Management Accounting Principles: Costing, Planning, and Reporting

This report provides a detailed explanation of management accounting principles and their application in business organizations. It explores the essential requirements of different management accounting systems and various methods for management accounting reporting. The report evaluates the benefits of these systems and their integration within organizational processes. It includes cost calculations using marginal and absorption costing techniques to prepare income statements and applies a range of management accounting techniques to produce financial reporting documents. The analysis extends to the advantages and disadvantages of different planning tools and their use in preparing and forecasting budgets, along with how management accounting systems can respond to financial problems and contribute to sustainable success. Desklib offers this assignment solution and many more resources for students.

Management Accounting Principles and
Effective Planning Tools for Managing
Accounts
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Table of Contents
Introduction....................................................................................................................................3
Task 1..............................................................................................................................................4
Introduction....................................................................................................................................4
P1 Explain management accounting and give the essential requirements of different types
of management accounting systems.............................................................................................4
P2 Explain different methods used for management accounting reporting............................6
M1 Evaluate the benefits of management accounting systems and their application within
an organizational context..............................................................................................................7
D1 Critically evaluated how management accounting systems and management accounting
reporting is integrated within organizational processes............................................................7
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs..........................................................................8
M2 Accurately apply a range of management accounting techniques and produce
appropriate financial reporting documents..............................................................................10
D2 Produce financial reports that accurately can be apply and interpret data for complex
business activities.........................................................................................................................12
Task 2............................................................................................................................................13
P4 Advantages and disadvantages of different types of planning tools..................................14
M3. Use of planning tools and its application for preparing and forecasting budgets.........16
P5. Management accounting systems to respond to financial problems................................17
M4 How responding to financial problems can lead an organization to sustainable success.
.......................................................................................................................................................18
D3 How planning tools respond to financial problems can lead an organization to
sustainable success.......................................................................................................................19
Conclusion....................................................................................................................................20
Conclusion....................................................................................................................................21
Bibliography.................................................................................................................................22
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Introduction
The given report has been prepared with the aim of explaining the concept of management
accounting in detail. This will help every business organization and especially the top level or
strategic level of any business enterprise so as to achieve a strategic competitive advantage over
its rival firms which is crucial and imperative in the dynamic environment. For the purpose of
explaining the concept of management accounting, the report has been divided into two parts.
Each part deals with different aspects of management accounting and serves different fields of
management accounting. Consideration and detailed study of both the parts will help to
understand the limitations along with the significance and importance of management
accounting. The first part deals with the concept of management accounting along with the
computation of income as per marginal and absorption costing approach. In the same manner, the
second part deals with the planning tools and its relevance in solving financial problems in a
systematic manner.
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Task 1
Introduction
The given report has been divided into two parts covering the both theoretical and practical part.
As such, the theoretical part covers the explanation of management accounting along with the
difference between the management accounting system and management accounting reporting.
This will help to understand in a more lucid manner or way.
P1 Explain management accounting and give the essential requirements of different types
of management accounting systems.
Management accounting is concerned with the collecting, analyzing and interpreting the
information obtained from or data gathered from the financial accounting and another field of
accounting (Allison, 2014). Although management accounting has been introduced with the
alignment of financial accounting, due to the requirement and need of the top level management,
the scope and ambit of management accounting have been expanded with the increase in scope.
This has widened the boundaries of management accounting.
As of now, management accounting covers both quantitative and qualitative aspects of
management accounting (Yalcin, 2012). The main and sole purpose of management accounting
is to supply information so that the top level or strategic level can take correct and financially
viable decisions.
Image 1: Scope and ambit of management accounting
Source: By Author, 2018
It can be observed from the above image that management accounting covers both quantitative
and qualitative aspects.
The different or varied requirements of management accounting are described below. This will
help to understand the concept of management accounting in a lucid manner and can be applied
to the organizational structure of any business enterprise (Van der Stede, 2017).
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Quantitative
information Qualitative
information

Image 2: Distinct functions of management accounting
Source: By Author, 2018
It can be observed from the above figure that there are different features through which
management accounting can be explained in an easy manner. Also, the above three features are
prominent and are widely used to explain the complex nature of management accounting.
Besides, these above three features, there can be other features and characteristics as well. Thus,
the figure explaining the management accounting is an exhaustive representation and there can
be others unique features as well.
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Break even analysis
Inventory analysis
Capital budgeting analysis

P2 Explain different methods used for management accounting reporting.
There are various tools and techniques which are used or are intended for reporting of
management accounting. These tools are important since the only application of management
accounting is not important. But drawing and obtaining valid outputs from such management
accounting is equally important. This will help the reader or user of the report to understand the
data derived from the application of management accounting tools and techniques accurately and
correctly.
Selection of management accounting reporting depends on the concerned management
accounting tools and techniques applied. For instance, if cost accounting has been applied, then
cost report or product report will be relevant and appropriate management accounting reporting.
Likewise, profitability statements will be the appropriate and relevant format for the application
of financial management, another branch or field of management accounting.
Generally, there are different methods that can be employed for management accounting
reporting. Also, it is important to understand that management accounting reporting is different
from that of financial reporting. As such, financial reporting is intended for outside stakeholders.
On the other hand, management accounting is for the purpose of internal stakeholders. Thus,
information generated from the management accounting reporting can be used only by the
management and generally will not be displayed to an outsider.
Traditionally, the management accounting is also known as cost accounting. This is because
normally, the executives or senior level managers at the top level are more concerned with the
information pertaining to the cost of different products or services dealt with by the concerned
business enterprise.
However, with the passage of time, the meaning and types of the report included in management
accounting have changed and widened. Thus, all the documents derived from the application of
management accounting constitute the management accounting reporting. Thus, budget reports,
execution reports along with cost reports along with other different types of reports form part of
management accounting.
These different types of reports have been discussed in detail one by one:
Budgets: Budgets are the basic and widely used method of management accounting reporting. It
consists of benchmarks and standards that need to be achieved or fulfilled within a specified time
frame. As such, it establishes the criteria accomplishing which will help to gain a competitive
advantage over its rival firms thereby retaining the market share in the relevant industry to which
the concerned business enterprise or organization belongs. Different types of budgets that are
prepared within a business enterprise are cash budget, purchase budget, sales budget, master
budget and so on. For the betterment of result, departmental heads can be held responsible for the
preparation of different types of budgets.
Cost reports: A Cost report explains the cost structure of all the brands and products range in
which any business organisations deals. It also helps to identify the costs that can be eliminated
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of proper care and reasonable steps can be taken. This will help to place a proper control on the
costs and more amounts of profit can be earned.
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M1 Evaluate the benefits of management accounting systems and their application within
an organizational context.
Before understanding the concept of management accounting, it is primitive to understand that
management accounting system is different from that of management accounting. Management
accounting is the application of various qualitative and quantitative tools and techniques. On the
other hand, management accounting system is the formulation and implementation of output and
result derived from management accounting to draw a meaningful and informative statement
which can be applied in decision making.
D1 Critically evaluated how management accounting systems and management accounting
reporting is integrated within organizational processes.
Management accounting reporting and management accounting systems can be integrated so as
to achieve the desired or expected result. Only then the concerned business enterprise will be
able to survive in the industry in the long run. It becomes more important when there exists
perfect competition in the market. Thus, it will be advisable to apply equally both the
management accounting systems and management accounting reporting. Both these concepts can
be applied with the proper coordination and cooperation of all the departments and segments
operating within the business enterprise. Besides, there must be an appropriate regulatory
authority supervising and overseeing the operations and outcome of these two concepts.
For instance, the cost accounting and cost report should come under the charge of cost
accountant. In the case of organizations dealing with the
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P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs.
Absorption costing – The absorption costing statement is prepared after considering the variable
cost of production and fixed cost of production in the costing statements of the company. The
absorption costing profit is achieved after considering the variable cost and the fixed overheads
are also included in calculating the net profit acquired by the company. The form of costing is
the traditional method of accounting in which all the costs are considered relevant for the
company without giving any specific reference to cost.
Marginal costing – The marginal costing statement is prepared after considering the relevant
cost of production incurred in the manufacturing operations of the company. The relevant cost in
this sense is concerned with the variable cost of production that is required to be incurred in the
production process. The marginal costing statement method is the method in which contribution
is calculated after considering the variable cost and the fixed overheads are then subtracted from
the contribution achieved by the company. Thus the same will require consideration of only
relevant cost for decision making purpose by the management. Thus it can be observed that it is
the modern form of accounting.
Income Statement under absorption costing:
Income Statement under marginal costing:
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M2 Accurately apply a range of management accounting techniques and produce
appropriate financial reporting documents.
Working Note:
Working Note:
Difference between marginal costing and absorption costing:
Basis Marginal costing Absorption costing
Meaning The marginal costing
technique is the modernized
costing technique in which
only variable cost of the
product is considered for
ascertaining the contribution
achieved by the product.
The absorption costing is the
conventional way of
accounting in which total
cost is ascertained after
considering fixed as well as
the variable cost of
production.
Profitability The profitability in marginal
costing is ascertained after
considering the profit volume
ratio.
The profitability is
ascertained after recognizing
the gross profit and net profit
of the company.
Classification of overheads The costs of the company are
classified between fixed and
The costs of the company are
classified as underselling,
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variable cost. administration and
distribution overheads.
Absorption rate There is no requirement to
calculate the absorption rate
for the company.
The absorption rate is
calculated after considering
the variable cost of the
company and appropriate
cost center.
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