Management Accounting: A Tool for Achieving Organizational Goals

The provided content discusses the importance of management accounting in achieving organizational goals and resolving issues. The approach suggested by Sundem et al. (2014) is helpful in accomplishing objectives easily. The conclusion is that management accounting is an essential tool for organizations, utilizing resources effectively to minimize operational costs and enhance profitability through penetration pricing strategies.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1 ...........................................................................................................................................3
1. Management Accounting and difference between management and financial accounting....3
2. Importance of management accounting..................................................................................4
Types of management accounting system...................................................................................4
Benefits of management accounting systems.............................................................................5
Management systems and management reporting is integrated within organisational processes
.....................................................................................................................................................6
Task 2...............................................................................................................................................6
Preparation of Income statements...............................................................................................6
TASK 3............................................................................................................................................8
A. Types of budgets and their advantages and disadvantages....................................................8
B. Process of preparing budgets..................................................................................................9
C. Pricing strategies..................................................................................................................10
Task 4.............................................................................................................................................10
A) Balance score card approach ...............................................................................................10
1. Use of Balance score card in identifying and responding to financial problems..................10
II. Use of balance score card in order to improve the financial governance.............................11
Conclusion.....................................................................................................................................11
References......................................................................................................................................13

INTRODUCTION
In the modern time, management accounting is important for every type of business.
Management accounting provide the financial and non-financial information of the company. It
manage the finance and provide the finance for the company objectives. It also improve the
business skills and their processes. In this report, management accounting is based on the Imda
Tech (UK) Limited, who is producing extra charger for telephone and for extra gadgets for the
retail outlets in the UK (Coad, Jack and Kholeif, 2015). In has been also mentioned about the
importance of the management accounting. There are some questions of accounting. They are:
financial accounting, cost accounting system, inventory management and job cost system. They
all are the accounting of the management. Management accounting is important in the modern
time because it provide the finance to the companies and manage the finance according to the
company requirement. So it is the financial management accounting (Cornell, 2014).
TASK 1
A.
1. Management Accounting and difference between management and financial accounting
The management accounting is the process which provide the financial and non-financial
information to the company. It also control the activities of the business and provide the better
accounting system (DRURY, 2013). The financial accounting system is the process of finance,
accounting and management.
There are some differences between the management accounting and financial
accounting. Management accounting is the internal part of the company and financial accounting
is the external part of the company which is related to the stakeholders. The management
accounting is provide the effective information to the company whereas the financial accounting
provide the financial statement to the financial analysts and to the stakeholders (McPherson and
Karney, 2014).
The management accounting is effective for the manager of the company whereas the
financial accounting is necessary for the financial investors. Management accounting is

important for the management of accounting and the financial accounting is important for the
management of the finance (Miller and Kelber, 2015). The management accounting include the
BEP, operating budgeting and management decision whereas the financial accounting includes
the income statement, balance sheet and the cash flow statement (Sundem. and et. al, 2014).
2. Importance of management accounting
The management accounting is important for the decision making. There are some
importance of the management accounting which is given below:
Determine of aim- The management accounting is important for evaluating the aim of the
company. The management accounting provide the right information to the department manager
of the company (Quattrone, 2016). So the management accounting determine the goals and
objectives of the company.
Helps in the preparation of plan- The management accounting is also important for making the
plan for the business activities. It provides the information of finance to the department manager
and prepare the effective plan for the company growth.
Helping in make or buy decision- The management accounting is important for the department
manager because it provide and make the effective decision to the department manager of the
company.
Increase efficiency of the business- The management accounting is important for increasing the
efficiency of the business (Saladrigues and Tena, 2017). It increase the efficiency of the business
and provide the effective goals and objectives to the department manager.
b.
Types of management accounting system
There are some types of the management accounting system. They are given below:
1. Cost accounting systems- The cost accounting accounting is important for the
management accounting (Zimmerman and Yahya-Zadeh, 2011). Cost accounting provide
the information of the cost. The companies following the cost for their product and the
services. The cost accounting system is based on the actual, normal and standard costing
of the accounting. The management accounting system provide the goods and services at
the lowest cost. The cost accounting accounting system is the record of collecting,
analysing, summarizing and control the cost of the product and services (Banerjee and
Das, 2017).

2. Inventory management systems- The inventory management system is also a type of the
management accounting system because it manage the inventory or stock of the business.
It manage the stock of the company for the specific time period. In the inventory
management system, the company also manage the inventory on the daily basis. The
inventory management system is the process of accounting (Bhimani and et.al, 2013). It
manage the stock of the company and provide the new products and new stock on the
daily basis to the customers. So it is the one of the part of the management accounting
system.
3. Jobs costing systems- The Jobs costing system is the type of the management accounting
systems. The jobs costing systems is effective for the large types of projects because they
determine the overhead cost of the production (Chenhall and Moers, 2015). The
overhead cost like, depreciation on the plant and machinery, furniture and equipments
and the depreciation on the building rent etc. the management accounting provide the job
costing and determine the expenses and revenues. It is also prepare the effective project
for the individual customer. The jobs costing systems appoint the cost for the different
production jobs. So it is the type of the management accounting system.
4. Price optimising systems- The price optimising systems is the type of the management
accounting system. The pricing optimising systems is to determine the price of the
product and services. It include the inventories and operating cost of product and
services. It is effective for the retail companies and increase the operating cost of the
company. Its aim to provide the effective goods and services at the low price to their
customers (Christ and et.al, 2017). It also determine the demand for the different pricing
level. The pricing optimising system is based on the different level of customers. The
pricing optimising system define the structure of the pricing system. So, they all are the
types of the management accounting systems (Ward, 2012).
M1
Benefits of management accounting systems
The management accounting system is beneficial for the all type of company. It is
important for the Imda Tech (UK) limited because it is the retailing company of UK. This
accounting system is effective for the decision making and it also determine the information for
the future plan ( Advantages and Disadvantages of Budget Control. 2014). The management

accounting system is also beneficial for the effective business plan and take the decision
regarding to the finance of the company.
The Imda Tech limited company use the management accounting system for managing
account of the company. It also provide a effective business plan for the future. So, they all are
benefits of the management accounting (Management Accounting-Introduction. 2017).
D1
Management systems and management reporting is integrated within organisational processes
The management accounting systems and the management accounting reporting is
coordinated within the organisational processes because they manage the activity of the
organisation. The Imda Tech (UK) limited company include the management accounting system
and the management accounting report for the planning, organising, evaluating and controlling
the activity of the company (Bhimani and et.al, 2013).
The management accounting system helps the organisation in the decision making. With
the help of this system, the company manage the account of their company. The management
accounting report is also useful for the organisation because it manage a effective report for the
organisation processes (Zimmerman and Yahya-Zadeh, 2011). So, these two accounting is
important for the integration within the organisation processes.
Task 2
Preparation of Income statements
Preparation of income statement is important as this will give Imda tech Ltd, a brief view
towards their financials and how the cost is behaving towards the operations undertaken thus in
order to have the information regarding decision making income statement in such a case will be
prepared through two methods one is from absorption costing and second is from marginal
costing method(Sundem. and et. al, 2014). As both the methods used preparation of income
statement has one difference that is the difference of fixed and direct cost. Thus being the
difference in both the methods the organization is affected or operations of organization is
affected upto a great extent. As per the information provided in the context of Imda Tech Ltd,
income statement has been prepared as follows-
Direct labour £5
Direct material £8

Variable production overhead £2
Fixed production overhead £5
Standard production cost £20
Budget £36,000/year
Actual overhead £15,000/each month
Selling, distribution and administration expenses are:
Fixed £10,000/month
Variable 15% of the sales value
Selling price £35/unit
Production 2,000/units in September
Sales 1,500/units in September
Absorption costing
Absorption costing
Sales ( 35*1500 ) £52,500
Less COS
Opening inventory 0
Variable cost of production ( 15*2000 ) £ 30,000
Fixed overhead absorbed ( 5*2000 ) £10,000
Closing inventory ( 500*20 ) £10,000
Cost of goods sold (30,000-10,000+10,000) £30,000
Under/over absorption (1000*5) £5000
Gross profit (52,500-30,000-5000) £17,500
Less non production cost (selling and distribution) (10,000+(15%*52,500) £17,875
Profit/loss (17,500-17,875) -£375

From the above calculation it is found that profit/ loss in the absorption costing is -£375.
In this company takes variable and fixed cost both into consideration and accordingly it
calculates the figures. Gross profit in this method is found 17500.
Marginal costing
Marginal costing
Sales (35*1500) £52,500
Less COS
Opening inventory
Variable cost of production (15*2000) £30,000
Closing inventory (500*15) £7,500
Cost for sale (52,500-30,000) £22,500
Less other variable cost (15%*52,500) £7,875
Contribution (52,500-22,500-7875) £22,125
Less fixed cost/actually incurred £15,000
Less non production cost (selling, distribution and administration) £10,000
Profit/loss (22,125-15,000-10,000) -£2,875
From the above report it can be said that profit/ loss in the marginal costing is -£2,875.
In this method managers of the cited firm take only variable cost in the consideration. So it can
be said that profitability is higher in the marginal costing in compare to the absorption cost.

Reconciliation
Reconciliation
Absorption profit - £375
Less fixed overhead on inventory (500-0*5) £2,500
(closing inventory(production –sales2000-1500=500) -opening inventory*fixed overhead)
Marginal profit - £2,875
TASK 3
A. Types of budgets and their advantages and disadvantages
The budget play a important role for the organisation's survival. The budget is prepare for
controlling the finance of the company. There are different types of budgets which is given
below:
Capital budgets- The capital budget is important in the calculation of all capital assets and it
also determine the cost and expanses of the company. Capital assets include the plant and
machinery, land and building, furniture and equipments etc (McPherson and Karney, 2014).
Operating budgets- The operating budgeting is also important for the company because it
determine the operating income and operating expenses of the company.
Cash budgets- this budget provide the information about the cash inflows and cash outflows for
the next year. It provide the information for the cash at the specific time duration (Coad, Jack
and Kholeif, 2015).
Advantages of budgets:
 The budgets provide the information of organisation activities.
 It convert the strategic plan into the action plan.
 Budgets determine the strength and weaknesses of the company.
 Budgets provide the co-ordination and communication among the employees.

 It provide the effective resources to the company (DRURY, 2013).
Disadvantages of budgets:
 The budgets create competition in the market place.
 It create the problem for the future plan.
 Budgets reduce the resources for the company activity.
B. Process of preparing budgets
The process of preparing a effective budget. They are given below:
 Obtaining Estimates- This is the first process for making the budgets. A company need to
obtain the ideas about the sales, level of production, and also determine the expenses of
the company.
Coordinating Estimates- After the obtaining estimation, the company coordinate the ideas with
other organisations (Bhimani and et.al, 2013). It is also evaluate the resources for making the
budgets (McPherson and Karney, 2014). Coordinating Estimates- It is the next step of the budgets. This process communicate the
ideas with the all department of the company. This process determine the objectives and
purposes of the company. Implementing the budget plan- After the coordinating estimation, a company implement
the budget plan in the company. This process is to evaluate the labour, materials,
machinery and other resources of the company (Bhimani and et.al, 2013).
 Reporting interim progress towards budgeted objectives- It is the final process for
making the budget. After evaluating these four budgets, a company provide a feedback
for the all department of the company. It also revise the budget during the year.
C. Pricing strategies
For getting success it is very important to select the appropriate pricing strategy. This can
help in attracting more people in making them satisfy with the brand. Organizations use many
pricing strategies such as skimming, penetration, competitive etc. But companies gave to go with
suitable strategy which can help in accomplishing the goal of the entity to great extent. Imda has
adopted the penetration strategy because it is appropriate and suitable for the organization as per
its products and market situation (Ward, 2012). For entering into the new market penetration
strategy will be best for the cited firm. In which cited firm can sell its products at lower rates in
the initial phase and later on it can enhance prices. This technique will support the organization

in attracting the consumers and it will give huge profit to the Imda tech Ltd (Management
Accounting-Introduction. 2017).
Furthermore, Imda Tech Ltd can also go with the skimming pricing strategy, with the
help of this tool cited firm will be able to enhance its market share. Competitive strategy is
generally used by the organization to be in the competition for the longer duration. In order to
gain the competitive advantage cited firm try to increase its number of consumers and trying to
provide satisfactory services to them (Chenhall and Moers, 2015). According to given scenario
Imda Tech Ltd is dealing the special charges so it can not adopt only one pricing strategy. To
sustain in the market for longer duration cited firm is required to follow several strategies so that
it can attract buyers and can increase profitability of the organization ( Advantages and
Disadvantages of Budget Control. 2014).
Task 4
A) Balance score card approach
Balance score card is the framework that is used to track and manage the business well. It
is most often used to bring strategy of the entity to life and helps in coordinating the strategy
across the corporation Miller and Kelber, 2015).
1. Use of Balance score card in identifying and responding to financial problems
The balance score card is used by the Imda Tech Ltd in order to set the standards so that
cited firm can accomplish the goal of the entity significantly. It is the tool that look upon the
various aspects such as internal business process, human resource, consumer perspective etc
(Coad, Jack and Kholeif, 2015). In addition to this balance score card is also essential and helps
in bringing innovation in the workplace. It is very important toll by this way cited firm can
measure its performance and can take action to improve it. With the assistance of balance score
card Imda Tech Ltd can gain competitive advantage. As per the given scenario it is found that
Imda Tech Ltd is facing the loss of 1.5 Million GBP so cited firm can take support of balance
score card in order to assess the internal performance (Cornell, 2014). By this way cited firm can
make effective strategies that can help in overcoming from its financial issues. SMART
objective of Imda Tech Ltd are as following:
 To enhance sales volume till end of 2018 by 30%.
 To increase retention rate of the users by 25% till mid of 2018.

 To increase revenues by 35% till end of 2018.
II. Use of balance score card in order to improve the financial governance
Balance score card is the tool that helps in addressing the issues of the organization and
suggest ways t hat can help in resolving the economic problems of the organization soon. Ida
Tech Ltd will focus on the customer needs and wants so that it can fulfil their desires and can
minimize its economic problems. For instance marketing manager of the cited firm is planning to
make conversation with the finance department that to allocate more funds to the marketing
section so that they can offer good discounts to the consumers and promote the brand well
(DRURY, 2013). It will help in attracting more people and will enhance the sales volume of the
entity to great extent.
Apart from this internal business practices are also included in the balance score card
approach. Management reviews the performance of employees and conduct the learning
problems for them those who are incapable to perform their duties well. Balance score card
assist the Imda Tech Ltd in reducing the gap between expected and actual business performances
and outcomes (Sundem. and et. al, 2014). With the help of this approach cited firm will be able
to accomplish its objective easily.
Conclusion
From the above report it can be concluded that management accounting is an essential
tool that helps the organization in resolving their issues and supports in achieving the goal of the
entity significantly. It is the techniques that supports in utilizing the resources well so that
operational cost of the entity can be minimized. It can be said that adoption of penetration
pricing strategy is very helpful that supports in enhancing the profitability of the entity to great
extent.

References
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