Management Accounting: Principles, Benefits, and Systems

UNIT-5 MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Scenario 1.........................................................................................................................................3
Meaning of management accounting and principles & benefits of management accounting.....3
Types of management accounting systems and their requirements ............................................4
Methods of management accounting reporting............................................................................5
Application of management accounting systems in the Tesco Plc..............................................6
Critical evaluation of integration of management accounting system and management
accounting reporting....................................................................................................................7
Interpretation of income statement under absorption costing and marginal costing...................7
Scenario 2.......................................................................................................................................10
Advantages and disadvantages of types of planning tools used for budgetary control.............10
Critical evaluation of how management accounting helps to deal with financial problems.....11
Analysis of the use of planning tools in preparing and forecasting budget...............................11
Analyses of role of management accounting systems in solving financial problems and help in
decision making.........................................................................................................................13
Evaluation of how solving financial problems using planning tools lead organization to
sustainable success.....................................................................................................................14
CONCLUSION .............................................................................................................................15
REFERENCES................................................................................................................................1

INTRODUCTION
The study of how managers create management accounting reports by following
accounting fundamentals. This report will help to understand the management accounting term
along with the requirements of types of management accounting systems to eliminate the extra
time, extra cost and enhancing the speed of the work. This report will also state the different
method used for management accounting reporting along with the financial statement report.
This report will also base on the study of the benefits of MA systems and their application on
Tesco plc of UK. These report will also critically evaluate the benefits of the integration of
management accounting systems in order to prepare reports. This report also includes the
comparison of income statement between absorption costing and marginal costing and also
interpret the best method to adopt by the company. This report also states the advantages,
disadvantages and uses of planning tools in order to control budgets. This report also compare
how company can use different accounting systems in order to achieve the goals and objectives
of the company.
MAIN BODY
Scenario 1
Meaning of management accounting and principles & benefits of management accounting
Management accounting uses the information provided by the financial accounting in
order to take decisions and help the company in achieving its goals. MA information is only
available to company's internal managements. MA systems are the systems with the help of
which the different processes of the company is get identified, measured, evaluated and
communicated (Zahid, and Vagif, 2020).
Principles of management accounting
The four management accounting principles that every organization must follow in order
to run the business in effective and efficient manner. It includes influence, relevance, value and
credibility.
 Influence: Clear communication is important in every organization for proper decision-
making. In order to achieve the targets of the organization it is significant to
communicate the vision and mission of the organization with the all staffs of the
company from top to bottom.

 Relevance: It is the most significant principles of the management accounting which
indicate that managers have to analyse and use all the relevant information in their
decision-making. They have to make a proper balance between the past, present and
future, internal, external, financial and non-financial informations.
 Value: It is a principle which enables the organization to know which value is required to
be produced by the organization to earn higher profitability and reduces the cost per
value. For this purpose, situation analysis is need to be implemented by the organization
to know the opportunities and challenges attach with each situation. It further helps in
decision-making.
 Credibility: Being responsible and credible for their decisions help in making the
decisions more purposeful and relevant. For this purpose, organizations have to get
feedback from their customers and staffs and try to solve their queries to improve the
trust and reliability of the stakeholders.
Benefits of management accounting
 Management accounting helps in creating and executing the plans for smooth operations
of the businesses.
 It also helps in controlling and minimizing the gaps between actual and planned one by
use of variance analysis.
 Management accounting helps in decision-making in order to serve the best and
improved services to the customer's.
 Management accounting also helps in increasing coordination among the departments in
order to prepare budgets.
 It also beneficial for improving the efficiency and productivity of the employees of the
organizations.
Types of management accounting systems and their requirements
The different types of management accounting systems are cost accounting, inventory
management, price optimization systems. Their requirements in the company are based on the
benefits they provide to the company. For example, Tesco Plc.
 Cost accounting systems: It is a software which helps the company to know the cost of
its product and services. The requirement of cost accounting system is in the controlling