Management Accounting: Principles, Tools, and ABF Application

This report provides a comprehensive analysis of management accounting principles, systems, and their application within a business context, specifically referencing Associated British Foods (ABF). It delves into the principles of management accounting, detailing the role of management accounting systems (MAS) such as Cost Accounting System (CAS), Inventory Management System (IMS), Price Optimization System (POS), and Job Costing System (JCS). The report evaluates the integration of management accounting within an organization, highlighting its benefits and functions. Furthermore, it compares and contrasts various planning tools used in management accounting, weighing their advantages and disadvantages, and explores how management accounting can be effectively used to solve financial problems. Cost analysis techniques, including marginal and absorption costing, are demonstrated with practical examples. The report concludes by emphasizing the importance of management accounting in strategic decision-making and sustainable business growth. Desklib offers a variety of solved assignments and past papers for students.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
PART 1............................................................................................................................................3
Explaining the principles of management accounting ................................................................3
Describing the role of management accounting and its systems .................................................4
Explaining the benefits of Management Accounting Systems.....................................................5
Explaining the different methods used in management Accounting Reports (MAR)................6
Evaluating MA integration within organization...........................................................................9
Explaining the benefits of function to organization.....................................................................9
PART 2..........................................................................................................................................10
Comparing and contrasting the planning tools used in management accounting along with
advantages and disadvantages ...................................................................................................10
Explaining the management accounting effectiveness for solving the financial problems ......12
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is concerned with taking strategic decision by involving the
crucial financial information into the process. In the current era, Management Accounting
(MA)play important role in providing assistance to the organization for gaining competitive
advantages in effectual manner. The current report is based Associated British Foods which is
one of the manufacturing organization of UK. The present study will involve management
accounting principles and system for providing deeper knowledge. Current report will highly
give emphasis on different techniques and methods like variable & marginal costing with
practical example. Evaluation of management accounting integration with organizational
function & its benefits. Present report will highlight the different planning tools along with pros
& cons. It will comprise application of management accounting to overcome financial problems
and recommendations to achieve sustainable business growth.
PART 1
Explaining the principles of management accounting
MA (Management Accounting) play essential part in helping the organization to obtain
appropriate level of guidance in turn effectual business practices can be established. British
Associated Food can utilize this principles in respect to achieve ability to execute its operational
as well financial activities to accomplish objectives. It includes value, credibility, relevance
and influence to have designing, compiling, controlling resources.
 Creditability is one of the crucial principle of management accounting which is
concerned with making decision making process more purposeful . This is exerted by
ensuring that organization is having great credibility to create the trustworthiness and
reliability among shareholders. This particular principle helps in having ethical,
responsible & aware of company’s governance prerequisites & interpersonal
communications.
 Influence principle is concerned with reflecting the communicational insights that are
important which helps company to get relevant information for cutting silos and enable

integration process to have positive impact on organizational performance. It is mainly
give focus on getting essential information for making sound decision (Rikhardsson and
Yigitbasioglu, 2018).
 Value aid in assessing link between organizational processes and its core model &
intensive knowledge for gauging possible opportunities and risk. It provide assistance in
having significant value generation by concentrating on higher opportunities.
 Relevance principle of MA helps in getting g relevant source for getting data to
formulate significant decision for boosting organizational growth. It concentrates on
maintaining proper balance between past, present and future related internal & external
factors by presenting all financial and no monetary data to result in accurate decision
formulation.
Describing the role of management accounting and its systems
MA is one of the important part that play significant role in making business capable by
proving crucial information necessary for taking sound decision (What is management
accounting? 2021). It helps in measuring analyzing, interpreting, communication of information
in order to have ability to accomplish the organizational goals. Management accounting assist in
planning, organizing, decision making, coordinating and controlling which allows organization
to be prompt in having sufficient and reliable resources for formulation of policies (Ngo, 2021).
MA helps in analyzing the problems prevailing in organization so that irrelevant component
causing such practices can be removed for gaining smooth functioning. ABF can declining the
present manufacturing cost to get higher profitability with implementing proper allocation,
coordination and monitoring of resources.
Management accounting system helps in tracking the efficiency of internal operational task
to achieve competitiveness. BAF can collect, evaluate and analyze data regarding different
aspects for managing & controlling cost and operational practices.
 Cost Accounting System (CAS) is responsible for analyzing the expense associated
with operational practices so that profitability margin can ascertained. (Diegtiar and
et.al., 2021) ABF can conduct inventory valuation and cost control activities by

implementing this procedure in business. Guidance can be received by this process to
decline cost structure to attain higher profitability.
 Inventory Management System (IMS) helps in making assessment of supply chain
from warehousing, manufacturing and selling. It can aid Associated British Foods in
assessing under & over availability of inputs, WIP and outputs so that relevant course of
action can be taken to meet market demand.
 Price Optimization system (POS) is one of the crucial system of management
accounting that can provide guidance to ABF to assess the customer response towards
changing price levels. POS can help the specified organization in fixation of prices to
meet objective of higher profitability & sustainability.
 Job costing System (JCS) is concerned with making cost associated with particular task
so that its contribution in business sustainability can be ascertained. This will provide
various benefits to Associated British foods to have better profitability.
Explaining the benefits of Management Accounting Systems
MAS provides various pros to company which helps in attaining the requirements of business to
fulfill the goals.
Advantages of CAS
Cost accounting system can help the Associated British foods in measuring &
improving efficiency in assessing relevant activities leading firm towards higher profitability . It
can assist the company in fixation of price with proper planning via reducing cost so that
strategic decision can be taken to achieve desirable position.
Pros of IMS
Inventory MA can benefit the specified firm to reduce risk of overselling for the purpose
of cost saving. Greater insights about availability resources to ensure profitability by maximum
production for providing greater customer experience.
Benefits POS

There are various advantages that Pos can provide to organization which comprises
market transparency, time saving, scalability & optimum control. This will help the specified
enterprise to have better knowledge regarding market trends to meet forces in effectual manner
to ensure sustainability.
Advantages of JCS
The proper evaluation of each task for making better assessment of irrelevant functions to
eliminate in order to derive smooth processing. The mentioned company can give focus on this
to have appropriate job related costing.
Explaining the different methods used in management Accounting Reports (MAR)
MAR helps in planning, regulating and decision making procedure by getting relevant &
reliable information to achieve success. There are several methods that can be utilized by ABF
which are as follows:
Performance report can be prepared by ABF for analyzing the each employees efforts for
accomplishing overall goal of firm so that strategic decision in respect to make appropriate plan
to improve the small can be exerted.
Account Receivable Aging (ARA) report is formulated by companies to make proper
estimation of credit policy implemented for ascertaining liquidity condition (Pedroso and
Gomes, 2020). ABF can largely give emphasis on its non cash transaction via determining
collection period maintained by entity and its impact on organizational financial position.
Budget report is one of the crucial managerial statement that gives guidance through
providing estimated road map for moving towards success. Allocation, utilization and controlling
of resources becomes effectively by having budget report in organizational practices. It permits
firm to make comparison of current performance with previous to recognize lacking areas for
making significant steps.
Cost managerial report gives information regarding required level of funds so that initial
step to make arrangements for raining resources can be done. Associated British Foods can
decline cost of production, meet urgent requirements etc. by implementing this in company’s

procedure. There are few other reports as well such as competitor, market analysis, etc to take
more strategic decision.
Presenting management techniques calculations
These techniques involve marginal and absorption of cost analysis which helps in decision
formulation that leads to business growth & success. Instance of execution of management
accounting costing technique as follows:
Particulars Amounts
Revenue 150000
Material cost 28000
Direct wokers cost 14000
Variable distribution cost 6000
Fixed distribution cost 5000
Variable Production
Overhead 9000
Fixed production
overhead 3000
Income Statement as per marginal costing technique
Particulars Amounts Amounts
Revenue 150000
Marginal Cost of sale
Direct cost
Material 28000
Workers 14000

variable production
overhead 9000
Variable distribution cost 6000 57000
Contribution 93000
Fixed manufacturing
overhead 3000
Fixed distribution
expense 5000 8000
Net profit 85000
Income Statement as per absorption costing technique
Particulars Amounts Amounts
Revenue 150000
Marginal Cost of sale
Direct cost
Material 28000
Workers 14000
variable production
overhead 9000
Fixed manufacturing
overhead 3000 54000
Gross profit 96000

Variable distribution cost 6000
Fixed distribution
expense 5000 11000
Net profit 85000
Profit reconciliation statement Amount
Profit under absorption costing 85000
Less: Fixed production o/h Nil
Profit under marginal costing 85000
From the above computation it can be interpreted that profit achieved from the applied
two different techniques of cost analysis such as marginal and absorption it can be interpreted
that outcome is same as there is no difference found in fixed cost of company. These both the
method help in getting higher ability to understand application of different cost for measuring
profit which contributes in attaining success & growth by obtaining clarity of utilization of
resources.
Evaluating MA integration within organization
There are several ways in which management accounting is integrated with the
organizational processes. MA provide assistance to the companies to get the relevant & reliable
data from the all the financial and non monetary segments so that full disclosure can be
maintained. In order to establish the coordination in functional areas of business it becomes
important for the company to prompt in achieving proper cope with changing circumstances
(Azudin and Mansor, 2018). Budgeting allows firm to make proper allocation & optimum
utilization of resources to attain higher performance. The distinct kind of MAR aids in

analyzing present condition as compared to earlier so that required course for more improving
financial position of Associated British food can become possible. Management accounting &
system largely contribute in having essential information in turn strategic decision can be made
by giving emphasis on lacking areas to eliminate them by implementing suitable actions to
achieve success. The integration helps in achieving ability to identify the lacking areas that
required to be improved in order to get sustainability.
Explaining the benefits of function to organization
The functions of management accounting helps in gaining the data to make strategic
decision by analyzing & interpreting information for the better processing of organization.
Functions of management accounting is involves planning, organizing, analyzing and
interpreting the crucial information which play important role in obtaining coordination and
control (Ruiz and Collazzo, 2020). These mentioned function can provide guidance to
Associated British Foods to have capability to get the sufficient level of data that can contribute
in making significant planning by taking all financial information into consideration. Financial
analysis provides accurate & significant interpretation that helps in protecting the business
resources by making appropriate planning & execution. In addition to this, tax policies
compliance becomes possible by having the mentioned activities into consideration.
Conclusion
From the above report it can be concluded that management accounting play important
role in making crucial decisions. It has given emphasis on analyzing the MAS and MAR in the
context of ABF. Cost analyzing technique has been used in order to give deeper knowledge
which reflects its essentially in making decision for gaining success. Integration and function has
been described by the current presented part.

PART 2
Comparing and contrasting the planning tools used in management accounting along with
advantages and disadvantages
Planning Tools (PT) of budgetary system of MA helps in gaining the significant knowledge
regarding components that are crucial to consider fro the purpose of allocating, utilizing and
managing financial resources. ABF can utilize below mentioned planning tools
Activity based budgeting
it can provide the ability to Associated British Foods to eliminate the unnecessary
components that does not contribute towards success.
Advantages Disadvantages
 This planning tool can help in
evaluating aspect that can provide
competitive edge for improving
relationship (Maheshwari, Maheshwari
and Maheshwari, 2021).
 It requires understanding due ti
complex structure which can be time
consuming for ABF.
 Elimination of bottlenecks becomes
possible by applying this method.
 It is suitable for short term projects as
it involves higher cost.
zero based budgeting
In this method budget is prepared from the scratch which allows to ABF to have proper
functioning.
Pros Cons
 Higher accuracy and efficiency can be
gained by the ABF for reducing the
redundant activities.
 The biggest disadvantage company can
receive is lack of expertise which can
lead to time consuming process.

 ABF can implement the coordination &
communication through this technique.
 Higher manpower is required which
make sit expensive.
cash budgeting
This method of planning can be utilized by Associated British Foods for managing its all
cash & related practices by making estimation of in & out flows . For example- The specified
company can become able to make the appropriate identification of lacking of funds so that
proper arrangement can be made meet unforeseen circumstances.
Benefits Drawbacks
 This planning tool can help in
understanding risk & effects for
having adequate decision making
procedure (Alvarez and et.al., 2021).
 It limits the spending power which can
impact the efficiency of ABF.
 The company can become more
resourceful by analyzing the crucial
components.
 The main factor in this planning tool
is cost which affects the resource
optimization.
Incremental budgeting
This is based on the idea that by making some marginal changes company can formulate new
budget. ABF can give these advantages and disadvantages:
Advantages Limitations
 It is one of the simple method that
provides higher level of efficiency due
to low time consuming process.
 Innovation get discouraged by apply
this particular procedure into ABF.
 Internal rivalry can be reduced by  It becomes difficult to cope up

having funds stability which can
increase the operational sustainability.
changing circumstance as it does not
focus on the external factors.
Capital expenditure budgeting
This is basically prepared by the company for including the array of expenditure by
upgrading the to the existing assets , etc. ABF can receive the different kinds pros and cons as
follows
Pros Cons
 Evaluates investment plan to identify
the risk prevailing in the operational
practice so that better control can be
established.
 The decision are taken on the basis of
assumptions which involves higher
risk
 Maximization of shareholders value
can be exerted by ABF by executing
this planing tools.
 It ignores the non monetary factor
which results in uncertainty.
Explaining the management accounting effectiveness for solving the financial problems
In order to solve the financial issues the ABF can apply the following techniques by
giving emphasis on the MA. Associated British Foods can face several problems like lack of
funds, improper application of resources, higher cost of capital, etc.
Benchmarking
It is process of analyzing the current performance with previous so that accurate
evaluation regarding the lacking areas can be exerted to identify to make improvement. ABF can
receives the several benefits from this process to make modification in existing financial
challenges (Krutova and et.al., 2020). The standardize performance can be obtained which
can allow the firm t decrease inefficient components by developing improvement action. The
limitation that need to be taken into consideration while implementing comprises decrease
result , lack of customer satisfaction, etc.

Corporate Governance
It deals with management of a corporation by guiding and controlling business which
basically focuses on the compliance with rules and regulations. ABF can be benefited by
applying this action into practice such as it ensures the market performance & economic
development. This helps in declining waste, risk, etc. the drawback that Associated British
Foods can get from this includes misleading reports, regulation cost, separation of ownership &
management results in improper decision formulation which can decline the efficiency of firm
to eliminate financial problems.
KPI
Key performance indicator provides guidance in having the ability to obtain higher
performance by making comparison of actual with set standards. It allows the company to be
quick in recognizing prevailing irrelevant and lacking areas that are hindering the
organizational performance (Zakirova and et.al., 2020). This helps in implementing suitable
course of actions required for making modification in all areas of ABF. Limitation that can
negatively affect the ABF position comprises time-consuming procedure, higher learning curves
make it complex.
Balance scorecard
It is performance metric used to recognize, modify and control various functions and
result in improved quality. ABF can get the various benefits which can provide assistance in
solving problems. These comprises bringing structure to business strategy,making
communication easier, facilitates better alignment,etc. The drawback that can affect includes
complicated procedure, lot of data required, etc. which fails to meet objective of overcoming
financial problems
Variance analysis
It helps in gaining the prevailing deviation that is caused due to difference in actual and budgeted
figure. ABF can get the variety of advantages by having this into procedure which includes
efficient , detailed and forwarded looking budgetary activities. This is one of the most important
control mechanism that can be used by ABF.
Associated British Foods Unilever

 The organization faces the issues of
managing cost regarding
manufacturing process (Siregar and
et.al., 2021). It utilizes Cost accounting
system to declining the related
expenditure in turn higher profitability
can be obtained.
 The firm offers different range of
products which makes complex in
forecasting demand for covering larger
market range. For this purpose firm
uses inventory management system to
get ability to meet market forces in
efficient manner.
 In order solve financial problems like
higher cost, decrease portability firm
pay attention on balance scorecard &
KPI to achieve to deal effectively.
 The organization faces challenges in
maintaining quality so it uses variance
analysis for finding causes and highly
give consideration to cooperate
governance for achieving sustainability
in industry.
CONCLUSION
From the report it can be summarized that Ma play significant contribution in achieving
success. It has involved planning tools along with pros & cons and methods for solving financial
problems are highlighted.
Recommendation
 It is suggested to the company to pay attention on decreasing cost by applying suitable
method such as cost accounting system for gaining higher sustainability & profitability.
 It is advised to the company to be prompt in decision-making by giving emphasis on
having effectual communication process, price optimization and inventory management
system so that cost can be declined to improve efficiency in tun higher productivity can
be attained.

 For achieving sustainability Associated British Foods can use the cash budget which is
most suitable for ensuring smooth functioning of production. This will give insights
about in & outflows so that proper management can be exerted regarding available
resources.
 It is recommended to the company to utilize variance analysis for making continuous
improvement to get higher qualitative products to achieve customers satisfaction.

REFERENCES
Books and Journals
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.
Azudin, A. and Mansor, N., 2018. Management accounting practices of SMEs: The impact of
organizational DNA, business potential and operational technology. Asia Pacific
Management Review. 23(3). pp.222-226.
Diegtiar, O. A and et.al., 2021. Certain Aspects of the Management Accounting System for Small
and Medium-Sized Enterprises. Accounting and Finance. 9(3). pp.469-476.
Krutova, A. and et.al., 2020. Strategic management accounting as an information basis of
effective management of enterprise activities. Academy of Accounting and
Financial Studies Journal. 24(2). pp.1-8.
Maheshwari, S. N., Maheshwari, S. K. and Maheshwari, M. S. K., 2021. Principles of
Management Accounting. Sultan Chand & Sons.
Ngo, Q. H., 2021. The impact of market orientation on small businesses' performance in
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Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
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Ruiz, T.N. and Collazzo, P., 2020. Management accounting use in micro and small
enterprises. Qualitative Research in Accounting & Management.
Siregar, S.R. And et.al., 2021. Financial management, strategic management and digital
accounting. Financial management. 2(4).
Zakirova, A. and et.al., 2020. Analytical support of management accounting in managing
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<https://www.freshbooks.com/hub/accounting/management-accounting>