Management Accounting and Role of Management Accountant

This article discusses the definition of management accounting and the role of management accountants in an organization. It also explores the scope of management accounting and its role in each business function. Additionally, it examines the differences between management accountants and financial accountants, and the various types of cost reports produced within management accounting. The article also covers the calculation and production of income statements through costing techniques.

Unit 5 - Management
Accounting (project 1)

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Q1. Management accounting definition and management accountant role in organisation........1
Q2. Demonstration of scope of management accounting role as well as part played within each
business function..........................................................................................................................2
Q3. Examination of differences between management accountant and financial accountant.....3
Q4. Examination of distinct types of cost reports produces within management accounting.....4
Q5. Calculation as well as producing income statement through costing techniques.................7
Q6. Worked example showing working of break even analysis and importance of break even
analysis to organisation................................................................................................................8
Q7. Work example showing net profit calculation and explanation for importance of
management accountant to calculate net profit along with ways calculations are used within
entity to drive other objectives. ...................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting is order of path involving analysis, interpretation together with
presentation of information that is gathered through financial accounting as well as cost
accounting (Bennett and James, 2017). It helps in aiding assistance to business administrators so
that policies are created and decisions are framed for day to day organisational activities. To
understanding management accounting concept, Jacksons Fencing is selected which is fencing
manufacturing entity having headquarters situated at Showting Common, United Kingdom. The
report covers information about management accounting, role played by management
accountant, scope of role that management accounting has and part played by it within each
function. It also examines differences among financial accountant as well as management
accountants. Various cost reports are also examined along with producing income statements.
The report also covers importance of break even analysis and importance of calculation of net
profit is important for management accountant roles.
MAIN BODY
Q1. Management accounting definition and management accountant role in organisation.
Management accounting: It is defined as system to collect and present relevant
economic information that is associated with enterprise to plan, control as well as make decisions
(Management accounting definition, 2010). It involves order of path to determine, measure,
assemble, examine, prepare, translate and communicate information required by business
administrators to plan, evaluate as well as control activities and assuring effective and
appropriate utilisation as well as accountability of resources. It is used at Jacksons Fencing to
record business transactions, projecting financial effects related to future transactions, preparing
inter reports, measuring results due to financial changes, controlling expenses and stocks,
monitoring profit margins, evaluating product profitability, evaluating financial effects of plans
as well as strategies and making decisions. It includes preparation of different financial budget
and report that are helpful in formulation and implementation of plans and strategy for
betterment of organisation.
Role of management accountant: Management accountant plays various roles at
Jacksons Fencing such as recording financial information, tracking tax liabilities, assisting while
making operational decisions, controlling performances, developing budgets for each individual
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units or departments, forecasting future business events so that upcoming plans are made,
evaluating business effectiveness, ascertaining product cost, raising funds together with
application for maintaining optimum working capital structure, preparing important reports and
many more. Management accountants are also responsible to identify opportunities and
pertaining trends so that they can improve, analyse as well as carefully manage risk, make funds
arrangements and enforce compliance. They also build and maintains financial system of the
entity by supervising bookkeepers along with data processors.
Q2. Demonstration of scope of management accounting role as well as part played within each
business function.
Management accounting is basically related with accounting information used by
management. At Jacksons Fencing, there is wide scope of management accounting roles as it
covers numerous aspects of operations or functions within business. Management accounting
plays wide roles such as controlling performances in which it ensures effective resource
utilization with minimum wastage that results in wide scope to boost business performances with
proper control (Brierley and Gwilliam, 2017). Further, it also controls inventory in which
inventory transaction are recorded in systematic manner which determines current stock level
and the stock level that is required for further operations that shows that there is wide scope of
such management accounting role to take managerial decisions. In addition, management
accounting also plays role of ascertaining product costs in which proper techniques are applied in
determining exact cost involved in manufacturing of product and providing same to higher
authorities showing huge scope to assist in planning and controlling.
Business functions are the activities which are carried for accomplishing tasks and
meeting objectives. Key business functions of Jacksons Fencing are planning, organising
addition to controlling. Management accounting plays crucial part within all these functions.
Various parts within functions of business played by management accounting are as
demonstrated:
Planning: It is about formulating plans or actions for future in advance. Management
accounting within planning function prepares budget to show the ways resources are allotted as
well as are to be acquired within specified duration. Management accounting plays part of
providing reports that includes estimation about alternative actions effects on abilities of
managers of Jacksons Fencing to accomplish desired objectives.
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Organising: The business function establishes framework along with assigns
responsibilities to distinct departments and their people working for achieving objectives
(Gomez-Conde and Lopez-Valeiras, 2018). Management accounting helps administrators of
respective entity by providing reports together with confidential information so to regulate as
well as adjust activities or operations as per changing conditions. The reports that are provided
includes sales report, performance report and production report that helps in making suitable
actions related to production or ales position.
Controlling: The business function includes procedures to display, measure, evaluate
addition to correct actual outcomes so to ensure that all the plans of enterprise are achieved in
prescribed manner. Management accounting plays huge part in controlling function as it helps
the function through preparing resorts as well as controlling reports that highlight variances
among expected and achieved performances. It also performs investigation part for determine
managers what is wrong or possibilities where more help is needed.
Q3. Examination of differences between management accountant and financial accountant.
Key differences among financial accountant as well as managerial accountant of the
entity.
Basis of differentiation Financial accountant Management accountant
Meaning The financial accountants are
those person who are involved
in summarising, examining and
reporting financial transactions
concerned with the firm.
Management accountants are the
people who participate in designing
and providing financial reports for
making business decisions.
Roles Financial accountants at
Jacksons Fencing plays role of
supervising tax payments,
keeping updated financial
statements record, organising
internal audits, monitoring
accounting discrepancies,
providing overview about
At Jacksons Fencing, management
accountants plays role of
undertaking internal audits, solving
accounting discrepancies, preparing
reports, supervising accounting
technicians, negotiating finances for
important projects, forecasting as
well as controlling expenditure and
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organisational performances
and communicating financial
position to relevant users.
incomes and preparing financial
statements.
Purpose Financial accountants are hired
with purpose to disclose
accounting figures for particular
business date as and when
required by managers
(McWatters and Zimmerman,
2015).
Management accountants are hired
at entity with the purpose to provide
necessary information so that works
are executed in efficeint manner by
managers.
Existence The existence of financial
accountants at business
concerns is mandatory as it is
governed by law to hire
financial accountants.
Existence of management
accountant is not mandatory.
Organisations hires them for own
reasons.
There are various areas where the disciples of management accountant and financial
accountants overlaps at Jacksons Fencing. Such as while generating financial statements or
reports, delivering accounting information to stakeholders and users, assisting in decision
making for future to top authorities and dealing economic or business events. Within all these
areas, both coordinates their activities, principles and working so that business objectives are
attained with high margins.
Q4. Examination of distinct types of cost reports produces within management accounting.
Within management accounting, various type of cost reports are produced. Management
accounting reports are said to such reports which includes information about available cash,
generated sales revenues, existing position and many more (Kaplan and Atkinson, 2015). With
these reports, accurate, effective and data driven decisions are made by managers. Various
reports prepared at Jacksons Fencing are as follows:
Job costing report: Track of costs as well as revenues associated with jobs are done with
the help of job costing report. It allows managers to track ongoing cost while manufacturing
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product. The report provides benefits to managers by identifying problems in allocating costs to
particular job and eliminating them for future jobs. It is also helpful in tracking job costs on
continuous basis such as weekly basis in order to analyse hurdles and corrected them as soon as
possible they go out of control. The report adds values to entity by monitoring costs in the whole
manufacturing procedure and measuring indirect cost.
Batch costing report: To make batches of items that are produced for stock is done with
batch costing report. To prepare the report, first cost per unit are evaluated by dividing total cost
related to batches with items that are produced within the batch. Jacksons Fencing managers
prepares the costing report to record number of orders that have passed from factory premises in
batches. The report benefits the selected firm by analysing costs associated with whole batch and
determining per unit cost and to carry out mass productions. The report feeds in achievement of
objectives through reducing production cost and controlling additional costs so to achieve more
revenues.
Inventory costing report: To record all the costs concerned with procurement, storage
along with management of inventory is done with inventory costing report. With the report,
managers summarises items that are belonged with company. If inventory costing report is not
properly managed then it can result in direct impacts on profits together with taxable income.
The report benefits Jacksons Fencing to provide cost its products like timber fencing as well as
metal fencing for selling purpose and the same is represented on financial statements. In
addition, the report also benefits in meeting obligations concerned with taxations and informing
stakeholders along with investors about it. There are many methods that can help in reducing
stock costs (Methods to reduce stock cost. 2019). Some are as discussed:
Avoiding minimum quantity orders: It is said to smallest orders that are supplied by
entity. To reduce inventory costs, managers of Jacksons fencing should avoid taking minimum
quantity orders.
Knowing Reorder Point: With this method, selected entity will be able to determine the
level when they have to order next stock shipment. It will help in ensuring that managers do not
order in bulk quantities as well as risk obsolescence or in little quantity that results in risk stock
outs. Making orders in exact quantity helps in reducing stock costs.
Using Consignment inventory: The method helps in offloading portion of business
inventory to retailers for carrying out stock. In this method, the business makes agreement to
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provide stocks top other party on credit and the other party makes payment when the stock is
actually sold. This not only helps in making more profits but also reducing inventory costs.
Activity based costing report: The report includes information about various activities
that are assigned costs as per actual consumption of various costs. The report involves
information about resource consumption as well as costing final outputs. The report benefits the
selected institutional managers in getting information about realistic costs related to specific
product manufacturing, identifying inefficient processes and determine profit margins in precise
manner. The report includes information about following costs:
Semi variable costing: The mixture of both fixed as well as variable elements are semi
variable costing.
Direct costing: the specialised term to analyse costs so to make decisions. It is useful to
make short duration objectives and analysing incremental costs. For example, costs consumed
while manufacturing timber and metal products, cost which disappeared while closing
production line and cost which disappeared during shutting entire subsidiary are recorded by
Jacksons fencing analysts in such report.
Indirect costing: The cost not accountable to cost object is said to indirect cost. These
costs are not associated directly with manufacturing procedures.
Fixed costing: The cost which does not changes or alters as changes in business activities
or functions are termed to indirect costing.
Differences among all costing reports:
Basis of
differentiation
Job costing report Batch costing
report
Inventory
based costing
report
Activity based
costing report
Meaning Job costing report is
defined to such
report that tracks
costs associated
with jobs to analyse
profitability that
each job can return
(Morse, 2015).
Batch costing report
is said to the report
that includes
information about
costs produced in
batches.
Inventory based
costing is said
to report
including
information
about
associated costs
with each
Activity based
costing report is
defined to the
report which
traces overhead
costs concerned
with activities and
assigns costs to
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inventory level. objects.
Benefits Job costing report
benefits in
calculating revenues
earned on each
individual jobs,
tracking
performances,
getting detailed
analysis of other
costs and evaluating
efficiency properly.
The report provided
benefits of reducing
production costs,
decreasing
accounting work
and determining
costs to each unit
within batch
effectively.
The report
benefits in
improving cost
control,
measuring
inventories in
easier manner
and saving
costs when
keeping
records.
With this report,
an entity gains
benefits to
identify
inefficient
procedures,
improvement
areas, providing
realistic costs,
determining
revenue margins
and discovering
unnecessary
costs.
Q5. Calculation as well as producing income statement through costing techniques.
Income statement calculated through marginal costing technique is as follows:
Particulars Amount (In £)
Sales 120000
Less variable cost
Opening stock 3000
Production 60000
(-) Closing stock -12000 -51000
Net profit 69000
Income statement calculated through absorption costing technique is as follows:
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Particulars Amount (In £)
Sales 120000
Less: Cost of Good sold
Opening stock 5000
Production 100000
(-) Closing stock -20000 -85000
Profits 35000
Organisation like Jacksons Fencing can use marginal technique over absorption costing
as use of absorption technique serves the purpose to provide accurate profit pictures where as use
of marginal technique serves to provide assistance to deal with short term problems. If company
uses marginal costing over absorption costing then they are able to calculate break even level and
make decision among various alternatives (Mio, 2016). If they goes with absorption costing over
marginal then they can properly identify all the costs involved in manufacturing of commodity
and properly prepares final statements.
Q6. Worked example showing working of break even analysis and importance of break even
analysis to organisation.
Calculation of Break even analysis is as follows:
Contribution calculation:
As per the above BEP calculation, it can be said that at 4000 units, the company will
neither achieve profit nor loss. Break Even Analysis is important for selected entity as it helps in
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determine cost structures along with analysing the number of units are required to cover costs as
well as making profits (Okano, 2015).
Q7. Work example showing net profit calculation and explanation for importance of
management accountant to calculate net profit along with ways calculations are used
within entity to drive other objectives.
Calculation of Net profits:
It is important for management accountants to calculate net profits as it helps in assessing
that business is generating enough revenues from sales as well as determining that whether
overhead along with operating costs are added while profit calculations. Further, it also helps in
analysing financial health together with position of the institution (Weygandt, Kimmel and
Kieso, 2015). There are various ways in which the calculation of net profit is utilised to drive
objectives. At Jacksons fencing, the ways includes making investment decisions, analysing
business position, analysing earnings, assessing risks, obtaining debt amounts and credit details.
CONCLUSION
The above report concludes that management accounting providing financial as well as
non financial data to management so they easily determine the the position of company and
formulate operational activities in appropriate way. Management accountants plays uncountable
roles such as tracking tax liabilities, ascertaining product cost, controlling performances, raising
funds and so on. Business functions within which management accounting has important part are
planning, organising as well as controlling. Types of management accounting reports are
inventory costing report, job costing report, activity based costing report and batch costing
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report. It is very important to analyse break even level as it provides idea about the point
business is in situation where no profit and no losses are recognised.
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REFERENCES
Books and Journals:
Bennett, M. and James, P., 2017. The Green bottom line: environmental accounting for
management: current practice and future trends. Routledge.
Brierley, J. A. and Gwilliam, D., 2017. Human Resource Management Issues in Accounting and
Auditing Firms: A Research Perspective: A Research Perspective. Routledge.
Gomez-Conde, J. and Lopez-Valeiras, E., 2018. The dual role of management accounting and
control systems in exports: Drivers and payoffs. Spanish Journal of Finance and
Accounting/Revista Española de Financiación y Contabilidad. 47(3). pp.307-328.
Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.
McWatters, C. S. and Zimmerman, J. L., 2015. Management accounting in a dynamic
environment. Routledge.
Mio, C. ed., 2016. Integrated reporting: A new accounting disclosure. Springer.
Morse, W. J., 2015. Managerial accounting. Cambridge Business Publishers.
Okano, H., 2015. History of Management Accounting in Japan: Institutional & Cultural
Significance of Accounting. Emerald Group Publishing.
Renz, D. O. and Herman, R. D. eds., 2016. The Jossey-Bass handbook of nonprofit leadership
and management. John Wiley & Sons.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts
and practice. Routledge.
Trucco, S., 2015. Financial accounting: development paths and alignment to management
accounting in the Italian context. Springer.
Ward, D. M. and Calabrese, T., 2018. Accounting fundamentals for health care management.
Jones & Bartlett Learning.
Weygandt, J. J., Kimmel, P. D. and Kieso, D. E., 2015. Managerial accounting. Wiley..
Online:
Management accounting definition. 2010. [Online]. Available through: <http://gandhi2010.over-
blog.com/article-management-accounting-definition-53783484.html>
Methods to reduce stock cost. 2019. [Online]. Available through: <https://dearsystems.com/cost-
of-inventory/>