Management Accounting and Control

This assignment delves into the evolving field of management accounting. It emphasizes the expanding role of management accounting information systems (AIS) and highlights how management accounting contributes to strategic decision-making within organizations. The text encourages critical analysis of contemporary research trends in this domain.

UNIT 5 MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
(P1) Define management accounting and discuss essential requirements of different types of
management accounting.........................................................................................................1
(P2) Outline methods used for management accounting reporting........................................3
TASK 2 ...........................................................................................................................................6
(P3) Computation of marginal and absorption costing and stating differences.....................6
..........................................................................................................................................................7
TASK 3 .........................................................................................................................................10
(P4) Discuss merits and demerits of different types of planning tools in the organisation..10
(P5) Outline how company is adapting management accounting systems to respond to
financial problems................................................................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting provides ample of benefits to managers while taking decisions
for the betterment of the company. The enclosed report deals with Agmet company which is
engaged in production of chemical products and as such, management accounting is essential
requirement for it (Ward, 2012). It has several types which is helpful in analysing and controlling
the costs effectually. Marginal and absorption costing are important methods of management
accounting. The organisation may be benefited by preparing management accounting as it
controls cost of various overheads and as such, resources are fully optimised effectively.
TASK 1
To: General Manager
Agmet company
From: Management Accounting Officer
Subject: Writing a report to General Manager of Agmet company
Introduction:
In order to improve the internal efficiency of the organisation, the management accounting
techniques and tools are required by it. The management accounting will help Agmet to flourish
in its operations.
(P1) Define management accounting and discuss essential requirements of different types of
management accounting
Management accounting is useful accounting tool for managers to make effective
decisions for the betterment of the company. It is an amazing tool for management as through this
they are able to strengthen the internal position so that it may satisfy the demands of customers in
totality. Agmet company effectively uses management accounting information so that it may
manufacture chemical products with much ease (Parker, 2012). The cost accounting technique of
management accounting helps Agmet company to control the costs in effectual manner. It is
really helpful for organisation to meet its objectives by controlling the expenditures nicely. The
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different types of management accounting are required by organisation so that it may accomplish
the operational activities with much ease. The types are as follows:
1. Cost accounting:
The cost accounting is an important part of management accounting which aims to control
the cost so that revenue may be earned by lowering the cost (Burritt, Schaltegger and Zvezdov,
2011). This technique is helpful for organisation to ascertain the cost so that expenditures may be
minimised too much extent. The various costs such as direct, indirect, fixed and variable costs
play vital role that are required by company to maintain efficiency in the production process and
also to control the costs on overheads. Agmet company uses cost accounting so that it may reduce
the operational costs and eventually maximise the production in the most proficient way.
2. Price optimisation:
Another technique which is essential for company is price optimisation. Through this
mathematical models are used to assess and determine whether demand of the product varies with
the price or not (Otley and Emmanuel, 2013). It is helpful technique to analyse that how much
price customers are willing to pay for it at the quoted price by organisation. Agmet company uses
price optimisation technique to assess the demand of products. This method is useful tool to
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determine how demand fluctuates with the level of price of product which is being quoted by
company. As such, it imparts organisation clarity whether customers will pay for the quoted price
or not.
3. Job costing:
Job costing is another important method which is based on specific job which are
performed by various overheads (Weißenberger and Angelkort, 2011). It is useful tool to manage
the manufacturing cost such as cost of materials, of labour and overheads as well which are used
for production of chemical by Agmet company. Various jobs are analysed by management so that
costs incurred on each of it may be minimised so that more production may take place. The job
costing method is helpful to management as jobs which are incurring more expenditures may be
reduced so that production may be carried out in the most effective way. As a result, funds which
are saved may be utilised by firm for its effective functioning in the future.
4. Batch costing:
Every day in the production certain batches are being produced by organisation. As such,
batch costing is an effective method to control the expenditures which are incurred on several
batches and as a result, more production may be done with much ease. Agmet company
effectively uses batch costing method as expenses on batches of chemical products may be
minimised and more production may take place. Moreover, it estimates total labour, machinery
and quantity of materials which are being used to produce the chemical goods by Agmet in the
most proficient way.
5. Inventory management:
Inventory management is useful method to manage the inventory which is being required
for effective production. When stock is available in adequate manner, this reduces the wastage of
precious resources (Qian, Burritt and Monroe, 2011). Apart from this, more than required
inventories in the warehouse produces nothing but adds to additional cost which ultimately
deteriorates the revenue of Agmet company. As such, organisation needs managing inventories in
that way which yields it more profits by meeting the requirement of production.
(P2) Outline methods used for management accounting reporting
The various methods used for management accounting reporting are as listed below:
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1. Segmental report:
The segment reporting is quite useful to management as it helps them to analyse operating
segments by assessing the financial statements (Types of Managerial Accounting Reports). The
information produced by segmental report is useful to external stakeholders such as investors and
creditors as by analysing this they are able to make decisions of whether to invest or give funds to
company or not. It is the useful measuring tool which help them in gaining accounting
information of the organisation. Therefore, it is quite important tool of management. They assess
segmental reporting to make decisions. However, it is used by public firms and is not for the
private entities. This report includes revenue information and types of products which are sold by
organisation and this aids in decision making.
2. Performance report:
The performance report helps organisation to assess the performance of employees so that
their overall productivity may be increased in the best possible way. Performance report deals
with information of employee's performance so that organisation may come to know how they all
are working for the betterment of organisation (Van der Stede, 2011). Agmet company prepares
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Source : (Granlund, 2011)

and analyses the performance of workers so that productivity may be increased to great extent.
This is important as by analysing the performance of workers, it is able to assess the actual
performance. Finally, the performance is matched with budgeted performance and if any
variances is found out, it can be resolved by taking corrective actions by Agmet company and in
this way efficiency of workers may be maximised by taking actions to regain the lost productivity
if any.
3. Inventory management report:
The inventory management report is another essential report which is prepared by
organisation. This helps to manage the stock in that way so that reduction in wastages may be
done. In this way Agmet company is able to produce according to the inventory which is
demanded by the production department. The excessive inventory in the warehouse certainly
increases the cost of handling and this deteriorates revenue and company should not do
unnecessary spoilage of stocks. The inventory management report aids Agmet to track the
inventory waste. By preparing this report, company analyses the inventory which is required by
production department and also helps to determine whether there is excessive inventory or not in
the warehouse. If excessive inventory is present, then it leads to additional costs which is not
good for organisation and as a result, this report helps to manage the inventory in the most
proficient manner.
4. Accounts receivables ageing report:
The firm needs funds for functioning properly to meet demands of daily activities. As
such, accounts receivables ageing report helps company to determine the customer invoices that
are become overdue for payment (Shah, Malik and Malik, 2011). It prepares list regarding unpaid
invoices and credit memos of customers so that payments should be done by them. If Agmet
company has liberal credit policies, then it should make strict polices so that timely payments
may be made by customers. It imparts clarity and transparency to managers regarding how much
outstanding payments are pending from the customers. As such, cash flows are managed
effectively by organisation. This helps managers to assess the payments which are pending from
customers. By analysing accounts receivables ageing report, managers implement strict credit
policies so that amount may be recovered timely.
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5. Job cost report:
The job cost report deals with the cost which are incurred in carrying out various jobs in
the organisation (Chenhall and Smith, 2011). By carefully analysing job expenses, Agmet
company may be able to reduce expenditures which are deteriorating profit and as such, wastage
is minimised too much extent. The job cost report helps managers to asses specific job areas so
that profit may not get reduced. This ultimately helps company to effectively manage job's
profitability to those job areas which provide it results in the most proficient way. The job cost
report is quite helpful for organisation to manage costs on various jobs which carry out effective
production. Analysing various expenditures on jobs help Agmet to save funds and direct
expenses in maximising production in effectual manner.
The benefits of management accounting systems are
The management accounting systems have ample of benefits such as increasing financial
returns and managing and controlling costs in the most effectual way. Agmet carry out certain
activities and can review the economy and different operational functions in effectual manner.
Moreover, running costs in the firm may be analysed by it and this is quite helpful for
organisation. Apart from this, company may forecast customer's requirements which helps in
determining demand and as a result, profit may be maximised. These benefits of management
accounting systems help firm to increase profits by satisfying customer's needs effectually.
Management accounting reporting is integrated within organisational process :
Management accounting reporting helps company to improve its performance. This helps
company to create the value (DRURY, 2013). The management accounting reporting aids
organisation to effectively improve performance so that production may take place and in turn its
increase revenue of firm and as a result, competitive advantage is successfully gained. Moreover,
management accounting is related with planning and output which help to support operational
function in company. Expenditures are managed in the most proficient way and as a result,
management accounting reporting aids in accomplishing goals and objectives in effective
manner.
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TASK 2
(P3) Computation of marginal and absorption costing and stating differences
Presenting the income statement for Agmet company on the basis of Marginal costing :
Marginal costing is an effective method of costing. The firm has produced sales revenue
over the 600 units were sold at the rate of 35 which is amounted to 2100. The costs of production
were analysed over 700 units at the rate of 13 valued at 9100. The closing stock was measured
over 100 units at the rate of 13 which in turn the over all variable costs for 7800. The customer
contribution is for 13200 this costing technique acts as measuring the Variable costs after the
contribution such as overheads over sales for 600. Fixed costs for 200, Production overheads for
2000 and fixed selling cost for 600 as well as administrative fixed costs for 700. Therefore, the
net profit for the period is obtained at 9300 which is reflecting the surplus balance for Agmet.
Marginal costing is the increase or decrease in total production cost if one unit is increased in the
output (Nixon and Burns, 2012). In the above table, net profit is 9300 which is quite good for the
firm. Marginal costs is useful for production related decisions which are taken by management. It
is effective method to analyse cost and as such determining it.
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Presenting the income statement for Agmet on the basis of Absorption Costing :
Absorption costing is another useful method of cost accounting. This is used as primary
tool in absorption of manufacturing costs in organisation. It means that direct as well as indirect
costs are taken and absorbed in the production process (Abdelmoneim Mohamed and Jones,
2014). From the above statement, it can be analysed such as the revenue is being produced by the
company on the basis of 600 units for price of 35 per unit which presents value of 2100. The cost
of manufacturing the units as 700 units on the rate of 16 amounted to 11200 and for inventories
for 100 at 16 per unit valued at 1600. The fixed production overheads were measured for 100
which are deducted along with the costs of manufacturing such units. Therefore, it presented the
total gross profit of Agmet as 11500. The variable overheads over sales as 600, fixed cost as 600
and the administrative fixed expenses as 700 were to be deducted as the operational costs to the
firm. As a result, income statement reveals net profit of 9600 which is quite remarkable for
organisation after absorbing manufacturing costs.
The differences between marginal and absorption costing are as follows:
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1. Variable cost is only applied to inventory under marginal costing. However, under
absorption costing, fixed overheads costs are applied. As such, both of the costs are different
from each other (Cadez and Guilding, 2012).
2. Marginal costing is applied to inventory cost which was incurred when each unit was
produced of the product in the process by organisation. While, absorption costing is applied to all
the production costs to each of the units which were produced successfully by the production
department with much ease.
3. Another big difference is regarding profits. Marginal costing will yield much higher profit as
individual sale of goods are attained. However, absorption costing will impart lower profits to
organisation.
4. The profit is also measured differently in both the costing. Marginal costing uses contribution
margin which is deducted from overhead or it excludes overhead which was applied. On the other
hand, absorption costing assess profits by using gross margin which includes overhead and this is
how profit is being measured by each of the costing method.
5. Another difference is that overhead costs incurred during production are charged to expense in
the period which is under marginal costing. In contrary to this, overhead costs are applied or
charged to products under marginal costing method.
6. Last difference between marginal as well as absorption costing is that financial reporting is not
required under marginal method and whereas, it is required under absorption costing method of
management accounting. As a result, both costing method has their own importance in the
organisation to control and analyse cost in most productive way.
Management accounting techniques and financial reporting-
The techniques such as cost variance and revaluation accounting are useful method of
management accounting as it helps to improve performance of the company in effective manner
(Christ and Burritt, 2013). Cost variance is the difference between budgeted and actual costs. It is
helpful for generating financial reporting documents. Whereas, revaluation accounting is an
important accounting technique. It is an adjustment made to value of asset to analyse its current
market rate. These management accounting techniques are helpful for organisation and aids in
producing financial reporting.
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Presenting the financial report of Agmet company
From: Management Accounting officer
To: General manager (Agmet company)
Subject: Facilitating the use of management accounting techniques in solving financial
problems
Sir,
The management accounting techniques are helpful for organisation so that financial
difficulties may be resolved with much ease. The budgets such as cash, sales, production, the
company will have efficient use of resources and as such, costs will be controlled. The
operational activities of the business will also be used to evaluate in the most productive
manner. It will also help in making better decisions by management.
TASK 3
(P4) Discuss merits and demerits of different types of planning tools in the organisation
Zero based budgeting:
This budgeting is prepared by management without using historical figures which means
that budget is prepared from completely scratch base and no reference is taken from past budget
(Sánchez-Rodríguez and Spraakman, 2012).
Advantages:
1. It ensures accuracy as completely new budget is prepared and no past figures are
included in it.
2. It is efficient as new budget is prepared by taking actual numbers and not from historic
figures.
Disadvantages:
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1. It consumes lot of time as entire budget is to prepared from zero base.
2. More man power is required as entire line items need to be formulated for preparing
budget (Aykan and Aksoylu, 2013).
IRR
IRR (Internal Rate of Return) is a capital investment appraisal technique which is used to
measure potential investment return.
Advantages:
1. It measures time value of money and help in analysing rate of cash flow should be
equal to capital invested in the project.
2. Managers are able to understand computations of this method as it is the easiest way.
Disadvantages:
1. It ignores size of the project as cash flows are simply compared with invested capital.
2. It considers present values but ignores future costs which is the limitation of IRR
method.
NPV:
NPV (Net Present Value) is useful technique of budgeting as it assess present value of
cash flows and proceeds with the investment which will gain effective results to organisation.
Whenever, Agmet company invests in new project, it utilises this technique and arrive at
conclusion whether the investment will be helpful or not. Greater the NPV, more beneficial for
the organisation (Tayles, 2011).
Advantages:
1. It assesses the usefulness of the project whether it will be profitable or not to
organisation.
2. As cash flow is being used in this method, managers are able to identify when they will
gain from the project.
Disadvantages:
1. This technique is based on mere estimation. It does not provide effective results.
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2. The size of the project to be invested is not measured by it.
The importance of planning tools in forecasting-
The aforesaid budgeting tools are quite helpful to managers as they are able to analyse the
return on investment that will be achieved by investing in the project (Ali Shah, Butt and Bin
Tariq, 2011). As such, NPV is an effective technique to forecast whether investment will be
profitable or not. As a result, planning tools are helpful to business to forecast future of
organisation effectually.
The benefits of such planing tools in overcoming financial problems
Agmet organisation is benefited by these tools as it helps to forecast the return that will be
obtained by investing in the project and as a result, organisation overcomes problems of finance.
Zero base budgeting provides with effective results to organisation as entire budget is prepared
from the scratch or zero base.
(P5) Outline how company is adapting management accounting systems to respond to financial
problems.
1. KPI (Key Performance Indicators) :
KPI is helpful in assessing the performance of employees. It is assessed and useful to
organisation as management comes to know what is a key performance indicator in the
organisation and also analyses which of the workers are not performing good. As a result,
through KPI, Agmet company effectively recognises the efficient employees which are highly
productive (Granlund, 2011). The financial problems are solved as management comes to analyse
whether productivity is good or not and as a result, funds are not wasted in unproductive
employees rather than resources are utilised in KPI. It helps organisation to enhance overall
productivity of employees and as a result, goals and objectives are met effectually.
2. Financial governance:
Financial governance is helpful as the authorities and duties are to be assigned to those
managers which possess skills, abilities, capabilities and talent in managing Agmet company
effectively. This is required as without skilled managers, organisation will not flourish and
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financial resources will be wasted. It will be wasted as operational activities of organisation will
noty be managed properly and it is the manager who utilises resources to overcome financial
problems. As such, financial governance is an important aspect to respond to financial problems.
Several rules and regulations are required to be followed by organisation so that it may overcome
problems of finance. As such, funds are properly utilised by company because of application of
financial governance.
3. Balanced Scorecard:
The balanced scorecard is used to measure the performance to determine internal
functions and external outcomes are assessed which is helpful to provide feedback to Agmet
company in effective way. It is useful method as feedback is provided to organisation. As a
result, weaknesses are removed and as such financial problems are overcome. This is an
important technique to measure performance and certain weaknesses may be analysed and solved
by organisation in the best possible way (Tools and techniques of Management Accounting).
Agmet company may use balanced scorecard technique to implement competitive strategies with
much ease. It helps company to achieve its objectives in effectual manner.
4. Variance analysis:
This technique is quite useful to organisation as it provides the difference between actual
and budgeted output. This is important technique as through this, variance may be obtained and
company may be able to take corrective actions so that variance may be removed to full extent.
As such, it is useful for finding out variances if any in the budgeted output or actual output. The
variance analysis consists of purchase price variance, labour rate variance and material yield
variance and many more. This is helpful to organisation to remove variances and as a result,
activities of business are effectively met with much ease. As such this a fruitful technique to
measure the variances if any occurred in the organisation.
5. Budgetary target:
Budgetary target is used for estimating amount of funds which will be required in the
organisation for the accounting period. It is blend of capital expenses and operating expenses.
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Budgetary target is helpful for establishing financial goal. If there are deviations from the
budgeted target or actual one, then corrective actions are taken to rectify the variances with much
ease. As a result, it is helpful technique overcoming financial problems with much ease.
Management accounting can lead organisation to success-
Cash flow statement is prepared by company and as a result, it helps to analyse and assess
the cash used in various activities and produced as well. As such, management accounting can
lead to success of organisation in effectual manner (Ax and Greve, 2017). Moreover, operating
expenses are lower down and it aces more production in the most proficient way.
Management accounting accompanies organisation to take better and effective decisions
which are required for growth and success of it. As a result, it is highly beneficial for
organisation.
CONCLUSION
Hereby it can be concluded that management accounting aids to organisation in
accomplishing goals in effective manner. The planning tools are highly effective as it provides
better forecast to management. The budgetary techniques are also helpful to organisation as
through this proper allocation may be done by managers and as a result, funds are directed to
proper utilisation by company. In simple words, resources are fully optimised by company.
Agmet company should use management accounting techniques as it provides effective use of
resources and as such, operational activities are effectively met by it. The management
accounting is highly useful for organisation as it aids in better and effective internal decisions. It
provides ample of benefits to organisation in the most productive way. Moreover, costs are also
controlled and more production is achieved by company and maximum sales are met which is the
ultimate goal of organisation.
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techniques.
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Granlund, M., 2011. Extending AIS research to management accounting and control issues: A
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19.
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Online
Types of Managerial Accounting Reports, 2016 [Online] Available Through:
<http://smallbusiness.chron.com/types-managerial-accounting-reports-58384.html>
Tools and techniques of Management Accounting, 2017 [Online] Available Through:
<https://accountlearning.com/tools-and-techniques-of-management-accounting/>
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