The Importance of Management Accounting in Business Decision Making

Management accounting is a crucial tool for business, helping managers make short-term and day-to-day decisions. It provides financial as well as non-financial information to enable better decision-making, reduce expenses, and improve cash flow. Budgets are an essential part of management accounting, with two main types: operations budgets and financial budgets. Additionally, various management accounting systems exist, including cost accounting, job costing, inventory management, and pricing optimizing systems. These systems help determine product and service prices to achieve target markets. Overall, effective management accounting is critical for businesses seeking to make informed decisions and drive profitability.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................................................3
TASK 1...........................................................................................................................................................................4
P1 (a) (i) What is management accounting and differentiate between management accounting and financial
accounting...................................................................................................................................................................4
(a) (ii) Importance of management accounting............................................................................................................5
P2 Describe the different systems of management accounting....................................................................................6
TASK 2...........................................................................................................................................................................7
P2 (i) Income statement under marginal costing-.......................................................................................................7
(ii) Income statement of absorption costing-...............................................................................................................8
TASK 3...........................................................................................................................................................................9
P4 (a) Different types of budgets and their advantages...............................................................................................9
(b) Process of preparing budgets.................................................................................................................................9
© What are pricing strategies....................................................................................................................................10
TASK 4......................................................................................................................................................................... 11
P5 How balanced scorecards can be used to resolve financial issues and developing effective strategies.................11
CONCLUSION.............................................................................................................................................................12
REFERENCES..............................................................................................................................................................12

INTRODUCTION
This report is based upon tools and techniques of management accounting. Management accounting
is an essential tool of every business organisation and its day to day operations. It helps in to measure the
performance of company and provide necessary solution so as company can develop its market growth.
Along with this, management accounting is totally differ from financial accounting, because financial
accounting is make for an annual where management accounting is make for day to day and short term
financial decisions (Kaplan and Atkinson, 2015). Further for this, it is also helpful in creating budgets and
financial statements so as managers can easily analysis the actual position of company in capital market.
Budgets are also useful provide the accurate and timely financial conditions of the company and it also
assistive in where and how to spend money on business activities and functions.
TASK 1
P1 (a) (i) What is management accounting and differentiate between management accounting and financial
accounting
Management accounting is the term that is helpful in provides accounting information to managers
so as they can take better financial decisions, that is aid with their management and performance of control
activities. Along with this, it is helpful in order to take day to day or short term financial decision for the
betterment of business organisation. According to Institute of Management accountants, management
accounting is a system of performance management which controls to assists the formulation of
management functions and regulation of management strategy (Ward, 2012). In includes providing and
preparing timely financial reports and statements to the managers so as they can easily forecasting
forthcoming growth of Imda Tech. For a management accountant, it is very essential to he has a solid
knowledge of accounting practise, that is essential for every business organisation. Due to this, management
accounting is also called managerial accounting and cost accounting, that is totally differ from financial
accounting, in that it produces financial reports for an organisation’s internal stakeholder as opposed to
external stakeholders. So as management accounting is a combination of finance, management and
accounting that involves real values of business techniques and skills in order to add real value for any
business organisation. There is a difference between management accounting and financial accounting that
is as follow: -
Management Accounting Financial Accounting
Management accounting refers to collate information
such as outstanding debts, cash flow and revenue, so
that reports can be produces timely. It is also
assistive in delivering statistical information,
business decisions and day to day operations of
management (Burritt, Schaltegger and Zvezdov,
Financial accounting is helpful in preparing reports
and it is usually based upon the past performance of
manager; in line with reporting requirements.

2011).
It is a combination of financial information and non-
financial information data in order to design a
complete image of organisation. This is usually used
in to drive business success.
It provides the essential financial information that is
used by others activities within the business, for
example- departmental managers.
The process of management accounting is preparing
reports and profit and loss statements, in order to provide
timely and accurate information to finance managers.
And creates weekly or monthly financial reports for
managers.
Financial accounting reports are helps in creating
annual business reports for any business
organisations. In that, all accounting functions are
involved.
Management accounting is based upon
assumptions, convention and various principles,
assumptions like consistency, realisation,
matching, materiality and going concern etc .
It is able to be responsible for both quantitative and
qualitative information’s and data as well that is
being assessed and captured by accounting
managers.
(a) (ii) Importance of management accounting
Management accounting plays a very essential role in growth and success of every business
organisation. There is mention below the advantage as well as importance of management accounting, such
as follow: -
 Reduces Expenses – Management accounting is helpful in reduces expenses by providing effective
techniques for controlling damages and wastages. Along with this, in Imda Tech managers often use
management accounting data and information in order to review the prices of economic resources
and further business operations. So as, due to this information managers can easily analyse how
much money, need to run their business. Management accounting is also helpful in conducting
evaluation on the quality of economic resources that are used in producing products and services. So
as the quality of overall product cannot be suffer by its cheap and lower prices.
 Improves Cash flow – Management accounting is also accommodating by improving cash flow of
company so as managers can easily understand how much spend on business functions and
operation. It is also helps in creating budgets; budgets are the important part of management
accounting. Managers of Imda Tech, must have to used budgets so as they can maintain their annual
balance sheets and financial reports as well. As along, the performance of organisation can be easily
evaluated and managers can develop their strategic in order to improve the productivity of
organisation. Management accounting enables the management in order to identify deviations among
actual cost and standard cost.
 Business decisions – It is also helps in taking day to short term business decisions so as managers
can take risk in order to achieve growth and success. Sometimes it is very essential to take fast and

quick decision for accomplishing goals and objectives. Management accounting also provides
qualitative analysis for decision making process of Imda Tech, so as they can take effective and
impressive decision for developing organisation aims. It is easier the judgement and provides quality
services to managers. If managers are capable to take business decisions effectively therefore it is
beneficial for organisation for its growth and success.
 Providing effective management control – The tool and techniques of management accounting are
also helpful in providing effective control on management activities and operations. Managers can
easily establishes their control on planning and coordinating activities so as the employees can
improves their performance level in order to accomplishes heights of success in capital market. It is
also helpful in maximising profit and growth by reducing inefficiencies and incapability. Along with
this, the information and data revived by management accounting is helps in safe and secure from
past trade cycle.
P2 Describe the different systems of management accounting
There are different types of management accounting that are as follow: -
 Cost Accounting system – Cost accounting system is a framework that is used by companies in order
to estimate the cost of their products and services, it is helpful in cost controlling, profitable analysis
and inventory valuation. The system also called product costing system. It is critical for profitable
operations by estimation the actual cost of products and services. Cost accounting system helps for
Imda tech, in order to know that which products are beneficial for them or which are not. Job order
costing and process costing are the two main elements of cost accounting system (Parker, 2012).
Along with this, it is the process that aims to capture the production cost of the company by
evaluating the input costs each step of fixed as well as production cost.
 Inventory management system – Inventory management system helps in to maintain the stocks and
inventories of every business originations. Managers applying various methods and techniques so as
they can easily manage their inventory in business organisation. It is an on-going process that helps
in moving out products and their parts from company’s location. Imda Tech also manages its
inventory on daily basis and place new orders accordingly, it is very essential that managers gain a
firm understanding of everything include in the inventory management process. With that, business
leaders are able to identify different ways of resolving management challenges or issues and also
figure out accurate solutions.
 Job Costing system – Job costing system that tracks the revenues and costs by job. It involves the
process of accruing information about the costs related with a particular production or service
job. This information is required in order to acquiesce the cost information to a customer under
a contract where costs are reimbursed (Otley and Emmanuel, 2013). The information is also
useful for determining the accuracy of a company's estimating system, which should be able to

estimate prices that allow for a judicious profit. The information can also be used to allocate
inventorial costs to manufactured goods.
 Pricing optimising system –Pricing optimising system is the mathematical analysis by an
organisation in order to know the respond of customers for different prices of a particular
product. The system is also helpful in order to maximising the operating profits of the company,
so as it can able to achieve its goals and objectives. The practice of price optimising can be used
in different industries such as retail, banking, casinos, car rental, insurance sectors hotels and
airlines industries etc. The information and the data used in price optimising system is based
upon historical prices, sales, operating cost and inventories.
M1
Management accounting is helpful in providing the financial data and records to the managers, so
that they can easily use it at the time of needed. Managers can easily take day to day and short term business
decisions for their managerial operations. It is also helpful in reduces expenses by reviewing the cost of
economic resources and other business operations and activities. It also improves cash flow of the company
by making annual budgets.
D1
Management accounting and reporting is a system by organisations can easily evaluate their financial
as well as corporate performance. It is related with day to day accounting operation and assistive in making
short term decisions. Along with this, it also helps in forecasting the upcoming position of business
organisation (Cadez and Guilding, 2012). It collects all the financial statements and reports by company can
able to assess its financial performance and position in market.
TASK 2
P2 (i) Income statement under marginal costing-
Sales (35 X 1500) 52500
Less - Variable cost :-
Labour (5 * 1500) (7500)
Material ( 5 * 1500) (12000)
Variable production OH (2*1500) (30000)
Variable selling and distribution
expenses
(52500* 15%)
(7875)
Contribution 22125

Less – Fixed cost :-
Fixed production OH
(5*1500)
(7500)
Fixed selling and distribution expenses (10000)
Net profit (EBIT) 4625
(ii) Income statement of absorption costing-
Sales (units) 1500
Revenue (1500*35) 52500
Cost of goods sold :-
Opening inventory (A) NIL
Production (B) 40000
Available for sale (A+B) 40000
Less :- Closing stock (500*20) (10000)
COGS :- 30000
Over and under absorbed overheads NIL
COGS at actual 30000
Gross profit on sales :-
(sales – COGS at actual) (52500 – 30000) 22500
Less :- Selling & distribution expenses
Fixed (10000)
Variable (15% * 52500) (7875)
Net profit 4625
M2
Tools and techniques of financial statements are able to resolve the profit statement of the company.
These techniques are able to forecast all the financial positions of the company, by which any company can
achieves their targets and goals. Marginal and absorption cost, both techniques are able to find income and
balance sheet statement of the company, so that the accurate need of cash can be identifies. They gives
Performa of profit and loss statement in the end of the financial year, after that if any changes are required
so that they can be implemented. It is helpful in daily or short term decisions of the company.
D2
Marginal cost is the modification in the opportunity cost that generates when the quantity produced is
improves by one unit and absorption costing refers that all of the production cost that are immersed by the

units created. Applying both methods in the organisation can gives better financial decisions. They provide
accurate and sustainable financial data, so that companies can easily analyse their financial performance of
the company. It involves sales revenues, capital expenditures, cash inflow cash outflow and gross & net
profit of the company. The information and data that is generates with all those elements is able to take long
term financial decision and provides instant change in company’s net cash.
TASK 3
P4 (a) Different types of budgets and their advantages
Budgets are helpful in managing financial statements and records of every business organisation. It is
a plan that intends to find out expected operations of revenue and expenses for forthcoming time period. On
the other hand, budgeting is an activity of preparing detailed financial statements for better outcomes that
are predictable certain period of time. It is also helpful in reducing internal and external factors that affect
management inputs and market growth of Imda Tech. Along with this, it a plan that predict about future
expenses and helps corporations in order to successfully allocate resources so as they can meet their
expenses. Several firms prepare budgets to design that how they will assign funds for the upcoming
financial year (Granlund, 2011). Budgets are also usage to assess performance and liken actual spending
with budgeted amounts. There are many different types of budgets and each type serves a different purpose,
such are as follow: -
 Operating Budgets - Operating budgets is report that presents the financial plan for every business
organisation. It involves all responsibilities and duties during the budget period and affects budgeting
activities including revenues and expenses. Along with this, operational budgets help in to control all
revenue and expenses of day to day business activities.
 Financial budgets – Financial budgets helps in creating outline or a framework that intends how to
uses cash for different operations. Cash budgets, balance sheet budgets and capital expenditure are
the most common types of financial budgets (Qian, Burritt and Monroe, 2011). Mangers of Imda
Tech use financial budgets in order to know the leverage accounting and the value of the
organisation in capital market.
(b) Process of preparing budgets
There are following steps that are used in preparing budgets: -
 Determine the flow of information – For preparing budgets, it is essential for managers that they
have proper and valid information data. Because it helps in centralized the overall process and gives
priorities to the senior management so as they can prepare budgets. Accurate information helps in
providing suitable strategic and policies in order to creating a budget.
 Coordinating estimates – After that manager of Imda Tech must have to coordinate with each other
in order to creating budget plan. In several businesses, the budget authorities assesses the different
plans defer to by various organisational units in order to regulate the potentiality of tactics in the

overall interest of the enterprise and to appraisal what kind of resources are existing and how they
can be fairly allocated amid the several units of the organisation (Qian, Burritt and Monroe,2011.).
 Communicating the budget – It is the responsibility of the managers that they communicate the
budgets among overall employees, so as everyone is being known about the budget plan and what is
company expects from them. Necessary changes and modifications should be done after creating any
final budget.
 Implementation of budget plan – So as, now the final budget is ready to implement. Then managers
have to regulate the budget plan for upcoming budget period.
© What are pricing strategies-
Every business organisation uses pricing strategies in order to selling any products or services. The
price of the product is set to earn maximum profit for each unit of product from the overall market. It is
helpful in to increasing market share when a company entre into a new market. Pricing is one of the most
important components of marketing mix. It is helpful in order to understand the quality of products and
services. There are two main types of pricing strategies, are as follow: -
 Penetration pricing – Penetration pricing polices is helpful for small business organisation in order
to sets their prices low. Along with this, low prices also help in when a company enter into a new
market so as it can attracts more customers (Soin and Collier, 2013).
 Price skimming – price skimming refers when the prices of products are very high in order to
recover all expenditures of production and advertising. Many companies’ uses price skimming
methods so as they can achieve profit fast and quickly.
M3
Different planning methods of budgets are helpful in forecasting the financial situation of the company.
Planned budgets are always successful, because they have proper idea of how to spend cash of different
commercial activities, of the business. They gives support to the managers, in order to make another
specific policies for the next financial year, it is also supplying flexible cash flow in the company. It is also
accommodating in pinpoint of shortfalls and increases the instant changes in net cash. It gives a proper
format of sales revenue and expenditure to the business organisation (Cuganesan, Dunford and Palmer,
2012). Budget forecasting is helpful in making long term decision s for the organisation as well as day to
day operations also, by using this company can easily grow its market share in the overall capital market
place.
D3
Planning tools and techniques are able to reduce risk and uncertainties in the capital market. They are
responsible for organisational success and its growth & development. It is able to provide the long term
business polices and strategies, so that any business can compete with new entrants in the corporate market.

Planning tools a makes easier the decision making process of the company, in that mangers can easily
communicate with their employees and take effective and efficient decisions. It identifies all the issues and
challenges in in business organisation and reduce them with the help of internal and external environmental
analysis.
TASK 4
P5 How balanced scorecards can be used to resolve financial issues and developing effective strategies
Balanced scorecard is a performance metrics that is helpful in identify and improves the various
functions of any business organisation in strategic management. It also regulates over their external
outcomes and results. The main role of balanced scorecards is to provide feedback for companies so as they
can develop their performance accordingly (Contrafatto and Burns, 2013). Data collection is critical in order
to providing quantitative outcomes as the information collected is taken by leaders and executives, and recycled
it to make better conclusions for Imda Tech.
Purpose of Balance Scorecards- It is helpful in order to reinforce good behaviour within an organisation.
Balanced scorecards are helpful in analysed these four areas, such as- finance, customers; involve learning &
growth and business process. It used in attained goals, measurements, initiatives and objectives. Along with this,
businesses can identifies those hinder factors of the company that affects its performance and exactness strategic
probabilities track by future scorecards (Van der Steen, 2011). When managers of Imda Tech, are view their
objective so as they are enable to see as the company whole, with the help of balance scorecard. It is also helpful
in add values in business organisations and resolving all financial issues and challenges by implementing
effective strategies and policies as well.
Uses of balanced scorecards in developing strategies-
Balance Scorecards are responsible for what they are trying to accomplishing. It align the day to day
activities so as everyone can uses strategies in their work. It prioritizes products, projects and services in order to
measuring and monitoring the actual progress towards strategic targets. Balanced scorecard work as strategic
management in order to developing strategies and polices to meet organisational objectives and goals. Therefore,
it also helps in translating the vision and mission of business organisations so as managers can better uderstahd
their roles and responsblities or perfrom accordingly.
Balance scorecards also communicate and linked strategies at all level of the organisation and it relates
with individuals and team goals. It also assistive in business planning and forces managers to take participate in
creating financial as well as business plans (Li and et. al., 2012). Along with this, it also provides timely
feedback to managers and employees so as they can improves performance and capabilities that consists with
learning and developing. With the help of balance scorecards, managers can easily develops financial position in
capital market.
M4

Management accounting is helpful in resolving the financial problems of the company; it gives
proper suggestions and guidance in order to making decisions and strategies. It is the combination of finance
and management, so that if management accounting works effectively, the problems regarding finance are
automatically solves. It provides the better suggestions to the managers; by using them they can solve their
day to day operations as well as their long term activities. It is the process of reducing risk and generating
high profit in capital market (Pitkänen and Lukka, 2011). Management accounting makes business capable
to compete with their external competitors and also reduces the chances of internal conflict.
CONCLUSION
From the above mentioned file it has been concluded that management accounting is the essential
tool for business. It helps in short term and day to day to business decisions so as managers can easily take
profitable opportunities. Financial accounting is helpful in to providing financial information to managers
where-as management accounting is helpful in providing financial as well as non-financial information to
managers. It is very important in reduces expense, improves cash flow and better business decisions.
Budgets are also the important part of management accounting in order to provide better financial statements
and reports. Operations budgets and financial budgets are the two types of budgets. There are management
accounting systems, that are as follow;- cost accounting system, job costing system, inventory management
system and pricing optimising systems. Due to this, Pricing strategies helps in determining the prices of
products and services so as managers can easily achieve target market.
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