Management Accounting: Meaning, Importance, and Tools

This document provides an overview of management accounting, including its meaning and importance. It explains different types of management accounting systems and reporting systems. It also discusses the use of management accounting tools for budgetary control and solving financial problems. The document includes a case study of GSQ Limited, a business organization in the United Kingdom.

Management Accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK1.............................................................................................................................................1
P1 Explanation of meaning of management accounting and importance of different types of
management accounting system..................................................................................................1
P2 Explanation of different types of management accounting reporting system........................1
TASK2.............................................................................................................................................1
P3Income statement using marginal and absorption costing.......................................................1
TASK3.............................................................................................................................................1
P4 Explanation of advantages and disadvantages of different types of planning tools used
for budgetary control...................................................................................................................1
TASK4.............................................................................................................................................1
P5 Uses of management accounting system to solve financial problem.....................................1
CONCLUSION................................................................................................................................1
REFRENCES...................................................................................................................................1

 INTRODUCTION
Management accounting is a technique used by business organizations for better utilization
of accounting information. In other words it is used by manger to take effective decision for
achieving business organizations objective. To understand the concept of management
accounting in a better way GSQ limited has been taken, it is situated in United Kingdom. In
this report meaning of managerial accounting, and uses of management accounting system
in order to maintain sustainability in organization. This report also explain uses of
managerial accounting techniques , planning tools to control budget and how management
accounting tool s help in solve financial problems.
TASK1
P1 Explanation of meaning of management accounting and importance of different types of
management accounting system.
Definition of man
Management accounting: Management is an art of planning, organizing, coordinating,
directing and controlling business activites in a way which help in built strong position in
market. On the other side accounting is systematic procedure of recording, analysing,
collecting and submitting and communicating accounting data as information to mangers.
Management accounting the word is combination of management accounting, which
describe as uses of accounting information in managerial way to take effective decision for
attain future objective of business entity. In other words, management accounting is
(Carlsson-Wall, Kraus, and Lind, 2015).
branch of accounts which uses to analysis operational cost of business activites and
formulate financial reports in order to help mangers for their decision making procedure.
GSQ limited can be used different types of managerial accounting system to improve their
business performance, following are various types of management accounting system:
COST ACCOUNITNG SYSYEM: It is a framework which is used by business
organizations to identified cost of manufacturing products. Managers uses various
costing methods in order to analysis their cost, they uses standard costing, marginal
costing, job, costing, bench costing for calculation of cost rate. Manager of GSQ
limited use this cost accounting system in order to increase their profitability rate, it
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will help in identifying activites which incurred high cost, mangers make policies
through which they cut high cost generating activites.
1. Price optimization system: Business organizations use price optimization system
to determine price of their manufacturing products. It is a tool which included all
methods of calculating selling price of particular products. Managers decide their
products process after evaluate external market. Manager of GSQ limited uses
these policies related to price which fully satisfy their customer , they decide rate
of product through which they can attain financial gain by selling products at their
decided price rate. Mangers use various pricing policies they use price orientation,
price policies.
2. Inventory management system: This system is used to control inventory level of
an running organization in order to maintain their sustainability. Inventory
considered all raw material and goods use by business for manufacturing and
selling their products. In inventory management system, different kind of tools, and
techniques are adopted by mangers to identify maximum, minimum, an dangerous
level of stock. Manager of GSQ limited will be used EOQ, ABC analysis to
analysis their level of stock and t maintain their stock level. Inventory management
system will be help in optimum utilization of their resource and it will control
wastage activities (Wouters, and Kirchberger, 2015).
3. Job costing system: It is essential tool of managerial accounting system. It is a tool
which help in identify cost of each product manufacturing by business
organization. This type of system implemented in their organization which
produce product according to special demand of their customers. GSQ limited will
be used this technique when they produce special product the demand of their
potential customers.
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P2 Explanation of different types of management accounting reporting system
Report is statement which is used to prepare for briefly describing summery of business
activities of specific period of time. Managers use different types of reports for their
planning, and decision making process. Following are the types of report used by manager
which are mention below:
 Budget report: Budget is numerical stamen which is prepared for estimating future
business activities. Manager of GSQ limited will be used to prepare budget report as
it will help them in taking necessary decision regarding their business. IT will also
help in identifying future profit generates by their organization. By formulating
budget reports thy can easily identify future risk and prepared those policies which
help in reducing their risk rate.
 Account receivable report: This report is prepared to identify current amount of
account receivable. Manager of business organization used this report as it will help
in analysing default debtors and reason of problems and issue arises in collection of
account receivables amount from their debtors. GSQ organization will be used this
report to formulating policies through which they can collect their money within
short time period from their debtors it will also help in reducing non performance
assets of business organization (Chiwamit, Modell, and Yang, 2014).
 Cost managerial accounting report: This report is essential framework of
managerial accounting report. Cost reports are prepared business organization in
order to identify their cost generating in manufacturing, selling, distributing
marketing and promotional business actives. GSQ organization used this report in
order to analysing their cost incurred active, it will help them to implement those
policies which help in reducing cost.
 Performance report: This is most important report used by business organization
whatever they are large or small size enterprises. Every organization prepared is
report to identify their department performance. This report is prepared on the basis
of actual target and standard target achieve by business organization. Mange of GSQ
limit will be
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TASK2
P3Income statement using marginal and absorption costing
Marginal Costing: It is a tool which is used by managers to anysis effect of changing each unit
on organizations profitability rate (Hiebl, Duller, Feldbauer-Durstmüller, and Ulrich, 2015).
Income statement of GSQ limited (Marginal Costing)
Particular Cost per unit Total amount
Sale (50000 unit)
-Variable cost
 Direct materials
 Direct wages
 Variable manufacturing
overhead
 Variable selling expenses
per unit
Contribution
-Fixed cost
 Fixed manufacturing
Overheads
 Fixed admin and
distribution costs
Profit
£30.00
£8.00
3.00
£2.00
£4.00
13
£160,000
£60,000
1500000
400000
150000
100000
20000
650000
160000
60000
430000
Interpretation: Company earns 430000 profits by adopting marginal technique.
Income statement of GSQ limited (Absorption Costing)
Particular Coat per unit Total amount
Sales £30.00 150000
- Cost of goods sold
 Direct materials
 Direct wages
 Variable manufacturing
overhead
£8.00
3.00
£2.00
400000
150000
100000
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 Fixed manufacturing
Overheads

£160,000
160000
Gross Profit 690000
 Variable selling expenses
per unit
 Fixed admin and
distribution costs
£4.00
£60,000
200000
60000
Net profit 430000
Interpretation: Company generate gross profit 650000 and net profit 430000 by applying
absorption tool.
TASK3
P4 Explanation of advantages and disadvantages of different types of planning tools used for
budgetary control.
 Definition of Budget: - A budget is defined as a plan or estimate of the amount of money
needed for cost of living or to be used for a specific purpose. A budget is a formal statement
of estimated income and expenses based on future plans and objectives (Juras, 2014).
 Budgetary Control: - Budgetary control is the process by which budgets are prepared for
the future period and are compared with the actual performance for finding out variances, if
any. Types of budgetary controlling GSQ limited can use for their business
1. Zero Based Budgeting. In this process creating a budget from nothing without using the
prior year’s budget or spending numbers. No activities are assumed to be untouchable. All
expenses are judged and must be justified in order to remain in the budget.
Advantage :-
Accuracy: With use of this tool accurate information received by business organization.
Efficiency: This helps in efficient allocation of resources.
 Disadvantages:-
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 Time-Consuming: Zero-based budgeting is a very time-intensive exercise for a GSQ limited
 High Manpower Requirement: Making an entire budget from the scratch may require the
involvement of a large number of employees. Many departments may not have an adequate
time and human resource for the same.
 .
 Activity-Based Budgeting :- In this budgeting process , the firm first identifies, analyzes
and researches the activities that determine the cost the company and thereafter prepares the
budget based on the results.
Advantages
 Expenses and Revenue planning will occur at an accurate level which shall provide
meaningful details regarding the estimated and future financial projections.
 GSQ limited can have better control and can align its annual budget with the overall firm’s
goals by implementing Activity Based Budgeting.
 Disadvantages:-
 The main disadvantage of Activity Based Budgeting is that it is more expensive to
implement and comparatively more costly than the traditional way of budgeting.
 Furthermore, technical details are required to maintain to capture costs at a particular
level (McLaren, Appleyard, and Mitchell, 2016).
Rolling Budgeting:-
 Rolling simply means continuous. Rolling budget continuously updated by adding further
accounting period when the earlier accounting period is completed.
 Advantage: -
Rolling budget helps in planning and controlling more accurately.
 It helps in reducing the uncertainty of budgeting.
Disadvantages: -
 I is time consuming process for GSQ limited.
 It is highly cost incurred process
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TASK4
P5 Uses of management accounting system to solve financial problem
Financial Problem: It is a situation in which organizations suffers from many issues due to
lack of money. Small and medium size enterprises faced financial problem during period of
industrial life cycle. GSQ is facing financial problem due to their lack of managerial decion
and increase rate of non payment of debtors. Their manger should be used management
accountings tools to solve their problem through following ways:
 Key performance indicator: It is a tool which is used to analysis how effectively company
achieve their target at fixed time. Manger of GSQ uses this tool to identify effect of their
managerial policy, with the use of this tool they implement effective mange3rial policies.
 Bench marking: In this technique manger compare their achieved goal with standard goal.
GSQ limited use it to identify number of default debtor and then make policies through
which defaulters pay their money within sure time period (Nelson, and Miller, 2014).
 Financial governance: This tool is used to make sure that business organizations should
follow ethical rules and regulation, they monitor each activity of business organizations.
CONCLUSION
From the above analysis it has been concluded that managerial accounting process play
essential part in running successful business organization. It will help manager to uses
accounting information in a way which will help in reducing cost and taken effective
investment decision through with they utilized their resource effectively. Business
organizations use Management accounting techniques and tools in order to achieve their
predetermine goal at fixed time.
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REFRENCES
From books and journal
Carlsson-Wall, M., Kraus, K. and Lind, J., 2015. Strategic management accounting in close
inter-organisational relationships. Accounting and Business Research, 45(1). pp.27-54.
Wouters, M. and Kirchberger, M. A., 2015. Customer value propositions as interorganizational
management accounting to support customer collaboration. Industrial Marketing
Management, 46, pp.54-67.
Chiwamit, P., Modell, S. and Yang, C. L., 2014. The societal relevance of management
accounting innovations: economic value added and institutional work in the fields of
Chinese and Thai state-owned enterprises. Accounting and Business Research, 44(2).
pp.144-180.
Hiebl, M. R., Duller, C., Feldbauer-Durstmüller, B. and Ulrich, P., 2015. Family influence and
management accounting usage—Findings from Germany and Austria. Schmalenbach
Business Review, 67(3). pp.368-404.
Juras, A., 2014. Strategic Management Accounting-What Is the Current State of the
Concept?. Economy Transdisciplinarity Cognition, 17(2). p.76.
McLaren, J., Appleyard, T. and Mitchell, F., 2016. The rise and fall of management accounting
systems: A case study investigation of EVA™. The British Accounting Review, 48(3).
pp.341-358.
Nelson, A. T. and Miller, P. B., 2014. Modern management accounting. Australasian.
Accounting, Business and Finance Journal, 8 .p.2.
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