Management Accounting and Reporting Techniques

Unit 5-Management
Accounting

INTRODUCTION
This study speaks about MA and its concepts used in organisations. MA is the branch of
accounting utilised by accountants to report entries, transactions happening within a fixed period
of time say quarterly or annually. This is for the referral of managers who use it to make short-
term and long-term decisions. It helps business managers to identify, measure, analyse
information and pursue business goals. The company on which study is based is Unilever.
Unilever is a UK based FMCG company catering to home care, beauty care, personal care and
foods and refreshment category products. The study also summarizes the benefits of different
management accounting systems and different methods of reporting used in organisation. The
range of management accounting techniques with reference to different types of costing have
been explained. The forecasting tools used in MA have been explained and the methods in which
organisation uses MA techniques to respond to financial issues have emphasised.
MAIN BODY
MA and its different forms
Management accounting is framework of identifying, to analyse, to interpret and
communication of information to mangers in which entries of transactions is recorded for a
period. The system helps managers make investment decisions regarding short-term and long-
term basis. It informs business about cost of goods and services purchased during a period,
financial planning to be made and performance of various sections according to the budget
allotted. The different types and benefits of management accounting are as follows:
a) Product Costing: This technique involves calculation of product's cost per unit and then
fixing the price at a profit margin. In manufacturing, many different costs like procurement of
raw material, fixed costs, its overheads, variable costs and its overheads are taken in account till
the production has ended. The total units produced is divided by summation for all cost to reach
out cost / unit of the units produced (Ameen, Ahmed and Abd Hafez, 2018).
Clift Joinery calculates its overall production cost as its operations are widely
distributed and the process involves a number of costs to be computed. The company is then able

to ascertain the price of products by setting a profit margin which is in consideration with market
prices.
This technique thus helps in accurate determining of the products and cost computing.
b) Cash flow analysis: Business decisions and their implementation involve cash inflow and
outflow on investment in a project. The manager will require the information of the financial
impact of the transactions taking place. For e.g. company planning to buy an equipment can do it
either by purchasing through company capital or by using debt in form of a bank loan. The
outcomes in form of cash flows regarding purchase using both options will be weighed and the
more profitable investment will be given nod (Abdusalomova, 2019).
Clift joinery uses the method to make investments while diversifying wooden products
as to the costs involved and the optimization of cash flow to be achieved and maintain the
working capital.
c) Constraint Analysis: Management accounting here helps in identifying the constraints which
may be coming in production or sales process. This helps in identifying the bottlenecks which
may be occurring in the process and the impact they are having on revenue and cash flow.
Managers thus think of suitable measures to help in eradication of bottlenecks and improve
efficiencies in the process (Ameen, Ahmed and Abd Hafez, 2018).
Clift Joinery uses constraint analysis to overcome constraints in production process. For
e.g. company taking key widgets in production from only one supplier who may be operating at
its full operational capacity can be a bottleneck as it may happen due to circumstances supplier is
not able to reach company's increasing order. Hence, management will have to increase suppliers
in this group and consider its additional cost for future returns.
d) Accounts Receivable Management: The company categorizes its account receivables i.e.
money pending from its debtors according to time length such as 30 days, 30+ days, more than
60 days etc. Management accounting categorises these by the period of time they are
outstanding. The faster the company is able to receive the credit, the better it is for the
company's working capital. It can also help in realising whether the company requires to do a
change in credit policy if there are many defaulters.

Clift Joinery records its account receivables according to length period of time and has
been able to speed up its recovery process for smooth functioning of its operations.
e) Trend analysis and Forecasting: This type of management accounting helps in making
decisions about future faring of the organisation. The upcoming market trends which affect the
organisation are considered and accordingly, financial planning is done for investment in general
and administrative expenses, operational expenses and capital expenditure in various
departments and forecasts are done for the company's future sales to occur.
Clift Joinery has benefited by doing financial planning for its upcoming expenses in
advance and channelising its investments according to trend analysis and forecast methods
estimations (Abdusalomova, 2019).
f) Inventory Turnover Analysis: This approach of management accounting focuses on how
efficiently a company is able to manage its inventory and how fast the inventory is sold and
replaced. This helps company to plan its order in advance for its next purchase of inventory.
Optimum utilisation of inventory is when the storage cost of inventory does not start affecting
the cash flow and does not bind capital for long. This method also helps in defining Economic
Order quantity for the company and reduce excessive storage costs (Alborov and et.al., 2017).
Clift Joinery has been able to do its Economic Order Quantity and has been able to
maintain the storage costs under control. This has ensured optimal utilisation of inventory as
well as the free up of cash for company's operations.
Different methods of management accounting reporting
The methods used for reporting management accounting are:
Budgeting: Every company has its own list of income and expenses in various departments. A
channelised statement which can record money going in these transactions and the amount of
money required in excess to complete the operations comes in the form of budgeting.
Management accounting takes in consideration the financial statements of previous years and
accordingly judges the expenditure department wise. This leads to categorisation of the budget
and is easy to administer. The requirements of the department in future considering time period
of one year is taken in consideration and accordingly finance is allotted under which the
department has to achi MA has supported eve its goals without exceeding the budget. Similarly,