Management Accounting: Tools and Techniques for Decision Making

This report provides an in-depth understanding of management accounting and its essential requirements. It explores various tools and techniques used in management accounting for decision making, such as job costing, cost accounting, inventory accounting, and price optimization. The report also discusses the calculation of income statement under marginal costing and absorption costing methods. Additionally, it examines the advantages and disadvantages of planning tools used in budgetary control and compares different organizations' approaches to management accounting for financial problem-solving. Finally, the report highlights how managerial accounting leads to sustainable success in business enterprises.

Management Accounting

Table of Contents
INTRODUCTION......................................................................................................................2
LO1............................................................................................................................................2
P1 Explaining management accounting along with their essential requirements..................2
P2 Assessing the use of managerial reporting in decision making........................................4
LO 2.......................................................................................................................................5
P 3 Calculation of Income statement under Marginal costing and Absorption costing
method...................................................................................................................................5
LO 3.........................................................................................................................................12
P 4 Advantages and Disadvantages of planning tools used by budgetary control.......12
LO 4.........................................................................................................................................14
Comparison between different organizations regarding how they are adapting
management accounting for dealing with their financial problems..............................14
Managerial accounting leads business enterprises towards sustainable success.........16
Evaluation of how planning tools for accounting respond suitably for solving
Financial problems to lead organizations to sustainable success...................................16
CONCLUSION........................................................................................................................17
REFERENCES.........................................................................................................................18

INTRODUCTION
In the context of business unit, management accounting (MA) plays a significant role
in decision making. Now, managers lay focus on tracking business performance with the
motive to develop suitable or competent strategic framework. This in turn helps firm in
attaining goals and gaining competitive position over others. The present report is based on
Qbic hotel which offers accommodation services to the customers. In this, report will
provide deeper insight about MA tools which business units undertake for reporting purpose.
Besides this, it will shed light on the manner in which MA report aid in profitable decision
making. It also depicts the use of costing system namely absorption and marginal in the
assessment of cost and profitability aspects. Report also presents MA tools that can be used
by Qbic for planning purpose. It also entails how MA techniques assist in responding
financial problems.
LO1
P1 Explaining management accounting along with their essential requirements
Management accounting may be defined as a process which lay focus on analyzing
business cost and operations for preparing internal financial report. This provides managers
with suitable framework for decision making and contributes in goal attainment (Cowton,
2018). There are several management accounting systems which Qbic can undertake for
ensuring smooth functioning of operations from both monetary and non-monetary perspective
such as:
Job costing
In MA, job costing system is highly important which emphasizes on capturing or
tracking cost associated with each job. It presents cost of material, labor and overhead
associated with production aspect. Thus, by summing up all the expenditures total cost of job
can be identified. By dividing total costs from number of units, CPU can be assessed
prominently.
Advantages Disadvantages
 Offers detailed information about
cost regarding material, labor and
 Expensive and time consuming
exercise

overhead
 Profitability of job can be gauged
using this system
 Prevents duplication of work
 Helps in evaluating quality of work
(Job costing: advantages and
disadvantages, 2019)
 Lack of standardized process

Cost accounting
This system of MA may be served as a framework which firm’s undertake with the
motive to make appropriate estimation about product cost and performing profitability
analysis. Cost accounting system includes fixed, variable, direct and indirect expenditure
incurred by the firm. Profit attainment is the main motive of an organization for the purpose
of survival and gaining competitive position. In this regard, using such system cost per unit
can be assessed by the manager of Qbic using this accounting system. Hence, by adding
profit margin in per unit cost manager of Qbic can set price for the products or services
offered.
Advantages Disadvantages
 Assist in identifying cost per unit and
price
 Facilitates better monitoring and
controlling of labor costs
 Ensures profit maximization by
eliminating waste, losses and
inefficiencies (Cost accounting:
advantages and disadvantages, 2019)
 Leads problem in relation to under or
over absorption of overhead
 Focuses on past performance,
whereas management is concerned
about future
 Imposes more expense due to high
maintenance associated with the
installation of cost accounting system
Inventory accounting
This system of MA includes several tools which help in taking appropriate decision
about stock such as LIFO, FIFO, economic order quantity (EOQ), just in time (JIT) etc. In the
context of business unit, effectual inventory management is highly required for controlling

cost and enhancing profitability aspect (de Campos and Rodrigues, 2016). Thus, Qbic should
employ EOQ which clearly entails stock that need to be maintained within the firm for
meeting customer’s requirements. By using this tool firm can avoid unnecessary cost
associated with holding and ordering aspects.
Advantages Disadvantages
 Helps in reducing cost and improving
profitability
 Ensures better stock management
 Time consuming exercise
 Requires detailed assessment
Price optimization system
This system or software enables Qbic to evaluate customer’s responses at different
price level pertaining to the services offered. By this, manager of Qbic can set suitable price
of the services and thereby would become able to attract large number of customers. Hence,
such system of MA helps in setting competent pricing framework and thereby ensures
competitive advantage (Malina, 2018).
Advantages Disadvantages
 Facilitates price fixation
 Helps in building and sustaining
competitive position
 Expensive software
 Requires highly skilled personnel for
such mathematical analysis
P2 Assessing the use of managerial reporting in decision making
Managerial reports include budget, job cost, accounts receivable aging, inventory etc
which provides information about departmental performance. In the recent times, managerial
reports are highly significant from the perspective of decision making in relation to trim cost,
rewarding best performing employees as well as resources. There are several managerial
reports which can be undertaken by Qbic for the purpose of decision making such as:
Budget report: Manager can make assessment of departmental performance using
budget report. Moreover, it clearly exhibits deviations which take place in departmental
performance. Hence, considering this report manager can assess reasons behind deviations
and thereby would become able to take corrective measures on time (de Campos and
Rodrigues, 2016). In other words, budget report helps Qbic in making appropriate estimation

about income & expenses pertaining to proposed budget. Further, with the help of such report
manager can provide employees with suitable incentives. Through this, training &
development need of personnel can also be assessed.
Job cost report: This report provides high level of assistance to the manager in
evaluating job’s profitability. In this, actually generated revenue is compared in against to the
actual one. By this, manager of can Qbic identify areas where resources should be used
instead of wasting time and money on low or unprofitable projects.
Inventory report: Manager of Qbic can make manufacturing process more efficient
by using inventory report. Moreover, such report provides information stock wastage, hourly
labor and overhead cost etc. Thus, referring this, different assembly lines can be compared
effectually and best performing departments identified (Managerial accounting reports,
2019).
Accounts receivable aging report: By taking into account this report hotel unit can
manage its cash flow more effectually. Moreover, such report gives clear indication to the
firm that whether credit should be extended to the customers or not. It clearly highlights
customer balances and thereby helps in assessing amount they owed. Through this, manager
of hotel unit can track days within which debtors are making payment. By using this
company can find out problems exist in cash collection process. In the case of high defaults,
firm should tighten its credit policies. Referring all the aspects it can be stated that account
receivable aging report helps in assessing or evaluating company’s debt level.
LO 2
P 3 Calculation of Income statement under Marginal costing and Absorption costing method
Cost can be defined as the total expenses incurred by the company in order to know
the cost incurred in the production of goods. The cost consists of various expenses such as
raw material cost, labor cost and overheads cost (Pearce, 2016). Cost analysis relationship is
defined as the relation between cost of input by company and output of goods.
On the basis of level of activity cost can be divided in two parts i.e. Fixed cost and
variable cost. Fixed cost remains at every level of activity in the company and does not
change with the change in the level of activity (Nas, 2016). Variable costs are defined as the
change in the variable costs with the change in the level of activity in the company. Normal

costing can be defined as the actual cost occurred in the company at the time of production of
goods. Standard costing is the method of setting up set targets by the management in order to
achieve those budgets and then compare with the actual cost of the company.
Meaning of Marginal costing and Absorption costing
Marginal Costing can be defined as the method in which only variable expenses are
charged at the time of calculation of marginal costing per unit (Yu, 2016). For the valuation
of net profit or loss all the variable costs are deducted to calculate contribution and then all
the fixed costs are deducted in order to know the net profit or net loss of the company.
Absorption costing is the method in which fixed cost per unit and variable costs per
unit are accounted at the time of calculation of absorption cost per unit. Closing inventory is
valued at the absorption cost per unit (Mussati, and et.al., 2016). All the fixed and variable
production is deducted to calculate gross profit or loss for the company. Net profit or net loss
is calculated by deducting all the fixed and variable selling expenses from gross profit.
Calculation of Net profit and or net loss under marginal costing
Calculation of marginal cost per unit
Particulars Cost per unit (in £)
D. M. 8
D. L. 5
Variable Costs 3
Marginal cost per unit 16
Calculation of contribution under Marginal cost method
Particulars Cost per unit (in £)
Selling price 50
-Marginal cost per unit -16
-variable selling price -2.50
Contribution per unit 31.50
Particulars Figures (in £) Figures (in £) May: Figures (in

£)
Sales (300*50) 15000
Cost of sales:
Opening inventory 0
Material (500*8) 4000
Labor (500*5) 2500
Variable costs (500*3) 1500
8000
-Closing inventory (200*16) -3200.00
-4800
10200
-Variable selling cost -750
Contribution 9450
-Fixed costs -4000
Actual Net profit/(Net Loss) 5450
Particulars Figures (in £) Figures (in £)
June: Figures (in
£)
Sales (500*50) 25000
Cost of sales:
Opening inventory (200*16) 3200
Material (380*8) 3040

Labor (380*5) 1900
Variable costs (380*3) 1140
9280
-Closing inventory (80*16) -1280
-8000
17000
-Variable selling cost -1250
Contribution 15750
-Fixed costs -4000
Actual Net profit/(Net Loss) 11750
Absorption costing system
Computation of Absorption cost per unit
Particulars Figures (in £)
D. M. 8
D. L. 5
Variable Costs 3
Absorption cost per unit 26
Particulars Figures (in £) Figures (in £)
May: Figures (in
£)
Sales (300*50) 15000
Cost of sales:

Opening inventory 0
Material (500*8) 4000
Labor (500*5) 2500
Fixed costs 4000
Variable costs (500*3) 1500
12000
-Closing inventory (200*26) -5200
-6800
Gross Profit/Loss 8200
-Variable selling cost -750
Actual Net profit/(Net Loss) 7450
Particulars Figures (in £) Figures (in £)
June: Figures (in
£)
Sales (500*50) 25000
Cost of sales:
Opening inventory (200*26) 5200
Material (380*8) 3040
Labor (380*5) 1900
Fixed costs 4000
Variable costs (380*3) 1140
15280

-Closing inventory (80*26) -2080
-13200
Gross Profit/Loss 11800
-Variable selling cost -1250
Actual Net profit/(Net Loss) 10550
Company is having the higher net profits under absorption costing than the net profits
under marginal costing in the month of May. It is because of calculation of closing inventory
under absorption costs considers fixed cost per unit whereas marginal cost account total fixed
cost. In the month of June, net profit under marginal costing method is higher than the net
profit under absorption costing. It is because of low closing inventory which leads to lower
costs under marginal cost and higher profits.
Calculation of Actual performance of the company with the budgeted performance of
the company
Budgeted material cost per
unit budgeted cost at 1000 units Actual cost at 1000 units
Materi
al
Cost
per
unit
Total cost
per unit
Materi
al
Cost
per
unit
Total cost
per unit
Materi
al
Cost
per
unit
Total cost
per unit
2 10 20 2000 10 20000 2200 9.5 20900
Galway Plc material cost is been increased due to the increase in the consumption of
raw material by the company. Company absorbed more units of raw material than the
budgeted units of raw material (Song and et.al 2017). Company’s per unit cost has been
decreased but overall cost is increased due to the over consumption of raw material.
Calculation purchases and raw material (metal) during the month of May by using
LIFO method-

Date Particulars Amount
May-
01
Opening inventory of 40 units @
£3 each 120
May-
12
Add:-Purchased 20 units @£3.60
each 72
May-
12 Balance as per 60 units 192
May-
15 Less:- sold 36 units -120
May-
15 balance as per 24 units 72
May-
20
Add:- purchased 20 units £3.75
each 75
May-
20 balance as per 44 units 147
May-
23 Less:-sold 10 units -37.5
May-
23 balance as per 34 units 109.5
May-
27 Less:- sold 25 units -82.5
May-
27 balance as per 9 units 27
May-
30 less:-sold 5 units -15

May-
30 balance as per 4 units 12
Galway Plc uses the LIFO method for calculation of closing inventory. LIFO can be
defined as the method in which it is assumed that the last purchased goods are sold first (Gao
and et.al., 2017). According to the assumption, the closing balance after every sold unit is
calculated at the price of the goods which were purchased first.
LO 3
P 4 Advantages and Disadvantages of planning tools used by budgetary control
Budgetary control is the method used by the company in order to know the extra cost
allocated by the company (Mahal, 2015). These are the set budgets by the management in
order to compare the budgeted performance of the company with the actual performance of
the company. The budgets help the company in achieving the targets by the company in order
to eliminate the extra cost and maximizing the profits for the company. The different
planning tools used by budgetary control to control the costs are-
Activity Based Budgeting
Activity Based Budgeting is the tool used to scrutinize each and every activity in the
company in order to allocate in the department as per the need of department (Wildavsky,
2017). This tool of budgetary control is rigorous process as compared to the other planning
tools because it scrutinizes each and every activity in the company. It is the planning tool in
which past year’s budget is not considered at the time of preparing current year budget. This
tool first analyzes and then records each and every activity after properly scrutinizing all the
activities in the company.
Advantages Disadvantages
 The tool helps in the cost control and
cost elimination in the company by
scrutinizing each and every activity in
the company.
 It also allocated the activity in the
 It takes a lot of time in scrutinizing
each and every activity in the company.
 It needs the professional managers in
order to scrutinize each and every in the
company.

company as per the need of the activity
in the department.
 It is not economical tool and can be
applied only in large firms.
Zero Based Budgeting
Zero Based Budgeting is the tool in which manager has to justify each and every
expense in the company. Under this method, manager has to justify that what is the need of
expense in allocating in particular department (de Campos, 2016)t. It also defines that what
will be the benefits from allocating of the expenses in that particular department. This tool
starts from the “Zero Base” which means that the manager has to justify all the expenses
needed to be allocated in the department and their need of allocation.
Advantages Disadvantages
 This tool is very easy to calculate and
simple to understand.
 This tool helps the company in
eliminating the extra cost from the
company because the tool justifies each
and every activity in the company.
 It takes a lot of time in justifying all the
expenses of the company.
 It is very expensive method to apply in
the company and can be applied in
large firms only.
Incremental Budgetary Control
Incremental Budgeting is the tool where a small percentage is been added to previous
year budget to calculate the upcoming year’s budget. Current year budget is based on the
previous year budget. This method can be applied in the companies where only seldom
changes occur in the company (Tinkelman, 2018). This method is very simple to calculate by
adding a percentage of amounts in previous year. Generally, current year budget is either
higher or lower than the previous year budget.
Advantages Disadvantages
 It is very easy to calculate and simple
to understand by the company.
 It can be applied in small or medium
companies where the seldom changes
 The tool does not help in cost control or
cost elimination of the company.
 It cannot be applied in the large firms
where the big changes occur in the

occur in the company.
 It is very economical tool and can be
applied by every firm in the
organization.
organization.
 The tool does not take into account the
various expenses such as inflation rates,
interest expenses.
LO 4
Comparison between different organizations regarding how they are adapting management
accounting for dealing with their financial problems
Identification of financial issues:
Financial problems starts taking place in an organization when there is no proper
planning regarding the costs and expenses of the business, when there are no adequate and
effective internal control measures through which cost efficiency in the operations could be
achieved, when there is not any sound financial governance policy through which
transparency in the financial information could be maintained. Lack of all these variants
results into financial crisis for the company in the form of lower sales, lower cash inflows
within the business, reduced confidence of investors and lower profitability (Malina, 2018).
Different organizations are identify their financial issues with the help of various
management accounting tools and techniques. Below is a comparison between different
companies in the context of their adaptation to management accounting for confronting their
financial issues:
Bench-marking:
(Rocco Forte Hotels)
Key performance indicators:
(Qbick Hotels)
The term bench-marking refers to the
procedure of comparing business
processes, policies, financial
performances, employee’s & product’s
The meaning of the term key
performance indicators refers to a set of
quantifiable measures that a business
orgnasiation applies for the purpose of

performance with the standard
performance set as a benchmark by the
best performing business entity in the
industry. Such standards helps the
company in identifying the loopholes in
their processes, polices or performances
through which it becomes able to
formulate more enhanced strategies for
dealing with the future business problems
and dynamics. Rocco Forte Hotels
which is one of the competitor of Qbick
Hotel employs this technique for
identifying and responding to its financial
problems. By the way of this method, the
manager of Rocco Forte Hotels assesses
the efficiency of their own performance
and identifies the gap between the bench-
marks set and actual performance
(Cowton, 2018). The problem with this
method of evaluating the performance is
that it does not reveal the underlying
conditions under which such bench-
marks were set by the leading company
in the industry. Thus, the basis it provides
for comparison does not qualitatively
entails the actual reasons why the
company has failed in achieving its
desired goals and targets.
gauging its performance over time.
Qbick Hotels employs this technique for
assessing the operational efficiency of the
business in relation to attainment of its
intended targets.The company develops
and set its KPIs in the SMART manner
wherein the objective is specified,
measurable, attainable, relevant and time
framed. By the application of SMART
KPIs within the business, it allows the
manager of Qbick Hotel in effectively
evaluating and re-evaluating the
performance. For instance, if the hotel
has surpassed the its revenue target in the
current year, then it compels the business
manager whether it has set company’s
goal too low or such performance is a
result of some other contributing
factor(Usenko and et.al., 2018).
Financial governance:
Financial governance is a term which can be referred to a manner wherein a business
entity ,collects, records, analyze, tracks and reports its financial transactions. The purpose of

financial governance is to aid the managers of Qbick Hotels in managing, monitoring and
controlling the activities of the business enterprise. Moreover, it also makes sure that
preparation of the financial reports has undertaken by taking into account all the needed legal
necessities and all the compliance have been adhered to.In the event of lack of strong
financial governance, different risks could be developed within the business such as theft,
data manipulation, inappropriate recording of the financial information, inadequate
disclosures etc. The collective effective of these things results into reduced confidence of the
various stakeholders of the business that ultimately reflects into lower profitability of the
company (Weetman, 2019).
Managerial accounting leads business enterprises towards sustainable success
The application of effective managerial accounting tools and techniques contributes
towards the sustainable success of the organization. This branch of accounting is mainly
concerned with the optimum allocation of business resources within the various activities of
the Qbick Hotel. It allows the management of the organization to assess the internal and
external factors which has the potential of affecting the business in a either ways. Techniques
of managerial accounting like Key Performance Indicators, bench-marking,financial
governance when optimally applied by the management accountant of the hotel, it enables it
to formulate better and quality strategies and procedures for the business entity by which it
can cope up with its financial issues and can head towards sustainable success.
Evaluation of how planning tools for accounting respond suitably for solving Financial
problems to lead organizations to sustainable success
Planning tools like fixed budgeting, zero based budgeting, activity based budgeting
assist the manager of Qbick Hotel in dealing with their financial issues in the sense that these
budgetary tools offers a spending system or a framework within which the operations of the
business are to be conducted for the purpose of eliminating the possibility of over
expenditure, the consequence of which would be high production cost and redundant
financial burden on the organization (White,2019). Further, technique of budgetary control
helps the business in evaluating and analyzing its performance through which it gets to know
about its weaknesses for which more effective decision making could be undertaken. Thus, it
can be said that effective application of planning tool within the business can lead the Hotel
toward the sustainable success.

CONCLUSION
From the above project report, it can be concluded that managerial accounting’s primary
motive is to assist the internal management of a business organization in its process of
decision making. The report summarized about various types of managerial accounting
systems such as price optimization system, inventory management system,job costing system
and cost accounting system. Cost accounting system is required in the business since it aids
the managers in ascertaining the cost of each of the product manufactured by the enterprise. It
also helps the manager of Qbick Hotels in controlling the business operations. Moreover,
several kinds of planning tools were highlighted in the project report for example, zero
budgeting in which budgets are created from the scratch. The biggest advantage of such
budgeting is that allows the room for budget inflation. Lastly, it was concluded that
managerial accounting helps the hotel in confronting to the financial problems and in heading
towards sustainable growth.

REFERENCES
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