Management Accounting and Techniques

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
P1 Management Accounting and its Types.................................................................................3
P2 Methods of Management account reporting...........................................................................6
P3 Income statement using marginal and absorption cost...........................................................7
P4 Planning Tools for Budgetary Control.................................................................................10
P5 Comparison of how companies are using management accounting to respond to financial
problems....................................................................................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
The study is about management accounting and its techniques which can be defined as
accounting tools used by management in an organisation for making business decisions and
generate profits for the organisation. The different types of management accounting and tools
used for reporting are discussed. Cost analysis using costing types used in management
accounting have been done to elaborate difference in costing techniques. Planning tools for
budgetary control and their advantages and disadvantages have been highlighted. The ways
company has used management accounting techniques to respond to financial problems has been
illustrated.
P1 Management Accounting and its Types
Management accounting is the process of making reports after analysing, interpreting and
communicating decisions to the management. It helps in making short term and long-term
decision making and about projects which can give a better yield to the company. The main
functions of management accounting are:
a) Forecasting: It involves decisions like the type of equipment to be bought, which markets
to be diversified and which regions to be entered in. It makes use of its tools in
forecasting how the investment can get good returns for the company (Abdusalomova,
2019).
b) Cash flow estimation: Management accounting helps in creating budget and accordingly
estimate cash flows which will be required in investment projects. Also with methods like
NPV it takes consideration of time value of money. Budget thus made helps in financial
planning.
c) Performance variances: The performance estimated of a department, a project or the
productivity of an equipment is taken in consideration and compared with actual
performances. This helps in finding out where the parameters have mismatched or have
been up to the mark.

Types of managerial accounting
Product Costing and Valuation
The cost of making products involving direct and indirect costs, variable and fixed costs with
other overhead expenses are calculated and divided by the total number of goods produced. This
helps to find out per unit cost of product turned out for the company and helps to fix the price for
the product (Alborov and et.al.,2017). This is done by calculating profit margin and then pricing
the product for sale. Thus it helps in realizing the profit. Innocent drinks will get help to know
their production costs and accordingly they will also get to know where to cut costs and how to
price their products and make profits.
Cash flow analysis
Managers examine the cash inflow and cash outflow of a business decision thus calculating the
money flow coming as funds and purchases and payments as cash outflow. It helps to take
decision whether investment has generated cash flows as per required standards (Abdusalomova,
2019). While maintaining cash flow managers try to control in such a way that company has
enough liquidity to pay off its current liabilities. Innocent drinks if researching on launching a
new drink will get benefitted by cash flow estimates on how much they need to invest and what
cash money they can realise at the present by this venture.
Inventory Turnover Analysis
Managers calculate the storage costs of inventory apart from how fast the inventory is sold. This
helps in making decisions regarding manufacturing number of units or purchasing more
inventory. If there are excess costs coming in storage company will have to find out a way to
deal with it and minimize it so as to use remaining cash in operational activity. Economic order
quantity wherein bringing the right amount of inventory has to be realised for minimizing excess
costs. Innocent drinks will be able to order as per demand with help of Economic Order quantity
and thus reduce costs of inventory storage. The cash surplus can then be used in research and
innovation.