BTEC - Unit 5 Management Accounting: Principles & Planning Tools

This report provides a comprehensive analysis of management accounting principles within the context of British Associated Foods. It explains the core principles of management accounting, its role, and different types of management accounting systems, including Cost Accounting System (CAS), Job Costing System (JCS), Inventory Management System (IMS), and Price Optimization System (POS). The report details the benefits of each system and explores various management accounting reports such as budgets, accounts receivable aging reports, and cost managerial accounting reports. It also demonstrates cost calculation using absorption and marginal costing techniques, evaluating the integration of management accounting within an organization and its benefits. The report further compares planning tools utilized in management accounting and discusses how management accounting addresses financial problems, concluding with recommendations for British Associated Foods. Desklib is a platform where you can find more solved assignments and study tools.

UNIT 5 MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
Explaining principle of Management Accounting (MA).............................................................1
Describing role of management accounting and its system.........................................................2
Describing Different types of MAS.............................................................................................2
Explaining different management accounting reports along with its integration in firm............4
Calculating cost using appropriate technique such as absorption & marginal............................5
Evaluating integration of MA within organization......................................................................7
Explaining benefits of function to organization..........................................................................8
PART 2............................................................................................................................................8
Comparison and contrasting planning tools utilized in management accounting.......................8
Ways in which management accounting deals with financial problems in the organization....10
Recommendations......................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is concerned with having both monetary and non-financial
information in order to make sound decision. In the present environment of business complexity
and competition has inclined which require firm to pay attention on developing significant
technique of management accounting for making strategic decision. The current report is based
on British Associated Food which operates in manufacturing sector by offering food product.
The current report will pay attention on explaining principles of management accounting for
gaining depth insights. It will highlight role & different types of management accounting system
along with benefits and drawbacks. The present investigation will highlight different methods of
management accounting reporting. It will give emphasis on presenting income statement as per
the two technique such as absorption and marginal. Integration of management accounting
within company & benefits of functions will be included in current study. The study will focus
on explaining planning tools and ways to solve financial problem by comparing two firms to
get depth understanding.
PART 1
Explaining principle of Management Accounting (MA)
A manufacturing organization like British Associated Foods has to follow principles of
management accounting in its operations. Following are the principles of management
accounting,
Designing and compiling :
The accounting information is needed to be recorded, with statements that have evidence
on the present, past or future results. It is considered to be the design which helps in the
compilation of the meetings which are needed to be the problem in the business.
Control at source accounting :
As per these principles the costs are better controlled at the points at which they occur.
This is the way of controlling the exercise through employees materials and service providing
devices.
Stability and consistency :
These are procedures of management accounting and thus, needs to be kept stable and
consistent as possible. It helps the management for making decisions and plans for hampering a
rapid change in the policies and procedures (Pylypiv and Pіatnychuk, 2018.).
1

Forecasting and detection of problems :
The information of the management accounting to the management is for the analysation
of the existing problems which are considered to be the problems which impact the future,
identity problems of the steps for their solutions.
Describing role of management accounting and its system
MA play crucial role in providing the crucial information for making strategic decision.
In order to become successful in the present working environment, MA helps in gaining number
of benefits that incline productivity and effectiveness of operational practices. Management
accounting ensure that there is optimum utilization of resources by evaluating requirement of
each department (The Role of Accounting Management in Decision Making, 2022). It provides
assistance in planning, allocating and monitoring monetary resources in turn desirable outcome
can be derived. this contribute in setting the coordination among all the functional areas through
communicating essential data insights so that productiveness among employees can be inclined.
There are several activities in business which is required to be managed by British Associated
Foods (BAF) through formulating proper policy in order to facilitate coordination & control.
Reporting is as well exerted by using management accounting reports so that significant
information utilization for organizing and managing operational activities of manufacturing
procedure can be done. In addition to this, trend, cost analysis, price fixation, etc. are executed
by MA.
Management accounting system refers to the tools that help in gaining crucial insights
about the processing of business in turn formulation of sound decision can become possible
(What Is a Management Accounting System? 2022). There are different types of Management
Accounting system that are considered to be essential for managing functioning of company.
This includes inventory management, cost accounting and job costing and price optimization
system which allows firm to get ability to accomplish requirements in order to attain
predetermined objectives.
Describing Different types of MAS
Cost Accounting System (CAS)
It is one the framework that is taken into process for estimating the cost of their products
for profitability, inventory and expenditure control. British Associated Foods can implement this
system to have proper understanding about the prevailing cost so that identification of irrelevant
2

aspect can become possible (Abdusalomova, 2019.). This can permit BAF to eliminate non
crucial components to enhance efficiency of its manufacturing process to get competitive
advantages.
Job Costing system (JCS)
This management accounting system is helpful in tracking the cost associated with each
task so that evaluation of potential capacity of offering profitability can be estimated. The
specified organization in order to become successful can use this technique to analyze that which
component is unproductive so that proper suitable action can be taken. It is useful in formulating
price of product through obtaining information regarding each aspect so that higher effectiveness
can be achieved.
Inventory Management System (IMS)
It is the process which aids in assessing the products from manufacturing to supply
chain such as input, work in progress and outputs. This allows to ensure that there is no over or
under stocking so that avoiding situation incurring loss to organization can be identified. British
Associated Foods can obtain the capability to coordinate with market forces through ensuring
required level of planning of manufacturing with help of inventory management system. BAF
can become possible to achieve greater amount of effectiveness in managing stock so that
avoiding waste to prevent firm from loss occurring situation.
Price optimization System (POS)
The particular model provides assistance in identifying the responses of customer for
changing price level in turn suitable pricing strategy can be adopted. British Associated Food as
being one of the successful manufacturing company require to focus on having such pricing
technique that is able to attract and retain customers so that higher profitability and stability can
be ensured. BAF can derive competiveness in dealing with requirement of customer and
become able to cover greater market share.
Benefits of different management accounting systems
Merits of CAS
 There are several types of benefits which can be achieved by BAF through
implementation if cost accountings system (Ameen and et.al., 2018). The one of the
crucial advantage is ascertaining accurate and fair cost of products for making relevant
decision of improving related efficiency.
3

 Identification of unprofitable practices, controlling cost, recognizing reason for losses,
eliminating non relevant activities leading expenditure can be eliminated by BAF
through utilizing particular System.
Advantages of JCS
 British Associated Foods can become able to recognize productiveness and share of
profit contributed by each task. (Alvarez and et.al., 2021) It provides assistance in
identifying the accurate proportion of allocating funds to optimize resources.
 It plays role of analyzing the performance of employees as per the set bench marking so
that proper technique of enhancing morale to get optimum potential for meeting
deadlines. Developing accurate level of flexibility, accessibility and accuracy in
monitoring process can be effectively done by BAF with help of this technique.
Pros of IMS
 There are several activities which can be effectively done by applying the IMS such as
reducing risk of overselling, developing greater cost system and avoiding excess or stock
situation in order to improve business negotiation.
 It allows to meet the market forces as better visibility of demand and supplying capacity
can be assessed by mentioned company. These are the benefits which can be helpful in
gaining greater efficiency to incline organizational position in sector.
Benefits of POS
 It is one of the system that permits to make proper pricings strategy through involving
cost, customer factor, etc. so that positive results can be achieved.
 The benefits which can be achieved by British Associated Foods such as maximizing
sale, profits, ROI on investments, reacting effective to market changes, etc. so that
leading position in specified sector can be attained.
Explaining different management accounting reports along with its integration in firm
There are distinct form of management accounting reports that permit company to
achieve relevant information about different aspects so that higher strategic decision can be
made. British Associated Foods should pay attention on formulating following reports in respect
to make sound decision.
 Budget is one of the major report that aids in making road map for moving forward so
that higher ability to cope up with changing circumstance can become possible. BAF
4

can get the information regarding required level of funds so that suitable diverse method
of sourcing finance for meeting requirements of business. It assists in having critical
measurement of organizational performance which can be compare with previous and
actual outcome so that prevailing deviation can be identified.
 Account Receivable aging reports are vital for evaluating effectiveness of formulated
credit policy as has influence on performance of company (Fitria, 2021). British
Associated Foods can get the details of defaults payments, duration of collection,
relevant availability of liquidity, bad debts, etc. so that taking suitable course of action
for having higher ability to make good customer relationship can be exerted. This report
is largely utilized to enhance liquidity position of organization.
 Cost managerial accounting reports aids in computing cost of labor, material, etc. so that
improving effectiveness of prevailing structure can be done. Estimating profits, cost for
getting overall picture of BAF performance can be done. This contribute in managing
and controlling cost so that better position can be derived.
 Performance report is related with reviewing the overall picture of the company through
focusing on the different factors such as employees, departments, etc. this allows to make
crucial evaluation for appraising and enhancing morale of employees in turn
improvement action to increase productivity can become possible.
 Other managerial reports comprise competitors, variance analysis, etc. so that significant
results can be obtained to make strategic decision in respect to coordinate with changing
circumstances.
Calculating cost using appropriate technique such as absorption & marginal
This can be understood by referring the following expenditure conducted by the
mentioned company so that depth understanding can be obatiend.
Particulars Amount
Sales 120000
Raw material 25000
Direct labor h 15000
Variable manufacturing overhead 8000
fixed manufacturing overhead 7500
Variable distribution and administration 5000
5

expenses
Fixed distribution and administration
expenses 4500
Marginal costing refers to the technique that where variable cost is charged to the unit
of cost whereas fixed is charged to period (Marginal Costing vs Absorption Costing, 2021).
Income statement as per marginal costing
Particulars Amount Amount
sales revenue 120000
Less: Variable expenses
Raw material 25000
Direct labor h 15000
Variable manufacturing overhead 8000
variable distribution and administration expenses 5000 53000
Contribution 67000
Less: Fixed cost
fixed manufacturing overhead 7500
Fixed distribution and administration expenses 4500 12,000
Net profit 55,000
From the evaluation of above statement it can be interpreted that net profitability
obtained after deducting the variable cost from sales and fixed expenditure from contribution is
55000. It is reflecting positive sign of financial condition of company.
Absorption costing is full costing refers to capturing all the cost associated with
manufacturing a particular product this costing can be understood by referring following
statement.
Income statement as per absorption
Particulars Amount Amount
6

sales revenue 120000
Less:
Raw material 25000
Direct labor h 15000
Variable manufacturing overhead 8000
fixed manufacturing overhead 7500 55500
gross profit 64500
Less: Variable distribution and administration expenses 5000
Less: Fixed distribution and administration expenses 4500 9500
Net Profit 55000
On the basis of above illustrated table of absorption technique which is one of the
modern technique of cost analysis, it can be interpreted that direct manufacturing expense has
been deducted from revenue to have gross profitability. After deducting non-manufacturing
expenses net profitability is 55000.
Reconciliation statement Amount
Profit as per marginal costing 55000
Adjustment of differences of valuation of
stock Nil
Profit as per the absorption costing 55000
From the analysis of reconciliation, it can be assessed that there is no difference in profit
obtained from both the technique.
Evaluating integration of MA within organization
Management accounting play significant role influencing the operational efficiency of
company. There are several roles which are played by management accounting into British
Associated Foods that ensures higher profitability & sustainability it allows to established the
coordination among all the functional areas through obtaining the information from all
implemented MAS and reports. It is helpful in conducting proper identification of needs so that
as per financial department marketing manufacturing, etc. operational activities can be exerted.
7

(Callahan, Stetz and Brooks, 2021) This can help in having ability to management to make
crucial decision through combining all the areas so that relevant aspect to consider in strategic
decision can become possible. In addition to this, planning, organizing, leading and
controlling inventory, employees, etc. resources can help in achieving greater amount of
productivity. These all can help to meet higher potential of employees in turn gaining
trustworthiness of customer by offering qualitative product can become possible.
Explaining benefits of function to organization
It is important to have clarity among the organization regarding its different areas so
that higher effectiveness can be achieved. For this purpose having functions such as planning,
organizing, directing, managing and controlling, etc. can help to uplift performance of different
areas. In addition to this, these are finance, marketing, operational, marketing, sales, etc. so that
competitive advantages such as optimum utilization, reduced cost structure, higher profitability,
effective operational efficiency, greater employee morale, clarity about roles and responsibilities
and other benefits can be derived.
From above report it can be concluded that MA is helpful in obtaining both financial and
non-monetary data so that crucial decision can be made. It has comprised MAS, reports, cost
accounting techniques, etc. which are important for decision making.
PART 2
Comparison and contrasting planning tools utilized in management accounting
The planning tools used for management accounting are,
Activity based budgeting :
Activity based budgeting tool in management accounting is very helpful for recording,
researching and analysing the activities which leaders to the costs of the company. It is the
considered to be the activity in the organization that incurs at the cost of scrutinization for the
potential ways of creating an efficient development of budgeting process (Karki, 2021). This is
the process which is also known to be the traditional process of budgeting. It has helped
businesses to adjust their budgets for accounting for inflation or development of business. The
advantages and disadvantages of this planning tool for management accounting are,
Advantages Disadvantages
This ABB system of planning is more This tools are also very expensive to be
8

connected towards the budgeting process. In
this tool the revenue and expense planning
occurs at a precise level which helps in the
creation of useful details regarding the
predicability.
implemented in the organization or maintain in
comparison to the traditional budgeting system
in addition to which it is also time-consuming.
This system is also considered to be very
effective in increasing the control over the
budgeting process which helps the business to
align with the overall company goals.
This system is considered to have too many
assumption involved for insight from the
management.
Zero-Based Budgeting :
It is a method which is considered to be the justification of each new period of budgeting
process that includes its starting from the zero base and also its functions with the organization.
It is considered to be the analysation of the needs and the costs. In this tool of management
accounting which helps with the analysation of the practices. This is the best budgets which is
considered to be the upcoming period which is considered to be the ways in which the budget is
either created at lower or higher than the previous one. The advantages and disadvantages of
zero based budgeting are,
Advantages Disadvantages
It is an accounting practice due to which it
offers focused operations, lower costs, budget
flexibility and strategic execution (Shang,
2021).
Zero-Based Budgeting involves the time cost
which is helpful for the business however it
prepares the budget for a new period making it
not worth it for the present.
It is also considered to be very effective in
lowering the costs of the misallocation of the
resources which can help grow incrementally.
This method of budgeting does not consider the
research and development which helps in the
team horizon which may be overlooked.
Value proposition budgeting :
9

This is the budgeting which is the mind set of the making sure all the things are included
with the budget for the delivery of the addition to the business. This is the value proposition
budgeting's aim to avoid unnecessary expenditure through precise aiming which is helpful for
the achievement of the final budgeting option. It advantages and disadvantages are,
Advantages Disadvantages
It helps in business to stay more customer
centred.
Value is not easy to quantify in this method
and some decisions are based on short term.
It makes the organization give value to the
stakeholders, employees and customers.
Value can always be changing thus, lack
accuracy.
Ways in which management accounting deals with financial problems in the organization
In a manufacturing organization like that of British associated food. There are always the
risk of being associated with problems which arise in the organization. These problems are
solved with the help of the following techniques.
Benchmarking :
This is the method which is considered to be the comparison of the policies, procedures,
products and also process for the business and other firms to measure its standards. It is
considered to be the way in which the organization is able to analyse the outcome of the
benchmarking process which also includes the such as to identify the opportunities which arise
for the improvement of the business (Rickards and Ritsert, 2018). It helps in noting the targeted
areas which can be referred to in the future as it helps to improve the performance be better for
the peer to peer companies. This method helps the management team to engage with the
comparison for the determination of the potential areas of improvement which can help the firm
resolve its issues. Associated British Food use this method to compare it with the areas in which
the business is facing issues.
KPI :
For the problems which arises in the organization Key performance indicators have
shown that they are more than capable of defining the quantifiable measurement which helps the
management accounting industry to gauge in the overall long term performance. KPI for
10

accounts provide the organizations department to differ on the basis of types of accounting
functions which they perform (Gonçalves and Gaio, 2021). This method is very effective for the
business to avoid getting trapped into issues such as lots of dues from the customers. It can be
said that with the help of KPI the business is able to analyse the effective towards the customers,
supporters and the investors which can allow the business growth needs. For a manufacturing
organization there are many KPI which the businesses to utilize for resolving issues. It is
considered to be one of the best practice which influence the growth of the organization and also
at the same time provides with way of solving its issues (30 Best Accounting KPIs and Metric
Examples for 2021 Reporting, 2018).
Variance Analysis :
Variance Analysis is the study of the deviations which is considered to be the actual
behaviour that helps in forecasting the planning and budgeting methods of accounting. It is
considered to be the real concern which is the difference between the actual and the planned
behaviours which is considered to be the indication of the business performance which impacts
the performance of a manufacturing organization like British Associated Food. In this method of
solving the organizational problems the business focuses on the gathering of all the data which is
linked to the problem the organization has to face into a centralized data base. Next step of the
organization in this method is to create a variance report which contains the changes and
difference which have occurred (Bhimani, 2020). This can be done with the help of previous
performance of the organization. According to the variance the recommendations are made for
the resolution of the organization issues.
Balance Score Card :
It is yet another method for the management of the performance metric which is used for
the identification of the areas which can influence the business growth and also involve the
measurement of the four aspects of the business which brings learning and growth for the which
provides the business with better finance and customers relations (Gunarathne and Lee, 2021).
This helps the business to resolve its problems with the help of the ways such as the
determination of the vision which belongs to the centre of balance scorecard. It allows the
members of the organization to provide their perspectives. It defines the objectives and
measurement the connection which is of many types. This is how they are able to share the
communication.
11

Recommendations
For an organization like British Association Food it is important to properly manage the
accounting department which can only be done through the influence of managing the
company's investments, risk management, budgeting, planning and strategizing the decision-
making. It can be said as the method which is directly involved with the development of
management accounting aptitude for the interest in the numbers which are directly effecting the
numbers in the organizational performance. Working as a team is also very important for the
business to be very effective in the management accounting practises. Thus, it is said that eh
demonstration of the ability of the management accountants can be effective when they
understand the importance of cross functional work. Development of the commercial awareness
is also very important for the management accounting to have the accounting knowledge which
is very important for the use of one skill which is essential and effective towards the business
growth and efficiency. The effectiveness of the communication is considered to be very
important for the business to gather the data which is helpful for the knowledge which is
accessible from the effective conveyance of the intended audience. Apart from this non
accounting practices the aim of this business should always be in utilizing the methods and
techniques which are better suited according to the organizational practices. This is the best way
in which the business is able to understand the importance of growth.
CONCLUSION
With the help of this project it can be concluded that the growth of British Associate
Food is also related with its management accounting and operations which has been the key
towards it success in the management of the accounting practices. This project was able to
understand the comparison and also the contrast between the three planning tools which are the
Zero-Based Budgeting , Activity based budgeting and also value based budgeting for with the
help of their advantages and disadvantages. In this project different examples have been
considered for explaining the ways in which the management accounting resolves the financial
problems which occur in the organization with the help of techniques such as, benchmarking,
variance analysis, KPI and also balance scorecard. This project also provide recommendations
on how to improvement the management accounting practices for this organization.
12

REFERENCES
Books and Journals
Abdusalomova, N., 2019. PROBLEMS OF MANAGEMENT ACCOUNTING AND WAYS TO
SOLVE THEM. International Finance and Accounting, 2019(3), p.2.
Alvarez, T and et.al., 2021. Management Accounting Practices and Performance of SMEs in the
Hotel Industry: Evidence from an emerging economy. International Journal of Business
and Social Science, 12(2), pp.24-35.
Ameen, A. M. and et.al., 2018. The Impact of Management Accounting and How It Can Be
Implemented into the Organizational Culture. Dutch Journal of Finance and
Management, 2(1), p.02.
Bhimani, A., 2020. Digital data and management accounting: why we need to rethink research
methods. Journal of Management Control, pp.1-15.
Callahan, K.R., Stetz, G.S. and Brooks, L.M., 2021. Project management accounting:
Budgeting, tracking, and reporting costs and profitability (Vol. 565). John Wiley & Sons.
Fitria, G.N., 2021. Organization Culture Moderates the Effect of Management Accounting
System, Sustainable Leadership and Environmental Strategy on Business
Performance. International Journal of Contemporary Accounting, 3(1), pp.45-60.
Gonçalves, T. and Gaio, C., 2021. The role of management accounting systems in global value
strategies. Journal of Business Research. 124. pp.603-609.
Gunarathne, N. and Lee, K.H., 2021. Corporate cleaner production strategy development and
environmental management accounting: A contingency theory perspective. Journal of
Cleaner Production. 308. p.127402.
Karki, C.B., 2021. Management Accounting Practice in Nepalese Commercial Banks. Journal of
Management. 4(1). pp.51-64.
Pylypiv, N. and Pіatnychuk, I., 2018. Essential strategic management accounting tools used for
making investment decisions at enterprises in EU. Journal of Vasyl Stefanyk
Precarpathian National University. 5(3-4). pp.50-56.
Rickards, R.C. and Ritsert, R., 2018. Organisational influences on management accounting
toolkits in Chinese enterprises: an exploratory study. International Journal of
Managerial and Financial Accounting. 10(1). pp.16-31.
Shang, Z., 2021. Relationship between Multiple Management Accounting Tools for Strategy
Implementation. Available at SSRN 3977917.
Online
30 Best Accounting KPIs and Metric Examples for 2021 Reporting, 2018. [Online]. Available
through <https://insightsoftware.com/blog/30-best-accounting-kpis-and-metric-
examples-for-2021-reporting/#:~:text=An%20accounting%20Key%20Performance
%20Indicator,of%20accounting%20function%20they%20perform.>
Marginal Costing vs Absorption Costing. 2021. [Online]. Available through:
https://www.wallstreetmojo.com/marginal-costing-vs-absorption-costing/#:~:text=Marginal
%20costing%20is%20a%20method,variable%20costs%20as%20product%20costs
The Role of Accounting Management in Decision Making. 2022. [Online]. Available through: <
https://bizfluent.com/about-6642170-role-accounting-management-decision-
making.html />.
13

What Is a Management Accounting System? 2022. [Online]. Available through:
https://bizfluent.com/facts-5460765-management-accounting-system.html
14