Management Accounting: Concepts, Methods, and Budgetary Control

This document provides an overview of management accounting, including its concept and the essential requirements of various management accounting systems. It also discusses different methods used for management accounting reporting and the advantages and disadvantages of budgetary control planning tools. The document covers topics such as cost analysis techniques, income statement preparation using marginal and absorption costing, and interpretation of the income statement.

Management Accounting

Table of Contents

INTRODUCTION
Management accounting, also known as administrative accounting, is the process of
defining, evaluating, assessing, translating, and reporting data to managers in order to achieve
organisational goals. Any accounting that is intended to advise management about operational
sector parameters is referred to as management accounting.It makes use of information about the
services & product costing which organisation tends to purchase. Budgets are tends to be used to
assess organisational planning decisions. Performance assessments are develop and analysed by
management accountants to find differences in actual and budgeted performance. Management
accounting has many advantage in include various functions such as it is beneficial to do
forcasting , important decision making activity is possible only with the help of it. It helps in
observing ROI called rate of return. Cashflow analusis and forcasting can be done by using such
techniques of management accounting. Management Accounting plays significant ach in every
type of business. Company that was selected for this assignment is Marks & Spencer. It is most
famous retailer in united Kingdom .Steve Rove plays a significant role of top managements. In
1884 it was established in the great locations of UK. Its headquarters are situated in London. The
report put great emphasis on the areas such as management accounting concept and also explain
important needs to Management accounting system. How MA reporting is beneficial it is also be
discussed, by using technique of absorption & marginal costing cost analysis is tends to be done.
Various merits and demerits of budgetary control planning tools are explain under this
assignment In which manner MA helps to repond issues related to finance..
PART 1
TASK 1
P.1 Explain the concept of management accounting and provide essential
requirement of various types of management accounting system?
Management Accounting: MA is an activity in which professional knowledge is tends to be
applied and use necessary skills in such a way so that it give support at the time when we gather
important information related to accounting as it helps manager in policies formation or in
making control over business operations. As equilibrium Assets management technique support
M&S to conduct it all on continuous basis so human resource of finance department perform
analysis and cost calculation due to this operational activity can be done easily.(Bagherzadegan,
2019)

Management Accounting system :To track the activities related to financial records as well as
operational task, respective method is used commonly by business organisation. It tends to
provide support to the outside people like merchant bankers, debenture trustee, qualified
institution buyer, underwriters, stakeholders, creditors, financial institutions so that they can take
important decisions after considering the matter. The supermarket Marks and Spencer adopt this
method to observe the actual financial status of the company. With the help of it need of funds
are also determine and it show the results that sufficient funds are available to business or not to
meet the working capital requirement (de Lautour, 2019)
Types of M.A.system
For smooth functioning of business, different systems of Management accounting are
implemented in most systematic manner. Every system perform unique task and each of these
has different objectives. Few of these are discuss by giving examples in below mentioned
headings.
Cost accounting system - Generally all the manufacturing concern used this system to make
control over the product costing by eliminating unnecessary expenses. This systems helps in cost
apportionment due to which it become easy to analyse all the cost that are engaged in the
business as well as show all indirect and direct cost separately. By using this sytem Marks &
Spenser separate all the cost on the basis of variable , fixed, semi variable. The scope of cost
accounting is very wide and includes cost control. Cost ascertainment, helps in decision making ,
proper matching with cost to revenue.
Inventory management system:. in inventory control system is the method of tracking your
products across the entire supply chain, from buying to manufacturing to end sales. It also
explain inventory management approaches. Any business that deals with stock would need a

system to monitor and manage it accurately. if proper management is not involved than
business run into circumstances where understocked or overstock problems exist. (He, 2020)
Job order costing system: It is a form of specific order costing which applies where work is
perform according to needs or demands of clients. In this each product posses different features
because in this product manufacturing is done on the basis of customers specificification.
Generally these method are followed in those industries or manufacturing concern who deals in
advertising, foundaries, furniture making, printing etc. As Marks & spencer deals with huge
variety of products so it use such method of costing. (Hoang, 2019)
Prise optimisation system: M&S implement this system, for the purpose to set
appropriate cost of product so that to provide satisfaction to audience at maximise level which
supports to add value to organisation.
P.2. Briefly describe different method used for management accounting reporting?
Various methods to management accounting reporting are explain in brief in below paras :
Performance report: It is develop to analyse firms performance in context to overall
operations activity. On the basis of respective information and reports important decisions
making such as related to declaration of dividend, bonus are taken by managers in Marks and
Spencer’s. after analysing these report, dividend rate and policy are set and these reports shows
actual status of company and helps to check that is the business entity has sufficient amount to
pay to their creditors, shareholders. incentives of their staff members are fixed after analysis of it
only. Also remuneration pay of employees are fixed after ascertaining a profit to develop
effective strategies it plays crucial role as its main target is to control operational activity as well
as to improve performance level and achieve competitive advantage
Budget report- It is also known as an internal report, and it is used by organisations to
allocate budgets to functional areas and different units of the company's operational department.

Managers at Marks & Spencer use budget reports to compare actual and expected results,
allowing them to assess their performance. With the help of these executives, the company's
senior management can decide whether or not the projections made in advance have been met.
(2020, Khromova)
Account receivable report: This section contains thorough information on debtors who
have purchased a product on credit. All relevant details about the due date of recovery, such as
the credit purchase date, the name of the party concerned, their contact information (including
address and phone number), and their repayment date and amount, must be noted. It is prepared
on a regular basis, and a monthly analysis is performed. It aids in the evaluation of a company's
creditworthiness. These registers are kept by companies that provide credit to their customers. As
a result, M&S executives and managers tighten their credit criteria in order to minimise
situations when clients pay late. (2019, Lebedev)
M1 Benefits of Management Accounting system.
System along with their Benefits
Cost accounting system: A company's efficiency can be measured, and then maintained and
improved, using cost accounting. This is accomplished by contrasts and analysis of any
variations that might exist. For example, material costs have risen: due to the reason of
improvement in material prices, or due to existence of high wastage, or inefficiency at the time
of purchasing the process, or if heavy cost are charged.
Inventory management system It is a process in which all the inventory items are tends to be
counted physically and after that recording of stock value is done. In this method on continuous

basis stock verification is done so that to avoid understocking / overstocking . in this system
recording is done by doing entry in the columns of receipt, issuing, and balancing of stock.
Various different techniques are adopted to make control over stock such as fifo, average cost
method, FIFO, HIFO etc.
D1.Integration between MAS and MA report?
In developing management accounting systems. Our knowledge will help to create an integrated
management reporting system for business operational, , units, subsidiaries , , Key Performance
Indicators, and IT support systems. management reporting system starts with a diagnostics of the
existing system and then developing a rationale for management accounting, ending with support
for the introduction of automated transaction accounting, data processing and reporting solution
become possible. reports often involve departments like the finance departmentof above-
mentioned companies is compliance with the accounts receivable report to determinethe credit
facility for customers. This link between company processes and accounting systems results in
greater market performance.
TASK 2
P.3. calculate cost using most appropriate technique of cost analysis to prepare an
income statement with the help of using marginal as well as absorption costing?
Costing is the technique and processes of ascertaining costs. Respective different techniques
includes rules as well as principles that governs the activity of calculating service and product
cost. Financial record analysis is the main purpose to calculate cost, as with the help of it
allocation of cost can be done and total cost can be built up.
Techniques of cost which generally observe in business are-

Direct cost: The practise of charging all direct costs to a product, activity, or process while
deducting all existing indirect costs from profits in the period in which they arise.
Marginal costing: In this ascertainment are perform by doing comparison among fixed &
variable cost and also find out their impact to profit through making change in the volume of
output. In this method fixed cost are charged to P/L and variable cost are charged to product.
Variable cost:.. A variable cost is a business expense that fluctuates based on how much the
organisation produces or sells. Variable costs rise or fall as a company's production or sales
volume increases or declines—they climb as output increases and fall as production drops.
Fixed cost: It is an expense that is mostly unaffected by variations in the degree of operation
over time since it is unaffected by changes in demand rate. The amount and the fixed cost per
unit are inverse in relation.
Cost analysis:. It is the method of allocating costs to various activities . iit is the process in
which analysing, evaluating, identification and allocating costs to all operating departments are
done.
Standard costing is the process of preparing standard costs and using them to measure and
analyse deviations from standard costs in order to maintain optimal efficiency in production.
Indirect cost- Costs that are not clearly attributed to a cost centre and must be recovered into
cost units are referred to as indirect costs. As a result, all overhead expenses are categorised as
indirect expenses.
Absorption costing: The another name of absorption costing is historical costing. It is the
practice of charging all cost such as fixed and variable cost to operations, product, process is
called as absorption costing.

M2 Techniques used to prepare the financial document such as income statement?
To prepare financial statement, there is need to adopt various types of techniques. The
system use for the purpose to report actually believes on the company. As P& L reports are tends
to be generate with the help of using two different methods like absorption as well as marginal
costing. Thus in both methods net profit value are differ. The reason behind is that different types
of activity as well as material variances cost are taken into consideration.
D.2. Interpretation of produced income statement ?
With support to marginal and absorption costing, calculation of income statement can be
done. As according to marginal cost estimation of net benefit is 50000 & - 25000. In the same

time period net profit is tends to be nearest to these values, along with the cost of absorption. In
this various types variances related to material and labour are also measured.
P.4. briefly discuss the advantage & disadvantage of various types of planning
tools used for budgetary control?
Budget: It is estimated income and expenses formal statement that are prepare for future
plans & objectives. In another way it tends to be define as, a document which management
makes for the purpose to estimate the revenues as well as expenses for future period based on
their goals for the business.
Budgetary control: Budgetary management is the method of preparing budgets for the
upcoming duration and comparing them to current results to identify any variances. The analysis
of budgeted and real estimates will assist management in identifying variances and taking
corrective measures as soon as possible. Budgetary Control is a technique in which actual results
related to sales and expenditures, are linked to the budget that was established prior to the start of
the financial year. It emphasises the need for performance adjustments if necessary. It also
demonstrates how efficiently the management managed expenses and expenses over the course
of an accounting year.
Various forms of budgets along with their advantage and disadvantage
Budget for capital expenditures: This budget represents the planned expenditures on fixed assets
such as land, equipment and machinery, and buildings during the budget year. Because it
involves a considerable amount of spending, this budget is subject to stringent budget
management supervision. The budget is designed to cover a number of years and projects the
capital cost throughout the time period in which the expenditure will be made as well as the
expected revenue.
Advantages

 It facilitates cost reduction programme, particularly when modernisation and renovation
covered by this budget.
 It provide the amount of expenditure to beincorporated in the future budget summaries
for calculation of estimated return on capital employed.
Disadvantages
 lack of specificity is negative aspect because it covers information from different
departments
 due to collective information, easily it tends to be not observe.
Zero base budgeting : It is a planning and budgeting process in which every manager is
require to justify their whole budget request in details from scratch and shift the burden of proof
to each manager to justify why there is need to spend money. It provides an opportunity for the
management to allocate the resource to various activity after a proper cost benefit analysis.
Advantages
 Because ZBB is not incremental, it enhances operational efficiency by requiring
managers to examine and justify their activity or the funds requested. \
 Because budgets are created from scratch every year, this method is relatively flexible.
Financial planning and management information systems must be developed as a result of
this system.
Disadvantages
 It is a traditional budgeting system which comes lots of time. The work involved in Zero
base budgeting is much more and hence may be acceptable from cost benefit analysis.

 It requires more paper work and more personnel is needed which in turn increase the cost
for setting up zero based budgeting system.
M.3. Analyse the use of different planning tool along with their applications for preparing budget
or forcast?
In terms to take most appropriate decision regarding budgetary, various type of strategies
are tends to be implemented. As in the organisation accountant plays an important role. They
compile all the budgets like capital based budgeti, zero base budgeting so that it become easy to
forcast and finding source of revenues. With the help of these actual activities can tends to be
predict appropriately in accurate manner. As by preparing capital budget they can take all the
decisions regarding investment
TASK 4
P.5. Evaluate how company can adopt the concept of management accounting system to respond
to financial problems.?
In organisation when there is shortage of funds that the financial problems exist and due
to that company not able to satisfy their working capital requirements. every organisation
identifies reasons of financial issues so they take some initiatives to sought out issues. In the
context of these financial concerns, companies use a variety of approaches to figure out what's
causing the problems. So many challenges face by M&S when they operate their business few
are discuss as follows –
Inventory management- Companies are having issues as a result of the rapid pace of change on
the market (Li, 2019). When competition heats up, customers become more demanding and
expect exceptional service. This allows the firm to better manage its inventories.

Lack of liquidity- Unexpected withdrawals, poor asset quality, excessive lending, low
earnings, investments, asset price drops, failure to maturity reserves, deposit buildup, and other
factors contribute to the company's challenges' instability.
Sudden expenses. If in the organisation proper planning is not done by manager than
large amount is spent on unnecessary expenses. If proper management exist or there is
appropriate amount of fund are present than only the situation are under control. To overcome
with the issue marks and spencer check whether sufficient funds are available or not. This tools
helps in smooth functioning of business (Pompili, 2019)
Late payment from debtors .: As the organisation M&S offer their products to their
customers on credit also due to this chances of delayed payment tends to be increase which
results to shortage of cash in the stores. It leads to make impact on operational functions of
business which increase the chances to business failure.
To handle financial matters M&S use following tools-
Benchmarking –to make comparison between industry based standardized value and
after effect of business operation it is used ., business can improve internal performance level by
sing benchmarking..
KPIs : To observe performance of organisation it tends to be used. As there are two form
of key performance indicator are exist such financial and non financial. financial are those
expenses which are unnecessary and another one is non-financial which tends to follow to
analyse problems which tends to exist at the time of performing operation of business. with the
help of this tool Marks and spencer easily identified unnecessary expenses that tends to
determine commonly unnecessary implement cost (Rosenthal, 2018)

Financial governance. It is associate in nursing indicative of these moral norms, which
are essential to be implemented in all type of business corporations in order to ensure security
from the dirt that exists as a result of the lack of a moral arrangement. It results in sound internal
control in organisational procedures, preventing the firm from losing capital. M&S executives
aim to identify all current difficulties and find the most cost-effective solutions. The organisation
has a monitoring method that adheres to financial rules.
Effective management accountant support to prevent problems: accountants should have
skills that allow them to easily forecast and advanced knowledge that allows them to develop
effective plans that are most beneficial to the business and handle the most critical situations that
arise while performing business operations functions.
Decision-making abilities are tends to be essential since they can aid in the prevention of
difficulties in the workplace by allowing employees to make the best decisions possible. (Tang,
2019)
Compare Both the famous companies
Marks & Spencer and Morrisons
Marks & Spencer Morrisons
 Stock management systems are used by
businesses to keep track of inventory
and to minimise problems that arise as
a result of a lack of sufficient products
items in their available stores.
 All supermarkets utilise a cost
accounting-based method to resolve
 To calculate and determine material
costs, organisation employs a cost
system and develops effective
strategies, allowing for the quick
resolution of unexpected expenses and
assisting in the selection of things that
are both reasonable and of comparable

cost-recording concerns.
 Marks and Spencer employs a financial
governance method to enable them to
disclose their actual financial status to
outsiders such as shareholders,
underwriters, financial institution etc
so that on the basis of that they can take
important investment decision and
helps to determine whether or not to
invest fund in the company's respective
project. On the basis of risk and return
all the important decision related to
deploy funds are tends to be taken.
quality.
 The company uses a pricing
optimization method to determine
cheap product prices so that customers
can simply acquire the item and avoid
credit purchases, resulting in fewer late
payme006Et concerns.
M4. Analyse how, in responding to financial problems, management accountings can lead
organisation to sustainable success ?
Checking the MAS on a regular basis is the greatest strategy to deal with financial
problems. The method of Key performance indicator was effective in addressing issues by
analysing actual results and efficiently managing difficulties utilising this accounting strategy,
exactly as it was in the aforementioned industry. They also used financial governance to show
how accounting systems and technology may help solve problems.

D.3. Evaluate how planning tool for accounting respond to appropriately to solving financial
problems to lead organisations to sustainable success?
Budgets are strategic proposals that are applicable to the basic economic strategy
structure and are aligned with financial results projections (Weetman, 2019). Many budgets are
included within the Creams mentioned above, such as operating budgets, master budget, adaptive
budgets, and many others. Each preparation approach is linked to the progress of each agency.
The ZBB, seeks to solve financial issues. In reality, the capital budget contributes to the
resolution of fiscal issues.
CONCLUSION
According to the project survey, most organisations use management accounting to
monitor the progress they've made in their efforts to improve performance. Companies use
different types of management system to determine their current business condition. Various cost
accounting techniques, such as the marginal method and absorption, are often used to ensure that
profits or losses are produced. For organisations under corporate supervision, various predicting
techniques are often used to estimate and measure expenditures. Financial challenges are
identified and addressed using techniques such as benchmarking, KPI, and financial governance.
Companies use many types of management systems to examine their current business
status. Various cost accounting procedures, such as the marginal approach and absorption, are
frequently used to ensure that gains or losses are produced. For organisations under
organisational management, several prediction methodologies are also used to forecast and
assess expenses. Financial problems are identified and addressed through tactics such as , and
financial governance, KPI, benchmarking.

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