Management Accounting Report: MA Principles and Imperial Brands

This report provides a comprehensive overview of management accounting (MA) and its application within the context of Imperial Brands, a UK-based tobacco company. It begins with an introduction to MA, defining its role in analyzing and collecting financial and non-financial information for internal reporting. The report then delves into the core of MA, examining its role in planning, controlling, and decision-making within organizations. Task 1 explores the types of Management Accounting Systems (MAS), including inventory management, price optimization, and cost accounting systems, along with a comparison of MA and financial accounting. The report also details various MA reports, such as accounts receivable aging reports, cost accounting reports, performance reports, and stock reports, highlighting their benefits. Task 2 focuses on the preparation of income statements using absorption and marginal costing methods, and cost volume profit analysis. The report further investigates the integration of MAS and MA reports with organizational processes, demonstrating how these systems and reports align with departmental functions within Imperial Brands. The conclusion summarizes the key findings and emphasizes the importance of MA in providing valuable insights for effective business management and financial decision-making. References and an appendix with additional data are included to support the analysis.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1............................................................................................................................................3
TASK 2............................................................................................................................................7
TASK 3..........................................................................................................................................10
TASK 4..........................................................................................................................................12
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16
APPENDIX....................................................................................................................................17

INTRODUCTION
The term MA is an accounting process that is linked with a systematic way of analysing
and collecting information regards to monetary & non monetary aspects (Weygandt, Kimmel and
Kieso, 2015). The main purpose of this accounting is to produce internal reports by utilising
gathered information. The key aim of this project report is to describing information regards to
MA and its role in companies operations. The project report is based on a UK based company
that is “Imperial brands”. The company is involved in process of manufacturing of tobacco
products and its headquarter is at Bristol, United Kingdom. The project report covers about
different kind of MAS, MA reports as well as about vital range of planning tools. The further
part of project report includes about role of MA in order to sort out monetary issues of
companies.
MAIN BODY
TASK 1
Role of MA and types of MAS.
MA- As above stated, this can be defined as a kind of accounting system that is aligned with a
process of controlling companies qualitative and quantitative aspects by help of internal reports.
The purpose of applying this accounting system is to manage internal aspects of business
entities. Below some role of MA are mentioned that are as follows :
 Beneficial in planning- The MA is useful for companies in order to make effective
planning of various kind of activities (Derchi, Burkert and Oyon, 2013). It becomes
possible because under this accounting estimation of futuristic income and expenditures
is done that helps in better planning. Like in above company, their manager makes
planning of their manufacturing activities by help of this accounting.
 Beneficial in controlling- It is essential for companies to control their different kind of
activities specially to financial activities. It is so because in the absence of control over
financial activities, this may lead to many issues. In above Imperial brands company,
their managers control and allocate financial resources by help of this accounting.
 Benefits in decision making- In addition, the MA is useful for companies in order to take
corrective actions and decisions so that higher growth can be achieved. Such as the

manager of above Imperial brands company, takes suitable decisions by help of this
accounting regards to monetary and non monetary aspects.
Comparison of MA and financial accounting :
Basis MA Financial accounting
Covered aspects Under this accounting both financial
and non financial aspects are focused.
While under this accounting only
financial aspects are covered.
Time period of
preparation of
reports
In this accounting, the reports are
prepared as accordance of need of
business entities. There is no specific
time to produce these reports.
On the other hand, in this accounting
the financial reports are prepared as
per the set rules and regulations bye
IFRS.
Compulsory Implementation of this accounting is
not necessary for companies.
While, this is essential for companies
to apply this accounting in order to
manage financial transactions.
Types of MAS :
 Inventory management system – It can be defined as a type of accounting system that is
linked with systematic process of focusing of those activities which are linked with
buying and selling of stock (Trucco, 2015). This accounting system is based on the
valuation of inventories by help of different kind of techniques such as LIFO (last in first
out), FIFO (first in first out) and many more. This is essential for manufacturing entities
in order to manage cost of various kind of activities such as ordering cost, carrying cost
and many more. Under LIFO method, goods that are bring in last are used first for
production. While under FIFO method, good that bought first are utilised first for
manufacturing. In the above Imperial brands company, their production department
manages qualitative aspects of material.
 Price optimisation system- This is a type of accounting system in which different types of
systematic activities are done in order to set prices of products and services. In broad
manner, under this accounting companies focus on gathering information of customers
perception on different price levels and their consideration about companies products. On

the basis of this information, the sales department of business entities set the prices of
their manufactured products. It is required by companies in order to revise and set the
prices of various kind of products in an effective manner. In this accounting, different
kind of pricing strategies are being used such as price skimming, penetration strategy and
many more. Under the price skimming strategy, the price of products and services are
kept higher by business entities to get higher amount of market share. In the penetration
strategy, prices of products and services are kept lower to establish in new market. In
above Imperial brands company, their sales department is using this accounting in order
to revise the prices of their tobacco products.
 Cost accounting system- It can be defined as a kind of accounting system under which
different kind of expenditures of all activities and operations are controlled in an effective
manner (Fiondella, Maffei and Spanò, 2016). This accounting system is essentially
required by companies in order to control overall expenditures of various kind of
operations. The purpose of this accounting system is to focusing on those aspects that are
causing as higher cost of operations. In this accounting mainly two types of costs are
managed that are :
* Job costing- It is a kind of cost that occurs in order to assigning a particular individual in
process of completing any task or activity. By help of cost accounting system, the managers of
companies keep an effective control over job cost of various kind of tasks.
* Process costing- This is a type of cost that is calculated by companies in order to compute cost
of each process. Such as in above Imperial brands company, the cost of each process of
manufacturing activities is calculated by help of cost accounting system.
MA reports:
The management accounting reports can be defined as a kind of reports that are being
prepared by companies in order to make control over financial and non financial activities. There
are different types of MA reports and some of them are produced by Imperial brands company:
 Account receivable ageing report- Under this report information regards to different kind
of debtors and their debt amount is included (Kastberg and Siverbo, 2013). The purpose
of preparing this report is to helping finance department of companies in order to provide
information regards to total due amount by their debtors. This report is beneficial for

business entities in order to make planning regards to financial resources. It is so because
on the basis of this managers get information about how much amount of fund is needed
to be collect. Such as in above Imperial brands company, their finance manager utilise
key information through this report and make strategy in order to collect debt amount.
 Cost accounting report- This report is prepared by utilisation of key information through
cost accounting system. Under this report information regards to each and every activity
is included. By help of this information companies make prediction of futuristic
expenditures and make plan accordingly. This report helps to companies' managers in
providing complete information regards to total expected and actual expenditures. On the
basis of it, finance managers take corrective steps to control total cost of operations. The
manager of above Imperial brands company gather crucial financial information by help
of this report regards to each elements' cost. This benefits them in controlling cost of
different kind of activities and operations regards to production of tobacco products.
 Performance report- It can be defined as a kind of report in which information about
actual outcome and estimated outcome is presented along with variation between these
two. By help of this report, managers can focus on those growth and promotion of each
employee separately. As well as this report beneficial to employees to get reward on the
basis of their skills and acts which they perform for a particular business entity. In the
aspect of above Imperial brands company, their managers take decision about promotion
of their staff members as accordance of information derived through this report.
 Stock report- Similar as to cost accounting report, this report is being prepared by
integration of inventory management system. The report consists information about how
much quantity of material is being stored in warehouses as well as how much quantity is
used in the aspect of production (Hirsch, Nitzl and Schauß, 2015). On the basis of it,
production department of business entities inform to managers about how much quantity
of raw material is needed by them in order to complete target production. Basically, this
report is prepared as accordance of valuation method of inventory. Such as in the LIFO
method, inventory report is prepared that consists information regards to stock that comes
in last and used first for production. As well as the report that is prepared under FIFO
method, consists information about stock that comes first and used on priority basis for
production. Like in the aspect of above Imperial brands, their production department

gather key information by help of this report in order to take decision regards to
purchasing of new material. The information which is derived in this report is gathered
by help of various kind stock valuation methods such as LIFO, FIFO and many more. In
addition the chosen company is involved in manufacturing process of tobacco products
hence, this is essential for them to keep an extra sight of eye over stock purchasing and
consumptions.
Thus, these are the main accounting reports that are being prepared by above Imperial brands
company.
Benefit of MAS :
Name of MAS Benefits
Inventory management
system
As above stated, this accounting system is linked with process of
controlling quantity and cost of different kind of materials that are
used by companies. In the Imperial brands company, the are getting
benefit from this accounting system in order to make the
production process of tobacco cost effectively.
Price optimisation system This accounting system is useful for business entities in order to
revise the pricing strategies as accordance of need of customers.
The Imperial brands company revise the prices of their tobacco
products as accordance of need and demand of their customers.
Cost accounting system Under this accounting system, overall expenditures of different
aspects are controlled in an effective manner. Such as in the
Imperial brands company, their finance department utilise key
information through this accounting system for keeping control
over cost.
Evaluation of integration of MAS and MA reports with organisational process.
Under MAS a vital range of accounting systems are included and each of them is aligned
with companies process and objectives. Like in the above chosen respective company Imperial
brands, their most of the departments are integrated with mentioned accounting systems. Such as

cost accounting and price optimisation systems are linked with finance & sales department.
Similar as accounting systems, the MA reports are also aligned with different aspects of
companies. For example in above company, their reports like stock report, cost accounting report
are linked with above mentioned departments.
TASK 2
Preparation of income statement as per the absorption and marginal costing method.
There are different kind of techniques in order to produce income statements and some of
them are mentioned below :
 Absorption costing – It can be defined as a kind of technique in that fixed and non fixed
costs are absorbed in order to preparation of income statements.
 Marginal costing – In this costing technique, fixed costs are considered as period cost as
well as non fixed cost as cost of unit (Kalkhouran, Sofian and Nedaei, 2015).
 Cost volume profit analysis – The term cost volume profit analysis can be defined as kind
of analysis technique in which impact of cost on operating profit is analysed in an
effective manner.
MA techniques in order to produce reports regards to chosen organisation.
Companies produce and publish income statements on regular time period by help of
different kind of techniques. The main objective of preparation of these reports to provide
information to internal and external stakeholders. In order to produce financial statements
different kind of techniques are used such as absorption costing, marginal costing and many
more. The above chosen company Imperial brand is preparing their income statements by help of
both absorption and marginal costing.
Except from above described techniques, there are some other methods too for
preparation of financial statements such as standard costing, activity based costing etc. Basically,
it is essential for business entities to produce financial reports by help of these techniques
because it provides an essential framework.

Example of absorption and marginal costing:
Solution:
Absorption costing:

Marginal costing:

TASK 3
Benefits and drawback of planning tools.
Budgetary control- It can be described as a method which involves controlling the financial
output of companies through various types of budget. There are various types of plans that have
their own value to track the actual outcome and accurately allocate funds. Below some types of
budgets are elaborated that are as followings :
 Sales budget - This is a budget in which data on the possible combination of inputs can
be marketed by a corporation over a certain amount of time. In general, this proposal is
designed for a duration of a year. In the aspect of above Imperial brands company, the are

preparation of this plan and provide their supervisors with data on the estimated number
of items to be marketed for a specific time period. Below its limitations and benefits are
described which are as followings :
Advantage - This budget is useful for meeting a specific time sector's sales target. It is because
the division of sales plans their tactics and strategies as visionary goals by help of this budget.
Along with companies can become able to beat their competitors in an effective manner if they
follow the activities of this budget.
Disadvantage - Preparing this budget takes too long time because it requires different activities
including editing, adjustment, budget review process. As well as it needs higher range of cost
which can not be affordable by small business entities.
 Purchase budget – This can be defined as a kind of budget which is prepared by
companies in order to manage their activities regards to purchasing of different kind of
items. In this budget information about futuristic items that are needed to be buy in order
to manage the production process (Schaltegge and Zvezdov, 2015). The above company
is using this budget in order to control their manufacturing activity of tobacco products. It
has some advantages and disadvantages which are as follows :
Advantages – This budget is beneficial for companies in making financial plan about how much
will be needed in order to acquire raw materials. Unwanted expenditures can be managed easily
with the aid of this budget because the managers make purchasing decisions in accordance with
it.
Disadvantage – The main drawback of this budget, that it does not provide accurate estimation
that may lead to loss for companies. Along with, businesses are unable to relay the operations of
this program because their estimate does not always yield accurate results.
 Zero based budget – This is a budgeting system where all expenditures of each new phase
must be explained. The zero-based budget process begins from a "zero basis," as well as
the requirements and expenses of each role in an entity are evaluated. It has some
advantages and disadvantages that are as :

Advantages – It is helpful for companies in order to make accuracy and efficiency in the aspect
of estimation of outcomes. As well as organizational department reviews the budget each year,
which helps to determine the actual level of operating costs.
Disadvantage – It takes too much time and cost that is one of the key drawback of this budget.
Along with preparation of this budget need additional range of skills in accountants which is not
easy to find in every accountant.
 Continuous budget – This is the process of applying new budget after end of the multi-
period budget as each month goes by (Luft and Shields, 2014). That method has the
advantage of having someone constantly look after the budget model and update budget
theories for the last incremental budget duration. It has some advantages and
disadvantages that are as followings :
Advantages – It is beneficial for companies in order to manage income and revenues in an
effective manner because this is updated soon after end of an accounting period.
Disadvantage – This budget consumes time in the case when activities are different of two
accounting periods.
 Kaizen budget- It is a budgeting strategy that takes into consideration the expense of
continuous improvement the product. Instead of forecasting costs based on existing
procedures and processes, the plan also contains estimated change costs with the goal of
decreasing real costs under standardized costs.
Advantage – This budget is beneficial for companies in order to enhancement of
teamwork in the companies. In addition, this budget reduce need of short-term goals.
Disadvantage- One of the key issue under this budget is that it is difficult for users to
make changes. This consumer higher amount of time in order to implement in business
activities.
Planning tools for preparation of budgets.
This is critical for corporate entities to forecast potential expenditure and profit
effectively so that expenditures can be adequately planned (Novas and Sousa, 2017). Planning
tools are very helpful in this context since various types of plans is included within planning
resources and each of them has its very own role in preparing budgets. In the aspect of above

company, their managerial aspects are using different kind of planning tools in order to produce
budgets.
CVP analysis:
BEP- This can be defined as a kinds of point at which companies can not gain loss or profit
during a particular time period.
Contribution- It is defined as a difference between sales price and variable cost for a particular
unit. This is computed by a particular formula that is as :
Contribution = Sales- variable expenditure
Investment appraisal:
NPV- This is a type of technique which is related to assessing current value of any particular
project. It is computed by deducting discounted cash flow amount from initial investment.0
Payback period- It is technique in that estimated time period is calculated in order to recover
invested amount of fund.
Inventory valuation:
LIFO- It is a method in which inventory which comes in last is consumed first for production.
FIFO- It is a method in which inventory which comes in first is consumed first for production.
TASK 4
MAS to solve the financial issues.
Monetary issues- In the aspect of business entities different kind of issues are faced and
sorted on time. The monetary issues can be defined as those types of problems that raise because
of lack of funds in companies. These issues can become cause of dissolution of business if not
sorted out the issues. There are different kind of issues which are as followings:
 Increased amount of expenses – It can be defined as a kind of monetary issue in that
companies overall expenditures increase continuously due to mismanagement of
available financial resources (Englund and Abrahamsson, 2013). This is one of the
common issue that is being faced by companies. In the aspect of above chosen Imperial

brands company, they are facing this issue due to increased amount of expenses in
production of tobacco.
 Decreasing in total sales units – This is a type of issue in which total sales revenues start
to decrease and as well as companies overall profit fell down. In this issue, it becomes
essential for companies to sort out in less time period because any delay in overcoming
issue may lead to out from competition.
Accounting methods to respond the financial issues :
 Activity based costing (ABC) – It can be defined as a kind of technique in which
companies manage and allocates the cost of each activity to all products and services as
accordance to actual consumption (Uyar and Kuzey, 2016). This costing works on the
basis of identification of each activity and after that makes allocation accordingly. The
reason of applying this costing technique is to find out each activities cost separately and
to make effective control over cost. In addition, this is being used in the companies when
there are a large number of activities are performed. In the aspect of above companies'
financial issue, this technique can be used effectively in order to solve by better control
over all expenditures.
 Key performance indicator – This can be defined as a type of performance measurement
framework in which all financial activities are analysed and evaluated in order to focus
on those whose performance is better. It is being used in the case when organisations
want to know about each activities' performance separately. The working process of this
technique is based on estimating futuristic outcome and after that making compare with
actual outcomes. Under it both financial and non financial indicators are included. Such
as the financial key financial indicator consists information regards to cost, revenues etc.
While non financial indicators include information about employees relation, suppliers
relationship and customers perception. All these information help to companies to keep
focus on monetary issues in an effective manner.
 Financial governance – It has been defined as a type of framework in which companies'
monetary aspects are arranged in a systematic manner. This method works on the basis of
keeping an extra site of eye over all types of financial transactions. The reason of
applying this method is that companies want to control and manage their monetary

aspects in an effective way. This approach is being used by companies in the case when
there is any financial issue and they want to know cause of issue.
 Balance scorecard – The term balance scorecard can be defined as a kind of tool that is
being used by companies in order to finding and enhancing internal business functions in
an effective manner (Kokubu and Tachikawa, 2013). This tool is being used in
companies in the case when there are mismanagement of strategies and objectives. The
reason of applying this accounting system is to focusing on companies goals and try to
communicate with all internal stakeholders. It consists below mentioned perspectives:
1. Financial perspective- The BSC is being used in order to measure and managing
financial performance of companies. It covers information about past monetary activities.
2. Customer perspective- In term of customer perspective, this is useful because
managers assess the customer and market segments in that business will compete
performance. As a result, it becomes easier to satisfy the need of customers in an
effective manner.
3. Internal business perspective- Under this, managers of companies find he crucial
internal process in that they should be excellent.
4. Learning and growth perspective- It is the last perspective of balance scorecard which
is related to focusing on capabilities of individuals. Under this various elements are
included such as employee retention, productivity etc.
Comparison :
Basis Imperial brands British American tobacco Plc
Monetary issue This company is facing the issue of
increased amount of expenditures of
various kind in operations and activities
continuously. Due to this they are
unable to make financial investment in
rest of other activities.
The monetary issue of this
company is that they are facing
problem of decreased amount of
sales revenue. The reason of their
financial issue is that they are
unable to generate higher amount
of revenue.
MAS In order to sort out the financial issue, This company is using price

this company is using cost accounting
system. This is so because by help of it
they are able to minimise their
additional cost and expenditures. As a
result their total cost of operation is
decreasing and they are able to generate
higher amount of revenues.
optimisation system in order to
manage their financial issue. It is
so because by help of applying this
accounting system they are able to
revise their pricing strategies in an
effective manner. Due to this their
sales revenue is increasing.
MAS to solve financial issues.
In order to overcome from financial issues, companies use vital range of accounting
systems such as cost accounting system, price optimisation system and many more (Goretzki,
Strauss and Weber, 2013). Like the above company is using cost accounting system in order to
overcome the issue of higher expenses. As well as their competitive company also using price
optimisation system to resolve the issues.
Planning tools to solve monetary issues.
This is critical for business entities to forecast potential expenditure and revenue
effectively so that budgets can be adequately prepared (Järvinen, 2016). Like in the above
Imperial brands company, they use a range of plans to reach and organize banking transactions.
Its financial management are mainly based on the plan of development, the marketing plan to
collect reliable transaction information.
CONCLUSION
On the basis of above project report it has been articulated that MA is very essential for
companies in order to manage internal aspects. The report covers different kind of MAS and MA
reports such as cost accounting report, stock report and many more. In addition, under the report
income statements are prepared as accordance of absorption and marginal costing. Further part of
report includes about different kind of budgets such as rolling budget, ZBB etc. In the end role of
these budgets and MAS in order to sort out monetary issues is included.

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APPENDIX