Management Accounting Research Review

This assignment requires a comprehensive review of recent literature on management accounting research. It examines various aspects of the field, including diversity and validity in positivist research, the role of management accounting in sustainability and CSR, family firms, and intellectual capital development. The review also considers the societal relevance of management accounting and future research directions.

UNIT 5 MNG ACC

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explain management accounting and requirements in the organisation...........................1
P2 Management accounting reporting methods.....................................................................4
TASK 2............................................................................................................................................6
P3 Preparing income statements using marginal and absorption costing...............................6
TASK 3............................................................................................................................................8
P4 Producing different planning tools....................................................................................8
P5 Discuss how management accounting system is used to respond to financial problems11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is quite important part of organisation as it help management in
taking better decisions with much ease. The present report deals with Vectair Holdings Ltd
which is engaged in manufacturing of hygiene products. The importance of management
accounting is carried out in this report along with several types of it. Moreover, managerial
reports are discussed which is much essential for the company to achieve efficiency in a better
way. Apart from this, marginal and absorption costing is calculated for the company to analyse
net profit after charging expenditures. Various kinds of planning tools are also discussed which
are helpful in evaluating attractiveness and profitability of new project in effective way. Besides
this, financial problems can be overcome by adopting management accounting system in
effective way. Thus, all these aspects related to management accounting is explained to take
enhanced decisions by the company.
TASK 1
P1 Explain management accounting and requirements in the organisation
Management accounting is quite essential for the organisation so that it may be able to
strengthen internally to provide quality services. By using this information, management is able
to take better and effective decisions with much ease. Managerial reports provide useful
information to management so that it may analyse various operational tasks prevailing in the
organisation. This management accounting information is useful for Vectair Holdings Ltd so that
it may be able to provide good quality products to customers. For manufacturing sector,
management accounting plays essential role as it involves various direct and indirect costs which
are helpful for the company (Cooper, Ezzamel and Qu, 2017). In relation to this, Vectair
Holdings Ltd is also a manufacturing firm which provides hygiene products to customers' to
remain healthy.
Management accounting provides summary and detail aspects of operational activities
ongoing in the organisation and as such, information is quite useful for initiating control on
various expenditures. The main essence of this information is that costs are analysed of each
activities and monitoring is done so that expenditures may not exceed revenue of the firm. This
information is quite meaningful for Vectair Holdings Ltd so that it may be able to initiate control
in various production tasks so that revenue may be earned with much ease. Management
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accounting information is also useful for another aspect which is related to inventory
management. This is important for the company so that adequate quantum of inventory may be
purchased so that wastage may not occur and production may be achieved in the best possible
way. In relation to this, essential requirements of different types of management accounting is
listed in the following points-
1. Cost accounting:
Cost accounting is the major type of management accounting which is useful in
controlling costs in effective way (Ax and Greve, 2017). This means that various costs are
evaluated and analysed which are incurred in manufacturing of products and are carefully
monitored so that expenditures may not outreach revenue of firm. The main essence of cost
accounting system is that it help management to provide clarity about overheads and various
expenses so that it may be reduced up to high extent to accomplish more production and thereby,
help in reducing unnecessary costs which deteriorates revenue. This information is useful for
management so that it may be able to take enhanced decisions with much ease. Different types of
costs such as indirect, direct, fixed, variable, semi-variable and other costs are analysed and steps
are taken to reduce the same up too much extent. Thus, cost accounting help to decrease
expenditures so that company may earn more production quite effectively.
2. Price optimisation:
Another useful type of management accounting which is used by company is price
optimisation. This technique is a mathematical analysis which is taken out to analyse sensitivity
of customers towards change in price of a particular product or commodity. This is important so
that company may set price in accordance to the demand of customers. This will have good
impact on consumers as they will feel satisfied as price of products are quoted according to their
wish. This will be beneficial for the company and customers as well (Kenno and Free, 2017).
Company will be benefited as more products can be easily sold and revenue may be easily
generated and moreover, customers will be satisfied with low prices of the commodities. Vectair
Holdings Ltd should implement this technique so that it may analyse need of customers and then
in accordance, price of products may be easily quoted with much ease.
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3. Job costing:
Job costing is another useful technique to analyse costs of each of the jobs so that
expenditures on it may be controlled in a better way. In simple words, job costing is highly
beneficial to manufacturing sector as lot of jobs are performed simultaneously to achieve
production in desired way. This is essential so that unproductive jobs can be analysed and
expenses on the same can be minimised up to high extent (Black, 2017). This is important for
organisation so that it may not waste scarce resources by incurring expenditures on it which
generates nothing to it. It is helpful for Vectair Holdings Ltd as it is engaged in manufacturing
sector and as such, costs may be analysed on various jobs and measures may be taken to produce
required production with respect to expenses incurred on various jobs.
4. Inventory management:
Inventory management is useful for organisation as inventory is used for achieving
desired production with much ease. In simple words, inventory should be managed in effectual
manner. This is essential as resources should be utilised up to maximum possible extent.
Numerous orders from customers arrive in company and as such, it is required that production
department may generate required production within stipulated time frame. This can be achieve
if orders are managed in accordance with available inventory in the warehouse. Thus, stock
should be available in adequate quantity so that production may be achieved in timely manner. In
contrary to this, if inventory is purchased in excess, then additional costs are incurred for
handling the same. Thus, it is required that demand of production department may be carefully
analysed by the management and then required quantum of inventory must be purchased for
accomplishing desired production. Hence, no wastage should be done by the company.
Benefits of management accounting system
Management accounting system is quite beneficial for the company as it help to initiate
control in a better way. Costs can be easily controlled and ascertained which is required so that
profits may be more than costs (Latan and et.al, 2018). It is also helpful for planning and
forecasting purpose as well. The hierarchical structure is well-defined which help management to
properly organised the allocated work with much ease. Variances are effectively controlled and
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corrective actions are taken in the event of any deviations between budgeted and actual results.
Thus, it is highly beneficial for the company to extract effective outcomes.
P2 Management accounting reporting methods
Segmental report:
Segmental reports are useful for company as it discloses each and every information
about various segments which are required to provide to various stakeholders to analyse financial
performance of the company in effective way. This is important as stakeholders need to take
enhanced decisions for yielding better results. Segmental report is attached or enclosed in the
financial statement of the company which is then utilised by stakeholders. However, this report is
provided to public companies and not to private companies. This is mainly essential for creditors
and investors so that they may be able to take decision whether to provide funds to company or
not in effective way (Dekker, Kawai and Sakaguchi, 2018). Thus, segmental reporting is quite
useful for stakeholders and management to analyse financial condition of each of the segments in
effectual way.
Performance report:
Performance report is evaluating performance of something in the company. In simple
words, Vectair Holdings Ltd can easily ascertain performance of it in the best possible way.
Mainly it is used by the management to evaluate performance of employees so that it may
analyse effectiveness and efficiency of them in effectual way. This report provides clarity to
management regarding performance of employees which help it to evaluate efficiency of them
and analyse deficiencies if any. This help management to take effective measures so that
deficiencies can be removed and overall productivity of employees can be easily increased up to
high extent. This is useful for Vectair Holdings Ltd as it can easily assess performance of its
workers and as a result, steps can be taken to initiate increased production with much ease.
Inventory management report:
Management accounting reports are quite essential for the management to take enhanced
internal decisions with much ease (Christ and Burritt, 2017). In relation to this, inventory
management report is important for company so that adequate inventory may be purchased
which does not result into spoilage. This is essential as resources should be used up too much
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extent and production may be achieved in effective manner. This is important as numerous
orders are received from customers and company has to accomplish production in timely manner
and also ship the same. Thus, inventory management report provides clarity to the management
regarding demand of production department as report is imparted to it. Management carefully
scrutinise the same and order only required quantity of materials, this eventually help production
department to achieve desired production without any wastage.
Accounts receivables ageing report:
Company sells products to customers on cash and credit basis. Cash is received when
goods are purchased immediately by the customers. But amount of credit goods are not paid by
them instantly but after certain time period. For overcoming this problem, organisation generates
accounts receivables ageing report. Vectair Holdings Ltd should generate this report so that
outstanding amount from customers may be analysed and amount can be received with much
ease (Van der Stede, 2017). This means that firm is benefited by such report as unpaid customer
invoices can be assessed in effective way. Management get to know about amount outstanding
from credit customers and as such, payment is required to be made by them. If outstanding
amount is more than, strict and well-mannered strategies should be implemented by Vectair
Holding Ltd so that amount can be received within stipulated time.
Job cost report:
Job cost report is another useful report which provides costs incurred on various jobs
engaged in production process. Various expenditures incurred on each and every jobs is
extracted and measures are adopted to minimise costs on unproductive jobs. This eventually help
to attain maximum production and that too at lowest expenses on the same quite easily. This is
quite essential for company so that expenditures on various manufacturing jobs can be
ascertained and more production can be achieved with much ease. Vectair Holdings Ltd is
benefited by such report as management scrutinises the same and initiate control so that expenses
may not go beyond revenue. This help management to take better decisions regarding job costs
and as a result, expenses are reduced up too much extent to achieve higher productivity in the
best possible way (Quinn, Hiebl, Moores and Craig, 2018).
Operational budget report:
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Operational budget report is provided to the management to analyse budget requirement
of various departments in effective way. This is important as operational tasks in the organisation
is to be achieved with much ease. This is essential so that company may analyse demand and
need of various departments in that way so that it may provide desired results by utilising
resources in the best possible way. Operational budget report is prepared with reference to
historical data and then, budget is formulated for the coming period in effective way. This help
management to assess need of department to achieve productivity quite effectually. Thus,
operational budget report deals with ascertaining of expected costs and forecasting income that
will be generated by company in the future time frame. Hence, this report is quite useful for
management to take better decisions (What is operating budget?, 2018).
Management accounting reporting in organisational process
Managerial reports are quite useful in organisation as it provides clarity about aspects of
financial condition and performance of it in the best possible way. Management accounting is
highly integrated within organisational process as it helps in planning and output which is the
main essence of such reports. Expenses are analysed in a better way and as such, it can be said
that management accounting reporting is quite helpful for company to aid in making enhanced
decisions.
TASK 2
P3 Preparing income statements using marginal and absorption costing
Income statement of Vectair Holdings Ltd on the basis of Marginal costing
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Marginal costing is carried out in the above calculation. It can be interpreted that sales of
company is 2100 and cost of production is 9100. From this, closing stock amounting to 1300 is
deducted. Thus, variable cost comes to 7800 and as such, contribution per unit is 13200. Variable
overheads on sale is carried out which is 600 having one unit only. From this, various fixed costs
are deducted to arrive at net profit. This includes production overheads of 2000, selling and
administrative fixed cost are 600 and 700 respectively. By subtracting all these fixed costs, net
profit of 9300 has been obtained (Krumwiede, Paik and Walden, 2017). It can be seen that
Vectair Holdings Ltd is performing well as after deducting expenditures, net profit is overall
good.
Income statement of Vectair Holdings Ltd on the basis of Absorption costing
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Absorption costing is carried out above. It can be interpreted that company has sales
revenue on production of 2100 which has been carried out by having 600 units sold at 35 per
unit. While cost is 11200 having 700 units at 16 per rate. Closing stock is 1600 and fixed
production overheads of 100 are deducted and as such, cost of production comes to 9500 and
contribution per unit comes to 11500. All the fixed costs are deducted to get net profit. It
includes variable overheads on sales is 600, selling and administrative fixed costs are deducted
such as 600 and 700 respectively. Thus, net profit comes to 9600. This means that company is
performing good and after absorbing manufacturing overheads, net profit earned is remarkable.
Difference between marginal and absorption costing
Marginal costing Absorption costing
1. The main essence of marginal costing is that
it takes only variable costs which are charged
to products
2. On the other hand, both fixed and variable
costs are charged to products.
2. It is used for valuing inventory at variable
costs only.
2. Whereas, entire production cost is used to
value inventory in the firm.
3. Profit increases when level of inventory
reduces.
3. Profit increases when level of inventory
increases as well.
4. It is not allowed under accounting standards 4. Inventory is valued under IAS (International
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regarding valuation of inventory. Accounting Standards) 2.
5. Marginal costing is useful for the
management to take enhanced decisions with
much ease (Ammar, 2017).
5. However, absorption costing is not used for
decision-making purpose.
Management accounting techniques
The techniques of management accounting such as revaluation accounting, variance
analysis are quite useful for management to aid in decision-making with much ease. Revaluation
accounting is done to adjust market value of asset with that of book value so that correct value
can be ascertained for profit purpose. On the other hand, variance analysis is used to take
corrective action in the event of any deviations between actual and budgeted output.
TASK 3
P4 Producing different planning tools
There are different planning tools which are used for evaluating effectiveness of new
project and as such, company can take better and enhanced decision with much ease. Different
planning tools are as follows-
Zero based budgeting
This planning tool is useful for Vectair Holdings Ltd for achieving better results. As the
name suggests, budget is prepared from the zero or scratch base quite effectively. This means
that no past year data is used to formulate budget for coming period.
Advantages
1. The main advantage of zero based budgeting is that needs of various departments are carefully
analysed and budget is prepared accordingly. This help to reduce budget inflation.
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2. Another merit is that no historical figures are taken as current year's base and as such, budget
is formulated with much ease.
Disadvantages
1. Main disadvantage is that it involves more manpower as it takes time to prepare budget from
completely zero base.
2. It is a time-consuming process as complete budget is prepared and instead of using this
budget, incremental budgeting can be used for better results (Lachmann, Trapp and Trapp,
2017).
IRR
IRR (Internal Rate of Return) is useful planning tool for Vectair Holdings to yield better
results. Attractiveness of new project is imparted by it and net present value of cash flows of a
project becomes equal to zero.
Advantages
1. It is easier to calculate and results can be interpreted with much ease as well. This technique
provides clarity about the effectiveness of the project.
2. Another merit of using IRR as a planning tool is that it takes into consideration time value of
money quite effectively.
Disadvantages
1. The biggest disadvantage of IRR method is that it does uses external factor which includes
cost of capital. Moreover, size of new project cannot be assessed (Soderstrom, Soderstrom and
Stewart, 2017).
2. Another disadvantage is that concrete results cannot be obtained when NPV (Net Present
Value) of two mutually exclusive projects.
NPV
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NPV is a useful planning tool which is used to assess profitability aspect of the project
with much ease. It is a difference between present value of cash inflows and outflows for a
particular period. Higher NPV is better for company to invest in new project (Honggowati,
Rahmawati, Aryani and Probohudono, 2017).
Advantages
1. It is useful as it helps to determine profitability aspect of new project by taking into
consideration time value of money.
2. It takes discounting factor while assessing attractiveness of the project.
Disadvantages
Main disadvantage of NPV is that discounting rate is difficult to recognise and as such, good
profitability projects may be ignored.
It is complicated tool and mere estimation is provided regarding profitability of project which is
not concrete for taking better decision.
Payback period
Payback period is another useful method of planning tool which analyses effectiveness of
project from different perspective. It assesses how much time will be taken by project to yield
better returns. Less the time taken to provide better results, more beneficial for the company to
invest in the same.
Advantages
1. Main advantage is that it provides clarity about time to be taken by the project to initiate
effective results (Woodruff, 2018).
2. It is easier to calculate and provides effective results. Project is evaluated on the basis of the
quickest return on investment which is the main essence of this method.
Disadvantages
1. Main disadvantage of this method is that it does not take into account time value of money.
Moreover, it does not take cash inflows occurred after initial investment amount is obtained.
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2. Another disadvantage is that it does not take into account long-term profitability and as such,
good project might be ignored.
P5 Discuss how management accounting system is used to respond to financial problems
There are various methods which can be used to respond to financial problems.
Management accounting systems are as follows-
1. Key performance indicators (KPI)
KPI is effective performance measurement which is used to assess how business is hitting
in common targets. This is important as it helps Vectair Holdings Ltd to focus on strategic goals
to earn desired profits with much ease (Modell, 2017). In addition to this, major KPI's are profit,
sales, growth and retention of workers as well. This is essential because workers should be
insisted to initiate work hard so that goals may be accomplished in the best possible way. This
will help organisation to achieve annual growth with reference to strategic business goals in
effectual manner. Thus, it helps to respond financial problems in effective manner.
2. Financial governance
Financial governance is another essential management accounting system which is used
to respond to financial problems in effective way. It guides and provides set of rules to be abide
by organisation so that it may be able to follow financial processes to be governed in that way so
that financial problems may be resolved up to high extent. This management accounting system
is quite useful as reporting is done in accurate way so that organisation works in legal framework
in the best possible way. Stakeholders' trust can be easily gained and as a result, firm may be able
to perform in a better way and could respond to financial problems.
3. Budgetary target
Budgetary target is another management accounting system which can be used to respond
to financial problems quite effectively. This is helpful for company as budget of various
departments can be prepared with much ease (Turner, Way, Hodari and Witteman, 2017).
Budgetary target is used to estimate funds which will be required by departments to accomplish
tasks in effective way. In simple words, budgetary target is made by combining operating and
capital expenditures in effective way. Thus, estimation is done with regards to expenses which
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will be required by departments and as such, financial goal is established and financial problems
can be easily resolved.
4. Balanced Scorecard
It is performance measurement tool which focuses on prioritising work in that way so that
strategic goals may be achieved with much ease. This tool was developed by Kaplan and Norton
and has provided four different perspectives. They are financial, customer, internal business
processes and learning and growth. This technique is used to measure performance of the
company on the basis of financial and non-financial information. Thus, it helps to keep balance
between short-term and long-term goals and effectively responds to financial problems (Novas,
Alves and Sousa, 2017).
5. Benchmarking
Benchmarking is used to compare one organisation with industry's best to assess
differences in effective way. In simple words, Vectair Holdings Ltd can effectively compare with
same organisation which is prevailing in the manufacturing sector and as such, it can adopt
strategies which are adopted by it. This is important as internal improvement can be easily done
by company and as such, superior performance can be accomplished with much ease. It is
beneficial for the firm as it help to initiate trust in the employees and as such, overall
productivity may be increased up to high extent. Thus, financial problems can be easily
overcome.
6. Variance analysis
Standards are set by the company so that it may be able to perform well and actual results
can be easily compared with planned ones. While, comparing planned and actual behaviour,
variances are found. This is known as variance analysis. This means that company takes into
account deviations which exists between the two and as such, corrective actions are taken to
resolve the same. Thus, it helps company to overcome financial problems in effectual way.
Management accounting leads to success in responding to financial problems
Management accounting is quite useful and organisation can lead to success with much
ease. Financial problems can be solved quite effectively by implementing variance analysis so
that deviations may be assessed between planned and actual output. Thus, corrective actions may
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be initiated for resolving the same (Krumwiede, Paik and Walden, 2018). Moreover,
benchmarking is also effective technique by which company may be able to compare one with
other organisation and improvements can be easily implemented so that performance can be
enhanced. Financial governance can also be initiated and as such, management accounting is
useful to adapt to financial problems.
CONCLUSION
Hereby it can be concluded that management accounting is important aspect in the
success of organisation. The information which is provided by this branch of accounting is quite
helpful for business for taking enhanced decisions with much ease. Types of management
accounting are important part of company which help to analyse costs and desired revenue can
be achieved. Managerial reports are quite useful for company as it help management to take
enhanced decisions. Planning tools are also important to check effectiveness and attractiveness
of new project in the best possible way.
REFERENCES
Books and Journals
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Ammar, S., 2017. Enterprise systems, business process management and UK-management
accounting practices: Cross-sectional case studies. Qualitative Research in
Accounting & Management. 14(3). pp.230-281.
Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational
culture compatibility and perceived outcomes. Management Accounting Research.34.
pp.59-74.
Black, W. H., 2017. Book review: History of Management Accounting in Japan: Institutional &
Cultural Significance of Accounting.
Christ, K. L. and Burritt, R. L., 2017. Water management accounting: A framework for corporate
practice. Journal of Cleaner Production.152. pp.379-386.
Cooper, D. J., Ezzamel, M. and Qu, S. Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research. 34(2).
pp.991-1025.
Dekker, H. C., Kawai, T. and Sakaguchi, J., 2018. The Interfirm Contracting Value of
Management Accounting Information. Journal of Management Accounting Research.
Honggowati, S., Rahmawati, R., Aryani, Y. A. and Probohudono, A. N., 2017. Corporate
governance and strategic management accounting disclosure. Indonesian Journal of
Sustainability Accounting and Management. 1(1). pp.23-30.
Kenno, S. A. and Free, C., 2017. Fostering and forcing uses of accounting: Labour-management
negotiations in the automotive crisis in Canada 2008–2009. Management Accounting
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Krumwiede, K. R., Paik, G. H. and Walden, W. D., 2017. Can Management Accounting Help
Aid Associations Make Tough Choices in Haiti?. Issues in Accounting
Education. 33(1). pp.17-28.
Krumwiede, K. R., Paik, G. H. and Walden, W. D., 2018. Can Management Accounting Help
Aid Associations Make Tough Choices in Haiti?. Issues in Accounting Education
Teaching Notes. 33(1). pp.1-16.
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Lachmann, M., Trapp, I. and Trapp, R., 2017. Diversity and validity in positivist management
accounting research—A longitudinal perspective over four decades. Management
Accounting Research. 34. pp.42-58.
Latan, H. and et.al, 2018. Effects of environmental strategy, environmental uncertainty and top
management's commitment on corporate environmental performance: The role of
environmental management accounting. Journal of Cleaner Production. 180. pp.297-
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Modell, S. ed., 2017. The Societal Relevance of Management Accounting. Routledge.
Novas, J. C., Alves, M.D.C.G. and Sousa, A., 2017. The role of management accounting systems
in the development of intellectual capital. Journal of Intellectual Capital. 18(2).
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Quinn, M., Hiebl, M. R., Moores, K. and Craig, J. B., 2018. Future research on management
accounting and control in family firms: suggestions linked to architecture,
governance, entrepreneurship and stewardship. Journal of Management Control.
pp.1-18.
Soderstrom, K. M., Soderstrom, N. S. and Stewart, C. R., 2017. Sustainability/CSR research in
management accounting: A review of the literature. In Advances in Management
Accounting (pp. 59-85). Emerald Publishing Limited.
Turner, M. J., Way, S. A., Hodari, D. and Witteman, W., 2017. Hotel property performance: The
role of strategic management accounting. International Journal of Hospitality
Management. 63. pp.33-43.
Van der Stede, W. A., 2017. “Global” management accounting research: some
reflections. Journal of International Accounting Research. 16(2). pp.1-8.
Online
What is operating budget?, 2018 [Online] Available Through:
<https://www.myaccountingcourse.com/accounting-dictionary/operating-budget>
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