Management Accounting and Key Criteria

This study provides an explanation of management accounting and its key criteria for different categories. It also demonstrates various methods used in management accounting and their relevance in different scenarios. The study focuses on cost analysis strategies, benefits and limitations of planning tools, and the adoption of accounting systems. The case of RR Aldens, a UK-based organization in the meat and butchery industry, is used as an example.

UNIT 5 MANAGEMENT ACCOUNTING

Executive summary
The study begins with a brief introduction of management accounting. The description on the
diversity of the various management systems is provided in the initial part. The main
requirements of the management accounting are provided with the various criteria based on the
scenario. The study further proceeds with highlighting the techniques involved in the system and
an income statement is produced by using the cost analysis strategies. Making proper use of the
tools helps to make the analysis of the cost incurred in the organization better thereby identifying
their profit margin. In the later part of the study, the advantages and the drawbacks of the
planning tools and techniques is explained based on the budget management method and finally
concludes focusing the evaluation of the several sectors of management accounting, which is to
be presented to the general manager. As a management Accounting officer, it is therefore a key
role to manage the entire accounting process within the organization better. Understanding the
benefits of using the proper tools in turn has helped to control the budgeting process effectively.
Adopting the accounting systems has further helped to carry out the various monetary issues
related to the organization followed by recommendations for a better accounting of the
management.

Table of Contents
Introduction......................................................................................................................................4
TASK 1............................................................................................................................................4
P1 An explanation of management accounting and the key criteria for the different categories of
management accounting according to the scenarios .......................................................................4
P2 Demonstration of the several methods used in management accounting and stating the
relevant methods that can be utilized in the scenario......................................................................8
TASK 2............................................................................................................................................9
P3 Calculation of the cost by using the strategies of cost analysis in order to generate a statement
of profit............................................................................................................................................9
TASK 3..........................................................................................................................................14
P4 The benefits and limitations of the several types of planning tools that can be utilized to
control budget for the company.....................................................................................................14
P5 A brief comparison of the adoption of accounting systems to control monetary issues..........16
Conclusion.....................................................................................................................................17
Reference List................................................................................................................................18

Introduction
The management accounting is a significant segment in today’s business. It has several strands
and is used to improvise on the strategies involved in the betterment of organizations. The
management accounting deals with the daily management in appropriate planning detailed
decision making, patterning and improving performance strategic systems. In this scenario, an
organization of the United Kingdom, the RR Aldens is selected and is further inclined to the
effective features present in the management accounting system. The company has a limited set
of employees but known for providing quality services related to meat and butchery products in
the United Kingdom. The company also holds a complex set of channels and supply chains
including pubs, restaurants and poultries.
TASK 1
P1 An explanation of management accounting and the key criteria for the
different categories of management accounting according to the scenarios
In the opinion of Fullerton et al. (2014, p.414), the procedure of business consists of several
complex methods, terminologies and techniques irrespective of the types of sectors. It requires
specific capability to get an in depth understanding of the activities and occurrences. There are
several kinds of accounting in the business field such as, financial accounting, managerial
accounting, management accounting. In this scenario, the method of the management accounting
is involved in enhancing the professional skillets to detect the upcoming requirements,
advantages and limitations of the company. The management accounting system works as a
tactful tool and is necessary for business situations today to cope up with the rapid situational
changes in business and figure out the solutions to the issues by maintaining a smooth graph.
The categories of management accounting system include mainly eight key points, which are
follows:
Cost accounting: They are involved with recording all the data followed by an effective
allocation of all the expenditures that are involved in determining the costs of the products and
services associated with the management of the organization. All the data are properly arranged
to control and carry out the decision making processes by the collected information for a better
management. The investments that are made for the organization aim at identifying the actual
costs thereby determining the final costs of the goods and services. This helps to carry out the

analysis of the costs incurred for the organization’s development effectively by adopting several
effectively planned strategies to meet their desired goals. Alden has taken up the initiative to
carry out the entire financial process of the organization effectively by maintain a record of all
the information and investments and how that has helped to meet the customer needs.
Job costing: They involve carrying out an effective method of recording all the costs that are
incurred in the manufacturing job. The project manager of Alden has taken the help of job
costing to keep a track on all the costs that are involved in each particular job thereby
maintaining a record of the data and identifying their abilities to meet their customer’s
specifications.
Inventory: They refer to the effective usage of raw materials to provide the customers with the
best products and goods as part of the organizations’ assets to make them ready for sale in the
market. Inventory acts as one of the most important assets of an organization as they act as the
primary sources for generation of revenue thereby providing subsequent earnings for the
shareholders involved in the company.
Price optimization: They involve using an effective analysis of the mathematical aspects which
help to determine the customer response thereby regulating the prices of the goods and services
to fulfil their desired goals thereby maximising their profit margin. Alden has succeeded to a
great extent in analysing the prices effectively thereby focusing on their company goals.
The traditional method of cost accounting
As stated by Suomala et al. (2014, p.304), though the method of activity based costing is mostly
utilized in today’s time, the traditional technique of cost accounting is known to be effective for
a long time, aiding in the costing system. The traditional cost accounting helps the managers to
evaluate the pricing on direct manufacturing. The approach helps to make assumptions on the
upfront or direct labor cost, manpower cost, and cost calculations incurring the work timing and
hours and more. The assumptions are performed straight up by the managers and often lack
accuracy. The RR Aldens, also takes up the activity based costing approach in complex
situations, to which most modern business is inclined to. The reason being, the method includes
the manufacturing cost and cost of the supporting factors which makes it more accurate.

Figure 1: The traditional approach to cost accounting
(Source: Fullerton et al. 2014, p.50)
Throughput accounting
On the other hand, the throughput accounting approach is more of information and data based
which includes crucial principles surrounding eminent decision making for the managers. The
managers often need to understand key criteria that are to be met, consequential influences, post
decision effects on the company and even more. As per Messner et al. (2016, p.1), the
throughput accounting (TA) process is known to be one of the simplest approaches in
management accounting or managerial accounting that helps in mainly decision making. It
contains several set of data that helps in separating and specifying the goals in the particular area
of accounting. Some of the effective factors behind this type of accounting are,
● Enforcing rapid reporting and evaluating the entire managerial figure in terms of real
timing
● Educating the employees in the functioning and operations about managerial accounting
fundamentals
● Helping managers to take decision that shall be company goal oriented in a precise way
The Aldens is a company working with a large number of supply chains. The significance of this
accounting tool shall help in driving the organisation towards meeting decisional targets, while
on the verge of expansion.

Process of lean accounting
The process of lean accounting is a wiser and faster approach to the business process. It is helps
in reducing the extra costs and unwanted resources in the process. This process is helpful in
providing a clear understanding to the managers in terms of transactional activities, product
lines, profit margin and aligning. This process is known to reduce the amount of lean accounting
as well as lean thinking in the entire procedure. The use of metrics and whole numbers makes the
process easier for the managers.
As per Ax and Greve (2017, p.59), the process have taken over the traditional or older approach.
In this scenario, the RR Aldens can utilize the traditional approach in case of complications in
the modern approaches but the utilization of the lean accounting is essential in cost cutting and
making right usage of the resources.
Transfer pricing
The method of transfer pricing refers to the core financial dealings based on the financial aspects
of the business. The method can be improvised when one particular operational head is involved
with the organisation. It involves the transactional activities and the taxation regulations. The
Aldens can utilize this tool to deal with the relevant scenarios and modifications in the policies.
Figure 2: A basic functioning structure of the transfer price method
(Source: Van der Stede 2015, p.171)
The significant role of management accounting

The plays a key role in supporting the managers to make appropriate and quick decisions,
executing cost cutting and evaluating performance. The technique is also effective to understand
the exact objectives and goals of the organisation. Some of main roles of managerial accounting
involve,
Enforces an intelligent approach to performance evaluation which is different from other
methods
As stated by Chiwamit et al. (2014, p.144), due to the presence of effective set of tools and the
advanced trend of utilization of the same, the particular category of accounting is helpful for
analyzing the performances of employees. The auditing and the data or record storage helps in
recognizing the key skillets and the suitability of the employees. The set of skills varies from one
employee to another and possess different types of requirements. For instance, the employees in
the operations or functioning department of RR Aldens, can be assigned with the suitable
responsibility based on individual requirements with the help of the accounting process.
Assumption on monetary expenses
In order to increase growth in revenue, the techniques involved in management accounting helps
in making the precise cash flow assumption. This criterion is important for any type of business
sector. The reason being, it is necessary for the managers to be informed about the revenue
outflow and income for present and long term situations. The managerial accounting techniques
such as, charters, budget control and designing, patterning and aligning are highly essential
resources. This method shall be effective for dealing with the possible limitations in operations
and revenue factor in the near future.
Forecasting long term business scenarios
As per Hall (2016, p.63), the Aldens is a small sector business organisation that is on the edge of
expansion. It has to deal with the positive as well as negative influences that can affect the
business. The critical understanding helps in predicting the possibilities of risk factors involved
and be prepared for the sudden changes in business circumstances.
Effective decision making
The RR Aldens is comprised of limited employees and has to improvise business strategies
tactfully. The eminent decisions include large number of variances, collection of appropriate

data, evaluation of the existing information and analyzing the situation. For example, the Aldens
uses the supply chain method as manufacturing products by the organisation itself can result in
much more expenditure from the firm.
P2 Demonstration of the several methods used in management accounting and
stating the relevant methods that can be utilized in the scenario
Management accounting reports aim at focusing on the internal information of the organization
to carefully monitor and plan out effective decisions for carrying out the financial accounting
process of the organization effectively. There are a large number of descriptions of some the
eminent methods of managerial accounting that can also be utilized in the particular scenario are,
Budget Control
Following several effective management policies, the budget report is created for the
organization. They focus on collecting the data and information of the previous year which helps
to make the necessary changes for future developments with the organisation of Alden. All the
revenues related to the supply and expenses are collected in the data which helps to make the
budget effectively and analyse the performance of the company effectively. This helps to control
all the extra costs and include only those which are extremely necessary for the development of
the organization.Several funds are also involved which are provided as bonuses for the
employees and helps to keep them motivated thereby keeping their profit margin in check. The
budget control provides a supporting figure for the organisation with which the actual results can
be compared, to identify the resources that shall lead to high expenditure. The method of budget
control can also help in managing financial issues in crisis situations. The budget control method
helps in tightening the expenditure style and the Aldens can utilize this process in case of
revenue turn down or reduction in revenue margin.

Figure 3: Overview of the budget control method in management accounting
(Source: Brandau et al. 2013, p. 466)
Graphical representation
As stated by Christ (2014, p.379), the graphical representation as the name suggests helps in
creating a calculative image or figure to the managers. This is not only helpful for the managers
but can also be utilized in educating or updating the entire team of the chosen organisation, in
order to make the correct interpretations with the help of the statistics.
Cost accounting
The method of cost accounting helps in summarizing the prolonged financial or monetary details
involved in business. The advanced trends, such as, separating, recording, storing and classifying
is helpful for complex calculations required for the business.
Fund Flow analysis
The fund flow analysis generally depicts the income and expenditure of cash in the business. The
investments made or the assets are excluded or not considered a part of the resource of the
analysis. It helps in keeping track of the fund flow based on months and quarters in a year. The
fund flow analysis is essential for maintaining an intact balance between.
Financial Planning

The method of financial planning aims to increase profitability of the organisation through pre
planning techniques present in the system. The financial planning is one of the broadly used
methods in improving revenue margin and meeting business objectives and goals within the
desired timeframe. Framing an effective financial planning for Alden requires making of a rcih
and effective plan which act as a guide to deal with all the domestic and global upheavels
thereby keeping a track on the investments.
TASK 2
P3 Calculation of the cost by using the strategies of cost analysis in order to
generate a statement of profit
In the opinion of McLean et al. (2015, p.18), the absorption costing and marginal costing
methodologies shall be utilized in order to figure out the net income or profit, in the particular
scenario.
A presentation of calculation using the absorption costing method
Differential or marginal costing
Year 1
Particulars/Units
Amount
(£) Units
Sales volume 600
Production 400
Sales 0
Opening inventory 400

Net sales 17100
Less. Cost of sales 27000
Variable Sales overhead 600 4
Direct material 3600 5
Total variable cost 29200
Variable Production
overhead 1200 4
Direct labour 3000 1
Less. Closing inventory 8900
Contribution -1100
Less. Fixed cost 2200
Operational profit -3120
Administrative expenses 700

Distributing expenditures
Less. Non-operating
expenses
Net profit after tax -5290
Net profit before tax -3675
Less tax -1340
Representation of the net income calculation with the help of marginal cost technique
Absorption costing
Year 1
Particulars
Amount
(£) Units
Production 700
Sales volume 550
Sales 17100

Net sales 400
Less. Cost of sales 0
Direct material 4600
Opening inventory 3000
Variable expenses 900
Less. Closing inventory 1200
Administration expenses 800
Manufacturing fixed cost 1700
Fixed cost 1800
Net profit before interest and tax 6900
Less. Under absorption of fixed
cost 300

Less. Interest expenses
Less. Tax 3070
Profit after tax 7900
Profit before tax 5740
The two main methods that have been used in the calculations possess a large number of
advantages. As stated by Alawattage et al. (2017, p.177), the marginal costing and the absorption
costing consists of certain differences. The fixed costs are only categorized under the absorption
method, while the marginal method incurs the overall costing involved in the organisation. The
marginal costing is mostly based on decision making and is similarly helpful for taking important
decisions. Both the categories help to make the right differentiations but the methods are
different. The factors like, cost identification, categorization of overheads, profitability and the
cost information or data differ in both methods. In the above calculation, the marginal costing
portrays increased amount or figures in terms of profit compared to the absorption methodology.
The absorption method is highly effective in case of product selling, distribution and
administration in an organisation, like the Adlens. In the opinion of Klychova et al. (2015, p.
308), the marginal costing the calculation is performed based on the fixed cost and the variable
cost. On the other hand, the absorption costing also known as complete costing or full costing
method helps in case of taxation and monetary reporting. In case of the absorption method,
comparably more direct approach is made on the expenses and the post charging system is also
followed. On the other hand, the marginal method, the direct expenditure is made based on the
particular amount of period or timing. In the absorption calculation table, the deduction figures
depict the loss in revenue for the particular period of time. Though, both the method helps an
organisation to evaluate its income or profit, there above differences analysed portray the
detailed differences in the procedures.

TASK 3
P4 Benefits and limitations of the several types of planning tools that can be
utilized to control budget for the company
Figure 4: The tools of managerial accounting broadly categorized
(Source: Mohd-Jamal and Tayles 2014, p.50)
There are several effective tools present in the management accounting system, which serves
different purposes for the business scenarios. The broad range of tools includes financial
policies, working capital management, financial statement analysis and more. Some of the
eminent tools of accounting are,
Strategic planning
The strategic planning tool is solely planning based which helps in narrowing down the
consequences that can affect the business. The planning can be made in a precise manner.
Analysis of financial statement
This particular tool is one of the most important tools in the accounting systems and includes
details regarding the balance sheet, the profit account and the loss account. This tool also
provides details about the fund and cash flow in the organisation. Some of the main goals
surrounding the requirements of this tool are,

● Stability
● Solvency
● Profitability
● Liquidity
Variance evaluation
According to McLaren et al. (2016, p.361), this tool helps in understanding the present scenario
in the income, by comparison of the actual profit with the target value.
Financial policy
The financial policy tool helps in managing the capital shares and mix of the organisation in
order to keep the loans or shares in control.
An overview of the advantages and disadvantages of the tools in management accounting
The utilization of planning tools in accounting is effective in quite a number of ways. The usage
reduces the amount of repeated faults from the side of the organisation or loss in any eminent
data or information. The tools improvise strategies in which the task becomes simpler for the
managers and act as a supporting assistant. The planning tools also affects the entire chain of
business by the effective analysis methods and incorporating options for managers and the team.
In addition, with the help of the planning tools, the decision making of the managers can be
strengthened. The tools also help in understanding the factors benefiting the company and factors
making negative influences on the organisation. The appropriate usage, results in checking cash
flow, maintaining revenue returns in the long run, reducing excessive expenditure and more.
According to Grunewald et al. (2014, p.241), there are also certain amount of limitations to the
planning tools along with the advantages. The planning tools often result in complex strategies
that are difficult for managers to align to. The process in the tools often involves risks of data
loss when there are no technical involvement, for instance managerial reporting, auditing and
more. Moreover, the planning tools also involve specific topics and subjects, such as, statistics,
core accounting, business psychological aspects, which can often mislead the managers, if there
is lack of experience on the subjects.
Budget: A budget refers to an effective planning of the company’s financial aspects thereby
determining the time period which is generally taken of one year. They also associate with the

sales volume, revenues, quality of resources, costs and expenses of the organization all of which
determine the analysis of the investment that has been incurred. Following several strategic plans
help to measure the terms of the events thereby keeping a check on the expenditures that are
incurred for their purpose.
Advantages and disadvantages of budget: Keeping a control on the entire work system is
therefore essential for the effective working of the organization and develops new and innovative
ways for future development. The advantages of budget include understanding every minute
detail about a project staring from deadlines to the expenditures that are allotted thereby
deterring their daily work followed by an effective communication and coordination among all.
They also enhance the performance of the employees by establishing definite targets which are to
be achieved. Sometimes the data that are collected are vague or incorrect which makes it even
more difficult to formulate the entire process which results in turning up of various issues for the
future.
The disadvantages on the other hand involve the time that budgeting takes becomes lengthy as a
result of which several flaws turn up in the work structure with the presence of deadlines and
targets. If in case the employees fail to follow the given instructions the work gets hampered
overall thereby making the management process even more difficult.
P5 A brief comparison of the adoption of accounting systems to control
monetary issues
With the help of management accounting, the organisations can established more tactful
strategies to control the eventual outcome and long term revenue matters. The management
accounting systems possess different purposes and are very essential to identify the discrepancy
and the crucial differences in monetary aspects. For instance, the systems of budget control,
financial statement analysis are some of the most active methods or part of the managerial
accounting. On the other hand, the throughput accounting method involves principles related to
understanding about decision making. The decision making in an organisation have certain
requirements. As stated by Christ and Burritt (2017, p.379), the decisions cannot be delayed for
long neither a large percentage of wrong decisions can be taken. The right usage of the
management accounting system helps in meeting the time frame of decision making along with

accuracy in assumptions. Several financial problems turn up while the process of accounting is
carried out. Due to lack of over sightedness, often the plans made by an organization fail to be
carried out due to lack of duns. This makes it difficult for the production managers to implement
new technology and methods within the organization due to lack of investment or funds thereby
hampering the bringing of shipping supplies to fulfil the customers orders. The strategies that are
made within an organization aim at focusing on their long term goals which makes it difficult to
solve the problems that they are already burdened with such as excessive customer returns, lower
productivity level and such. They fail to see their real need of funds which are essential for their
development of the internal aspects of their organization. A proper financial planning is therefore
essential for surviving in the market and deal with all the possible risks effectively. Exploring
new markets thereby increasing the revenue helps to provide them with new and progressive
ideas which can help them to handle the conflicts effectively if they turn up in the future.
Investing sometimes becomes of high risk where the return is unsure and therefore proper
strategic planning followed by financial planning helps to get rid of all the obstacles effectively.
On the other hand, the usage of the financial statement analysis can help in cost cutting, coping
up with the entire organisational system of accounting, reduces extra expenditures, unnecessary
charges and also helps in predicting feasibility. The use of the above mentioned systems and
methods of managerial accounting helps in incorporating flexibility among the employees and
regulates the workflow of the team. In contrary, if the utilization of the systems are not selected
or utilized in the appropriate manner, the entire financial flow can be affected in a negative way.
In the opinion of McLaney and Atrill (2014, p.140), the increase or decrease in the revenue
margin can be evaluated based on the findings through the methods and constant improvement
can be implemented. In explanation, the meeting of the criteria and conditions aligning to the
adaption of the system can make the daily process smooth and help in maintaining stability in
revenue margin, managing turnovers and expenses and also making larger profits.
Conclusion
As gathered from the above study, the significance of the role of management accounting and the
appropriate analysis of the methods focuses on improving the existing methodologies in the
management system of the RR Aldens. It does not turn out to be effective most of the time to
understand the pros and cons appropriately. Therefore, the evaluation is unique and performed in
different ways to make the right utilizations based on the performances. The method is based on

the usage of definite and involvement of supporting techniques. The study gathers the
fundamental strategies of cost analysis in the management system and the different planning
tools, which are proven as some of the most useful resources that can be used in management
accounting.

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