculate the cost using appropriate techniques. Besides, in
section two it will describe the advantages and disadvantages if different types of planning tools
used for budgetary control or they also find the management accounting systems to respond to
financial problems. In Section one Agmet limited company and in Section two Nero limited has
been taken into action.
SECTION 1
LO 1
1. Explain why management accounting is important in the decision making process for
improving the performance of the company.
Management accounting is the continuous process to make financial decision making
process. It is important for Agmet to preparing management reports and accounts that provides
accurate results for short and long term. Management accounting is very usefully to make
decision making approach (Cameron and Green, 2015). Besides, management accounting is
different from financial accounting. The main aim of the management accounting is to aiding
managers to take better decision making approach for accomplishing the organisational goals.
Agmet is a leading recycler of metal bearing industrial company in North America. Management
accounting is the integral part of the management which helps to measure the requirements and
manage the company funds into correct place. This makes effective and productive management
function. Management accounting guide managers at every step to increasing the efficiency of
management or to enhance the employees capabilities. Along with that, management accounting
is very much helpful in the decision making approach, it helps to reduce the wastage
requirement, remove unnecessary needs from the organisation. There are some importance of
management accounting in decision making process (Chenhall and Moers, 2015).
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Relevant cost analysis: This is the first advantage of management accounting in decision
making approach is that, company take use of management accounting to determine what should
be sold and how to sell the assets or product and services. This makes company management
activities effective and productive (Importance of management accounting in decision making,
2018). For example, Agmet organisation may be unsure about that where he should focus his
marketing efforts (Chiwamit, Modell and Scapens, 2017). In this process accounting manager
determine the costing of marketing activities in order to focus on the best one. This process is
known as relevant cost analysis. On the other sides, management accounting systems helps to
take importance steps in term of investments. They analysis the cost of the activities and suggest
low cost based investments which outcomes are more productive and profitable forb the
company as well.
Activity based costing techniques: Once the company decides what products to sell,
company needs to decide to whom they want to sell. With the help of activity based costing
techniques manager can easily determine the activities required to produce and services a
product line. This helps to measure the productive customers consequently company invest on
promotional activities accordingly (Ehie and Gilliland, 2016). Management accounting is very
much helpful to determine the costing of activities and suggest the best costing activities.
Make or Buy analysis: On the other side, management accounting is helpful to take
decision regarding what to purchase or what not to be. It is the primary use of managerial
accounting information. For example, management accounting information helps Agmet to
determine the cost of material to take the best effective and low cost based decision. They
measure the needed products which is required in the system. On the other sides, with the help of
actual data of proper information company take decision regarding sells their products to reduce
the cost of selling and get profit maximization. By taking the make or buy analysing, manager
can easily measure the profitable point (Fullerton, Kennedy and Widener, 2014).
Utilizing the resources: Management accounting is also helpful to make decision in
regarding utilization of resources. Management accounting providing the driven tool to measure
the best process of utilisation of resources. This process of management accounting is used full
and guide to the managers about which resources are productive for the company betterment.
Managers takes decision on the basis of utilisation of information and data and then take decision
on that behalf (Goetsch and Davis, 2014). Every manager takes decision on the basis of present
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data. This helps to enhance the performance management of the company for future betterment.
Management accounting provides the all information to assist management in decision making or
in management control.
On the basis of given importance of accounting management in decision making
approach is very useful for the company improvement (Maas, Schaltegger and Crutzen, 2016).
On the basis of different importance of accounting management, it can be concluded that for
making any business regarding decision manager once overview the management accounting
data in order to make final decision. Management accounting helps to measure the company
revenues and expenses. On the behalf of this question, overall it makes, along with the that,
makes new changes and new effectiveness. Manager of the Agmet analyse the revenues and
expenses of past years on the basis of management accounting reports. In management
accounting it describes various reports with the help of this manager takes decision making
approach to make effective planning decision. Manager makes future decision making ion the
behalf of present data and information. Besides, another main role of accounting manager is to
analysed the data to create realistic budget for the company (Messner, 2016). This helps to
forecast the growth within the company.
2. Describing the different types of management accounting systems used for management
accounting reporting and their integration in the context of business.
Management accounting systems is the process which focuses on the external parties
such as customers, suppliers, stakeholders, investors. Further, management accounting is the
process to develop the financial reports for the company. It also helps to determine the actual
position of the company in terms of financial areas. Manager takes as an information tools to
handle the company position. It helps to make the better decision and helps to determine the
ways for the company betterment (Otley, 2016). All accounting reports are based on the
company data, budgeting, break even charts, cost analysis, trend charts and forecasting.
Managing accounting is useful at every level of the departments weather in IT department,
production or even in marketing department. Accounting systems modified the changes and fit
the specific needs of an industry or company. Besides, management accounting helps manager to
analyse the future or present data of the company which helps to make budget of the company.
Along with that management accounting also helps to identify the process through which
company can take better decision to minimize the cost effective process. This is the important
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and necessary tool of the management which tracks the income and expenses of the organisation
in order to take further decision making approach (Pimentel and Major, 2010). There are some
management accounting systems are giving below:
Cost accounting system: this is the first system of management accounting systems
which is very effective and productive for Agmet. This cost accounting systems helps to
analysing the cos related information. This process helps to define the profitable products which
gives higher sells outcomes to the company. Besides, or give the data for unproductive sells. This
explains the profitable analysis, inventory valuation and cost control (Quattrone, 2016). This
process helps to take future decision about the product making plans. This helps to enhance the
company performance in terms of growth. Agmet must know about the product scale like which
product is profitable for the company or which is not. It makes new services or product
organisation plan. Cost accounting system helps manager to make cost effective planning in
order to reduce cost and make profitable environment.
Inventory management systems: on the other side, it is the another management
accounting systems in order to make management reports or data. This system helps to motivate
the form of the organisation. This overall process helps to maintain the inventory management.
Inventory management is the ongoing process in the organisation. To maintain enough stock in
the firm, it is the responsibility of the manager to keep the record of inventory management. In
these systems' manager keeps the record of which stock into or out of a company. With the helps
of this system manager can track the stock availability (Renz and Herman, eds., 2016).
Job costing system: This process helps to keep the accumulation of the cost of material,
labour and other overheads cost for a specific job. This is the best approach for tracing the
specific cost related to the job function. Job costing is relates with the custom machine,
designing a software program, constructing a building etc. mainly job costing consist three
activities such as material, labour and overhead. For keeping the job costing data, it is easy for
the manager to track the individual jobs and examine them properly. Besides, job costing
systems defines the unproductive cost for the company. So that, they remove the unnecessary
cost activities. In direct material, job costing track the record of material labelling as well. This is
the another effective process in order to take the better decision making approach (Renz and
Herman, eds., 2016).
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Price optimising systems: this is another accounting system which makes management
process effective, price optimization help to determine the price optimization and the customer
response to different prices for its product and services (Salehi, Rostami and Mogadam, 2010).
Price optimising is helpful to take better decision making approach to determine the best prices
to get better response from customer.
Types of management accounting reports
Budget Report: it is the first report which is known as budget report in which company
makes its own budget report for a financial year. In this reporting cost accounting system is
effective to make planning and organising. During the preparing budget report manager consider
the data of cost accounting system (Schaltegger and Burritt, 2017). In this report manager
analyse their department performance in order to control the costs. Budget is mainly based on the
actual expenses from prior years. Budget plan is become successful when company revenues are
equal to the expenses or revenues are more than expenditure.
Job Cost Reports: Job cost reports show expenses for a specific project. At the final
stage they evaluate the and matched the estimate revenue to measure the job profitability. This
helps company to identify the higher earning areas of the business. Job costing system is helpful
to make job cost report (Stergiou, Ashraf and Uddin, 2013). Through which company focus on
the main issues to gain profit margin.
3. Critically eluate the benefits of management accounting system in organisation.
Management accounting system is the most essential system in the organisation to track
the company cost expenses and revenues. Each management accounting system denotes to the
different function (Shields, 2015). Such as Job order costing helps Agmet to make job cost
reporting in which cost of material is mentioned, all the decision making process regarding
buying and selling, investment are done on the basis of company data analysing. These
advantages enhance the performance or operational level of the management. It takes
management into higher profitable level (Renz and Herman, eds., 2016). This helps to reduce the
expenses, improve cash flow, helpful in decision making process, increase financial returns as
well. There are the benefits of management accounting systems.
Job Costing system
This accounting system shows the exact expenses of material, labour and overhead. This
process helps to identify that which overhead and material incurred heavy cost in the
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management. They also identify the actual expenses of employees for specific job. This process
is effective to make decision making approach (Salehi, Rostami and Mogadam, 2010). Assigning
cost is the benefit of job costing system which manager can easily calculate the profit earned on
individual jobs. With the help of this, manager can get the detailed knowledge of particular
project, they measure the all statistics details regrading those projects. With the help of this
process manager can easily identify the estimated budget for the particular task. On the other
side, Record keeping is the disadvantages of job costing system (Stergiou, Ashraf and Uddin,
2013). Along with that, employees need to maintain the all records by relying to track the actual
expenses and effectiveness.
Cost Accounting System.
Cost accounting systems is the beneficial to measure the prices, costing methods of the
organisation is different from each others. Besides, its main advantage of cost accounting system
is that, they help to elimination of wastes, losses and inefficiencies, this helps to minimize the
cost, losses, wastage and inefficiency things in the management. They also help to reduction in
cost by improved the efficiency level of employees (Taleb, Gibson and Hovey, 2015). Cost
accounting measure the profit and loss they focus on the activities which helps to enhance the
profitability chances or reduce activities which gives negative response. Besides, in cost
accounting system manager are restricted to take past information to make future decision.
Another measure disadvantages of cost accounting system is cost of previous year is not very
much effective or highly useful.
Inventory control systems
Inventory control system is the another major system of management accounting which
helps to make the better decision making in the organization. This system helps manager to
identify the actual requirement of stock and availability in the department. This system control
system to keep an accurate merchandise count (Shields, 2015). In earlier times company used
manual system due to which management facing many issues and mistakes due to manual data.
Another disadvantage of this management accounting system is labour intensive, in manual
accounting they used to monitor the regular activities to maintained the proper record.
On the basis of above discussion, it can be concluded that management accounting
system has both positive and negative sides which enhance the organisation performance. This
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overall system helps to motivate the organisation process and helps to accomplish the objectives
and goals (Shields, 2015).
4.
a) Absorption and variable costing techniques in P&L.
In order to achieve the effective goals and objectives, there are two different techniques
which helps to find the cost for a particular product and services.
Absorption costing: absorption costing is the costing in which fixed and variable cost
includes to assess the actual performance of the business. It is the managerial accounting method
which consider the expenses of all associated with manufacturing and full fill the GAAP as well.
Direct costs is related to manufacturing costs including wages, raw material, overhead costs.
Absorption costing is the whole costs including which includes in direct cost (Otley, 2016).
Quarter 2
7
Illustration 1: Absorption costing

Quarter 1
8

Quarter 2
Marginal costing refers to the essential participation in the business activities. This helps
to calculate the cost by account manager (Pimentel and Major, 2010). This marginal costing
helps to measure the cost of product and services, this helps to make the decision making
approach for right services in Agmet. Different variable cost are changed in day to day activities.
Marginal cost also define techniques that used to create break even analysis. Besides, marginal
costing also change in opportunity costs. This is the best approach to cover and sold the cost in
production.
B) Supportive calculation in the each technique.
On the basis of present analysis, profit is measured by different methods which includes
the marginal and absorption costing (Messner, 2016). This approach enhances the profit of
quarter 1. Agmet determine the two methods which gives the different approaches in business.
On the basis of given calculation which helps company to make better decision making
approach. Moreover, the main part of the organisation is to calculate the best sources to measure
the productive output.
Hence, following aspects will be consider in this regard:
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Illustration 2: Marginal Costing

= 66000*£0.20 = 13200
Total fixed cost = 16000
Under absorption = -2800
C) Reconciled the statements of profit and loss in the given techniques.
Quarter 1= 4700-2800
= 1900
Fixed = 16000
66000*0.20
It is under absorption
Quarter 2
5900-1200
= 4700
74000*0.20
= 14800
Under the absorption = 1200
Types of budget
1. Statements in marginal costing
2. Statements in the absorption costing method
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SECTION 2
LO 3
PART A
1. Compare and contract three planning tools used in the management accounting.
In order to get the effective results of the company Nero limited perform different
functions in proper manner. Along with that, various tools and techniques helps management
accounting to produce productive outcomes results. In order to complete the calculation
company adopts these different tools and techniques (Schaltegger and Burritt, 2017).
Budgetary control: budgetary control is significant technique which helps to control the
cost management programme. In these aspects' comparison every department has different roles
and responsibilities in order to measure the actual performance in budget of the Nero limited.
This helps to control the and monitor the activities in order to remove the ineffective activities.
In the Nero technology manager use this technique to compare the actual or desired performance.
Sales Budget: sales budget is the another technique through which manager can easily
consider the performance of the company in order to measure the sells profit. This technique is
very important to identify the issues and opportunity point. This makes the organisation more
effective and productive. Sales manager can easily take action on the basis of actual;
performance of sales statistics (Shields, 2015).
Cash Budget: cash budget is the another technique to make effective planning. With the
helps of this approach manager can use effective planning at workplace. Cash budget is
important to check the availability of funds or requirement of funds (Cameron and Green, 2015).
Sales budget calculation:
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Interpretation: on the basis of present calculation, it can be concluded that sales budget
helps to make further decision making approach. This helps to show which product or services is
effective for the organisation (Ehie and Gilliland, 2016). Frequent performance of the
organisation gives positive results to them.
Production Budget: production budget helps organisation to give preference to those
units which is more productive for the Nero limited. Manufacturer takes creative results to make
profit revenue for the organisation. Along with that, they also help to planning the raw material
requirement to the manager (Goetsch and Davis, 2014).
Budget for production:
Interpretation: production budget is totally different from sales which reflects the
product and services. Moreover, the production budget helps to take further important decision
making approach.
Standard costing: standard costing is the effecting expected cost of the actual cost which
helps to reduce the financial problems of the company. This helps to set the financial reports as
well. In standard costing two approaches helps to make the financial issues normal and stable
FIFO and LIFO. Besides, standard costing involves the creation of estimated costs for the some
all activities within a company. Standard costing helps company in terms of Budgeting,
inventory costing, overhead costing, price formulation. This helps company to make the proper
financial budget.
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Ratio analysis: this is the important tool of the financial accounting which helps to show
the exact assets and liabilities which helps to reduce the financial issues. This is the first step of
financial analysis. Through which manger can easily determine the company issues and financial
problems.
On the basis of above, standard costing and ratio analysis both the term helps to reduce
the financial problems and give good output to the company.
LO 4
PART B
2. Compare the ways in which management accounting will be applied and its effectiveness.
In the Nero Ltd. there is effectiveness increasing at workplace which helps to eliminate
and reduce negative things. In this consideration, cost would be control that help to business to
produce more profits and revenue (Goetsch and Davis, 2014). With this regard, several indicators
involves that promote accounting system. Following are different ways can be implemented in
this consideration: Cost accounting system: In order to achieve systematic results and outcomes, process
considered price that help to identify expenses that indicates in the business. These
expenses included for producing the goods in systematic manner. It is also based on the
labour and manufacturing expenses as well. These create several benefits to the chosen
organisation to produce more specific results at workplace. In addition to this, it is also
helpful perspective that consider pricing for producing more goods in the business
environment. It will help to focus on the different parameters that are related with cost of
the products and services of business (Silombela, Mutingi and Chakraborty, 2018).
Beside this, cost accounting system mainly used for products to implement cost control
which determines different elements. Inventory valuation and cost control is useful
technique which assists to make profitable operations in the business environment. In this
system, two main cost accounting systems included such as job order costing and process
costing. Therefore, job order costing method implement to accumulate the manufacturing
cost separately in each job. It is appropriate in which firm has been engaged. For
instance, costing accounting system is the most appropriate for event management
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businesses. In the present company this tool also help to produce creative results. Further,
process costing method accumulates the manufacturing for the products in each process.
In this manner, appropriate for products involves different department and cost flow in
one department to another. In respect to consider the example, this method used in the
several types of businesses. Ratio analysis: Ratio analysis is also tool of management accounting. Therefore, it will
help to assess the exact financial position of the company. In this consideration, different
kinds of ratio implied in the Nero Ltd. For example, profitability, liquidity, efficiency,
etc. Hence, the company can assess their functions and operations in business to
implement actual position that recognised by the several ideas at workplace. Furthermore,
issues and problems will be removed from the business to operate several activities. It
enhances productivity and profitability in the chosen enterprise for systematic results and
performance. Financial ratio analysis is also determines as the quantitative analysis of
information that contained in the business. It is the systematic model that used to evaluate
different aspects of the enterprise. Operating and financial performances will be develops
through efficiency, liquidity, profitability, etc. It is mainly considered create fundamental
aspects at workplace in systematic manner (Ehie and Gilliland, 2016). Fundamental ratio
analysis involving evaluation of the performance for the business. In addition to this,
using data from the current and historical financial statements, it will consider important
results at workplace. For example, liquidity ratio measures ability of Nero to pay their
short term debts and increasing their systematic performances. Solvency ratio also
calculated to implement the financial leverage ratio that could be compare from the
company debts level. In this consideration, equity, earning and other things could be
considered for making long term targets. Profitability ratio shows that how well company
performed to operate several functions (Silombela, Mutingi and Chakraborty, 2018). Benchmarking: Benchmarking is also tool that helps to compare the actual performance
of the enterprise to determines competitive advantages in the business. In respect to this,
the company can easily consider plans through different strategies that make strong
results at workplace. These kinds of strategies helps to focus on the business quality and
performances to maintains significant results. Benchmarking analysis is the specific type
of market research that used by the business to compare their existing performance with
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other companies (Cameron and Green, 2015). It adopted to improve overall approach for
continuous improvement and culture development. Mainly, it is based on three
perspective such as process, performances and strategic. Therefore, evaluation requires
for specific business processes. For instance, purchase planning, e-procurement, service
delivery, etc. Process maps are used to facilitate the benchmarking. Performance includes
comparison of products and services in a way to make competitive position against the
same sector. With the help of focus on the costs, technical quality and ancillary services
features. Core competencies, innovations and change strategies included to understand
the effectiveness (Goetsch and Davis, 2014).
 Key performances indicators: It is another tool which assists to create proper analysis
towards the employees. In this consideration, proper management will be implemented to
maintain high growth and develop creativity at Nero Ltd.
CONCLUSION
From the above discussion it can be concluded that, management accounting is the
effective aspects of managing the organisation functions and earn effective outcomes returns.
Present report was based on management accounting, it discussed the importance of management
Accounting in aspects of business functions. Besides, present report has been considered the
different types of accounting systems and its advantages and disadvantages in Agmet
organisation. Moreover, the main aim of the organisation is that to motivate the management
operations to enhance the employees' performance and profit margin. In the second part of the
report they was discussed about the comparison of the techniques. Overall, management
accounting is the essential system to make company budget.
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Online References
Importance of management accounting in decision making, 2018. [Online]. Available
through: <http://smallbusiness.chron.com/management-accounting-important-
decisionmaking-53947.html>.
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