Evaluating Management Accounting Techniques for Financial Reporting

This report provides an overview of management accounting and its application in financial performance analysis. It begins by defining management accounting and its role in preparing financial reports to assess business operations. The report then explores various costing methods, including marginal and absorption costing, and their impact on financial statements. It further examines inventory management systems and different budgetary options like sales, production, and cash budgets. The report also compares different adaptation methods such as benchmarks and key performance indicators. Finally, it discusses financial governance and the characteristics of a management accountant, concluding with the importance of management accounting techniques for effective financial decision-making and reporting. The report references key academic sources to support its analysis.

MANAGEMENT
ACCOUNTING

Table of content
■ Introduction
■ Main Body
■ Conclusion
■ References

INTRODUCTION
■ Management accounting helps in preparation of
different financial reports that help in analyzing the
operation and performance of the business.
■ This report will identify the use of costing methods for
ascertaining the financial performance and the different
types of management accounting systems that can be
used.
■ The report will also evaluate different budgetary
options and conclude how the management accounting
tools can be used in an organization.

Management accounting and different
types of management accounting system
■ Financial accounting system
■ It could be defined as specialized accounting branch
for keeping track of the financial transactions of
company.
■ With the use of standard guidelines, transaction are
recorded, than summarized & presented in the
financial reports or the financial statements like
income statement or balance sheet (McLaren,
Appleyard and Mitchell, 2016).

Methods used in MA reporting.
■ The purpose and uses ;
■ Trading and profit or loss account - Trading
account is prepared by entities for showing results
of the trading activities that are purchases and sale
of goods. Profit & loss account is prepared for
identifying the profits actually earned or sustained
loss from business. It is used for decision making.
■ COGS - It is prepared for knowing the actual costs
of the goods that are sold by business during the
year considering opening and closing inventory.

Inventory management system
■ Inventory management refers to the
management of inventory within
organization. Organizations incur
costs for implementing inventory
management system.
■ This ensures the availability of
inventory for the production and
keeps track record of all the finished
goods inventory. Inventory
management systems installed in the
warehouses.

Management accounting techniques
■ Marginal Costing
■ Marginal costing refers to ascertainment by making
differentiation between variable and fixed cost of the
marginal costs & effects on profit related to change in
volumes or output. Marginal costing only consider
variable costs associated with the product.
■ Absorption Costing
■ It is a costing technique for valuing cost of product. It
included both variable and fixed costs associated with
manufacturing of product. Unlike marginal costing it do
not consider fixed cos as period costs. It is used when
company is having constant demand of products.

Financial reports accurately applying &
interpreting data for the complex businesses.
■ Cost
■ Cost in business refers to the monetary valuation for efforts, material,
resources, time and the utilities consumed, risks and opportunity
forgone for producing or delivering goods or services.
■ Product costing
■ It provides the costs that are incurred for producing a product. It
includes both variable and fixed costs. Variable costs includes cost of
material, labor and variable production overheads. Fixed costs are the
factory rent, power and heat. Cost are allocated to products as
variables and fixed. Variable cost changes with change in volume
where the fixed costs remain fixed irrespective of volume.

Different types of planning tools used for
budgetary control
Advantages Disadvantages
Sales budget helps in
estimating the revenue that
the company will earn and
it also helps in planning
for the resources in
advance (Maas,
Schaltegger and Crutzen,
2016).
Sales budget is not an
adequate budget as it does
not take into consideration
the changing trends on
which sales is based.
Sales Budget:

continue
Advantages Disadvantages
The major advantage of
production budget is that it
helps in ascertaining what
will be the production
level and therefore helps
in revenue prediction as
well.
The disadvantage of this
budget is that it is a time-
consuming process where
the managers have to take
into account different
associated products in
order to estimate the
production units.

Cash budget
Advantages Disadvantages
It helps in avoiding the bad
debts and also assesses the
monetary deficit in the
business if there is any
quickly.
Here, everything is based
on estimation and the
flexibility aspect is also
not addressed in such
budgets (Lopez-Valeiras,
Gomez-Conde and
Naranjo-Gil, 2015.).

Application in budgetary control
■ Sales Budget: Sales Budget helps in forecasting
the sales level that the company must achieve.
Under this, the managers are able to utilize the
resources at a maximum level, and they are also
able to forecast their sales.
■ Production Budget: The production budget is
prepared to estimate the number of production
units that can be manufactured form the sales
forecast that has been prepared (Latan and et.al.,
2018).

Comparison of different adaptation methods adopted
by organization for responding to financial systems
■ Benchmarks: These help in setting up certain
standards or goals that are to be achieved with the
performance levels and here actual numbers are
compared to the standard or benchmark ones.
■ Key Performance Indicators: KPI technique helps in
selecting certain criteria or levels such as the sale
levels, profit share or the market share as the correct
strategy for comparing the actual performance with
the indicators that were set.

Sustainable success
■ Financial governance: This indicates the manner in which the monetary or financial
information is gathered stored, managed, monitored and controlled by the organization
or its management team. There are various compliance as well as disclosure norms that
are attained under the financial governance and this can be used to identify and root out
the loopholes that exist in the managerial process of the company.
■ Characteristics of management accountant: A management accountant needs to be
prudent in their role and responsibilities where they need to evaluate the performance of
the businesses, the different budgeting techniques, the various accounting strategy
development and implementation and also the usage of the information systems that are
linked to the management accounting systems

CONCLUSION
■ The report above helps in concluding that
management accounting is an extremely important
technique in identifying the different costing methods
such as absorption or marginal costing plan that can
be used in order to prepare the financial statements.
■ The different types of costing reports such as activity
based costing, normal costing etc. were discussed and
the budget types was also evaluated. Lastly, the report
evaluated the concept of financial governance and its
impact on the management accounting.

REFERENCES
■ Endrikat, J., Hartmann, F. and Schreck, P., 2017. Social and ethical issues in
management accounting and control: an editorial.
■ Granlund, M. and Lukka, K., 2017. Investigating highly established research paradigms:
Reviving contextuality in contingency theory based management accounting research.
Critical Perspectives on Accounting. 45. pp.63-80.
■ Konopczak, K. and Welfe, A., 2017. Convergence-driven inflation and the channels of
its absorption. Journal of Policy Modeling. 39(6). pp.1019-1034