Applied Management Accounting: Analysis and Decision Making Process

This report provides a detailed overview of applied management accounting, starting with its historical roots in cost accounting and tracing its evolution through various stages. It discusses early management accounting techniques like marginal and absorption costing, illustrating their application with examples from the Legal and General Group Plc and British Associated Food. The report then transitions to modern developments in production environments, highlighting innovative techniques such as performance measurement, balanced scorecards, activity-based costing, just-in-time inventory management, and total quality management. It also explores the relationship between management accounting and other organizational functions, emphasizing the importance of coordination for achieving organizational objectives. Finally, the report delves into Michael Porter's generic management functions, value chain analysis, and the decision-making process, providing a comprehensive understanding of how management accounting contributes to strategic decision-making and competitive advantage.

APPLIED MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION..........................................................................................................................2
MAIN BODY..................................................................................................................................2
Explaining the history of MA from cost accounting regime......................................................2
Discussing early management accounting techniques................................................................3
Discussing modern development in production environment and innovative MA techniques. .6
Describing relationship with other function of organization......................................................7
Explaining Michael Porter generic management function..........................................................8
Explaining value chain analysis..................................................................................................9
Analysing decision Making process.........................................................................................10
CONCLUSION.............................................................................................................................11
REFERENCES..............................................................................................................................12
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INTRODUCTION
Management Accounting (MA) is the procedure of obtaining, analysing and managing
financial resources of organization. in the currents scenario it is important for the company to
have effective management accounting procedure to get competitive advantages in terms of
monitoring and optimizing monetary resources. The present report is based on providing
information about management accounting practical exposure to get deeper knowledge. Current
case study is involving various aspects of MA of both production and service sector. The case
study will give emphasis on management accounting techniques to provide accurate information
for analysing, interpreting and communicating crucial data. In addition to this, present report
will largely give emphasis on modern development factors affecting organizational performance
and relationship with other functions of company. It will comprise Michael Porter generic
management function, value chain analysis and decision making process.
MAIN BODY
Explaining the history of MA from cost accounting regime
MA is one of the crucial part of modern business environmental s it provides variety of
benefits that ensures smooth functioning. Cost accounting (CA) has been formulated from the
industrial revolution for creation of recording and summarizing system of financial transaction of
company. CA contribute largely in obtaining success through identifying important aspect of
business so that better decision making can be exerted to achieve competitive advantages.
Management counting’s root is found in 19th century of industrial revolution which was initially
controlled by few number of managers for its smooth functioning and evolving better practical
implementation (Caglio and Ditillo, 2021). Management and cost accounting techniques both
appeared in the US in nineteen centuries which wider scope and can be utilized in organization in
all types of industry.
MA has evolved in four stages that makes easily under stable that at what extent changes
are obtained. In prior 1959 focus was on cost assessment & financial control via taking
budgeting & costa accounting technologies. In the 1965 the concentration has shifted to provision
of data for management planning & controlling through utilization of tolls for the decision
analysis and responsibility accounting. Stage 3 has been occurred in 1985 in which attention as
given to declination of waste of resources. The last phase that is focused to enabling firm to get
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efficiency to optimize resources through suing tools in order to obtain better understanding of
customer & shareholder value and organizational creativeness. The mentioned changes have
obtained by 1995. In the initial stage it was seen as technical activity to pursuit organizational
objective then performing staff role to support line management via provision of data for
palnni9ng and monitoring. In last two phase it has taken as integral part of management
processing for getting higher efficiency.
In present time it is important for all companies irrespective of their scale of operation to
know deeper and basic knowledge about MA and CA so that proper coordination between all
areas can be established (Hadid and Al-Sayed, 2021.). These both were in extreme criticism for
their manipulation to investigate change and inability to support the management accounting
innovation. There are various changes has occurred due to remove inappropriate characteristic
and make MA more efficient and bring capability to present the comprehensive to data in
systematic manner so that over the past year more effectual decision making can become possible
for the frim. Focus of management accounting has shifted to provision of planning and
controlling information of commercial transactions by utilizing technologies such as decision
analysis. While utilizing management accounting in current scenario as compared to previous
there are various factors that are achieved to make internal processing more effective.
Discussing early management accounting techniques
It is referred as traditional accounting methods which comprises costing, budgeting,
performance evaluation, etc. the current report will emphasis on marginal and absorption costing
for getting practical exposure.
Marginal technique of cost analysis is procedure of taking expenditure incurred for an
additional unit of output. The particular method is taken into consideration for determining cost
associated with production function. In this specific traditional technique prices are determined
on the basis of marginal contribution & cost. Expenditures are classified on the basis of fixed
and variable & profitability is dependent on contribution margin (Adu-Gyamfi and Chipwere,
2020). In this type of traditional approach of costing net profitability per unit is obtained as end
outcome. This mainly concentrates on variable cost while valuing finished & WIP goods. There
are various benefits that production service sector obtains from implementing these in
organizational procedure for the purpose of costing. Firm become able to take appropriate
decision as it provides opportunity to get information regarding under and over absorption of
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overhead. For instance- Legal and General Group Plc, as being part of insurance industry paly
important role in determine the costa associated with service providing activities of company. In
addition to this, it is involved as utilizing for making appropriate decision through analysing
each type of policy contribution in profitability. In manufacturing organization like British
Associated Food marginal and absorption costing is utilized which can be understood as follows:
Particulars
Amount
£
sale 120000
raw material 24000
direct labor cost 12000
Variable production overhead 7000
fixed manufacturing overhead 5000
Variable distributions & administration
expenses 4500
fixed distribution & administration
expenses 5500
Income statement as per marginal costing:
Particulars
Amount
£
Amount
£
Sale Revenue 120000
Marginal cost of sales
raw material 24000
direct labor cost 12000
Variable production overhead 7000
Variable distributions & administration
expenses 4500 47500
Contribution 72500
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Fixed Cost
fixed manufacturing overhead 5000
fixed distribution & administration
expenses 5500 10500
Net profit 62000
Absorption costing is the procedure in which all variable and fixed are considered as
product cost. In absorption technique the end result is derived as contribution per unit and major
consideration for each unit is given. In this, expenses are classified as administration,
distribution, etc. which is utilized by organization for eternal reporting. For example- Prudential
Plc is a multinational life insurance and financial service provider organization utilises
absorption costing technique for accomplishing its purpose of giving information regarding per
unit contribution so that trustworthiness can be build up in sector. For essence – British
Associated Food is manufacturing company that uses mentioned type of technique for income
statement as follows:
Particulars
Amount
£
Amount
£
Sale Revenue 120000
Marginal cost of sales
raw material 24000
direct labor cost 12000
Variable production overhead 7000
fixed manufacturing overhead 5000 48000
Gross profit 72000
Variable distributions & administration
expenses 4500
fixed distribution & administration 5500 10000
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expenses
Net profit 62000
From the above example the difference can be understood that there how the expenses are
treated differently to obtain net profitability. On the basis of this it can be interpreted that using
absorption technique is more beneficial as it provides clear view of costing.
Discussing modern development in production environment and innovative MA techniques
In the present environment, it has become crucial for the organization to have effective
implementation of modern techniques so that better productivity to cope up with changing
scenario can be derived (Bhimani, 2020). Customer taste and preferences re changing on
frequent basis which require firm to have better production procedure in turn ability to meet
market forces can be attained. For this purpose, frim can give emphasis on following
techniques:
Performance Measurement
In manufacturing organization, it becomes essential for the firm to take look of actual
outcome derived. Firm establishes predestined goals to lead organization towards success for
this measuring performance is important (Abdusalomova, 2019). Company set the target for end
outcome in terms produced units, efficiency of employees, etc. By comparing achieved result
with set standard lacking areas and causes behind this can be identify. In order to coordinate
with changing trend of customer preferences efficiently meeting client demand become possible.
Removing lack performing aspect become possible by implementing it.
Balance scorecard
This is used to recognize, evaluate, analyze and make control in end outcome for
deriving efficiency to adapt changing circumstances. Balance score card provide assistance in
measuring growth, development, customers satisfaction, etc. These are widely used in
manufacturing companies so that better focus on financial, customer, internal and learning
aspect can be exerted for executing proper execution of operational activities (Balance
scorecard, 2021). In respect to these mentioned areas it become possible to identify factor that
do not contribute in achieving success so that suitable course of action can be taken.
Activity based Costing
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Production activity highly need to adopt innovative procedures to obtain better approach
for making manufacturing function efficient & effective. In modern business environment there
is requirement of identifying and executing trending practices to get higher conversion rate
(Weetman, 2019). Activity based costing is the procedure of assigning indirect overheads to
products. It aids in having proper pricing strategy to attain large market share to lead in industry.
It aids in identifying activities essential for smooth operational procedure. It helps in getting
efficient manufacturing process to meet with customer demand.
Just in Time
It is one of the most important management strategy for monitory inventory to increase
efficiency. In addition to this, JIT procedure is most important to manage stock of firm to ensure
better productivity and efficiency (Azudin and Mansor, 2018). It aids in reducing cost
concerned with storage of stock so that better profit margin can be maintained. This tool
assures that better success with efficient processing by marinating high quality of products is
available. There is possibility of obtaining distribution in supply chain so it is crucial for firm to
use this in effective manner.
Total quality management
It is continuous procedure that assist in detecting and declining errors & mistakes
arriving in manufacturing practices. It ensures better customer experience and employees speed
up tactics that enhances revenue of firm. This modern approach is largely considered with
evaluating each step of production function in order to get standard qualitative products. TQM
helps in gaining competitive advantages in terms higher quality so that having loyal and
committed employees can be achieved.
Describing relationship with other function of organization
There variety of functions in company that are all integrated with each other and helps in
achieving organizational objectives to get higher productivity and sustainability. It can be
identified that re there are different types of model that pays attention on deriving successful
processing of business practices. Functional areas are sales, marketing, production research &
development, etc. and among all requires better coordination to build significant position in
industry. It is important for the ales department to get information from production through
having effectual management accounting technique so that available products for promoting and
targeted customer can be decided (Hiebl and Richter, 2018). Research and development paly
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role of analysing market and giving relevant data for launching new products according to
prevailing trend in turn higher customers’ satisfaction can be obtained. Planning, allocating,
directing, controlling is some of the functions that assist in optimum utilization of resources.
This gives convenience in building effectual pattern of working in firm via getting relevant and
sufficient information from implementing management accounting. MA equally focus on all
segment that require cost and resources to meet set gaols of firm so that desirable profitability
can be obtained by properly allocating and monitoring resources. The relationship can be
understood by focusing on management accounting practices that gives insights to other
functions regarding available resources, funds, etc. to manage their roles and responsibility.
With help of these it become possible to determine production capacity, budget of marketing &
promotion, etc.
Describing the functions can be derived from following:
Explaining Michael Porter generic management function
It is one of the strategy that provide assistance in identifying suitable strategy for smooth
functioning. This focuses on getting competitive advantages in company so that profitability
and sustainability in industry can become possible. There is involvement of matrix that specifies
company can get competitive benefit by targeting narrow or broad segment via lowering cost or
offering differentiating characteristics. It involves cost leadership, differentiation and focus
strategy.
Cost leadership strategy
It is one of the part of Michael Porters generic management function that targets
customers who are price sensitive (Porter's Generic Competitive Strategies, 2021). Cost
leadership strategy is effective for those firm who has ability to offer lower price to attract
customer by marinating desirable level of profitability and sustainability in industry. It is exerted
by adopting three approaches such as high utilization of resources, lower direct & indirect
operating cost and controlling value chain containing all functions like marketing, sales,
production, etc. each approach is adopted according to suitability to so better cost leadership
strategy can effectively have implemented. It has limitation as well such as there is no assurance
of getting loyal customers as they can switch to lower priced substitute.
Differentiation strategy
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Competitive advantage can be attained by setting proper features in firm’s products and
services. It suitable for this organization who targeted audience is not price sensitivity so that
attracting towards differentiating characteristics can become possible. This strategy is concerned
with obtaining competitive advantages through accurate utilization of available resources to
meet changing demand of clients in respect to get ability to charge premium prices for the
products.
Focus strategy
It is associated with offering specialised product or services to customer of niche
market. In this, strategy there is market segregation to provide good stop customer those who
are actually interested in buying so that all kept efforts can provide higher profitability and
stability in organization (Rikhardsson and Yigitbasioglu, 2018). this is widely suitable for those
frim who has appropriate segmenting technique so that customer can pay attention on firm. It is
focused that either lower prices or differentiating characteristics are offered to niche market.
These three strategy are sued by firm according to their need and suitability to obtain
better approach of processing in organization.
Explaining value chain analysis
It is exerted in company by concentrating on two types of activities such as primary and
supportive. The segregation is helps in undertraining the proper processing mong the functional
areas of organization
Primary Activities
It includes inbound, operations, outbound, marketing & sales and services which are
considered to be more important than supporting practices. Inbound practices are related to
material procurement activities such as receiving, warehousing and managing inventory (Jones,
Demirkaya and Bethmann, 2019). There is involvement of focusing on operational practices
such as turning raw material into finished goods. Distribution, packaging, shipping all function
are included into out bounding. Promotional, marketing & strategy regarding pricing are part
of marketing & sales function. Value chain analysis has given focus on functional area of after
sales service in competitive environment it plays important role in providing quality assurance to
get higher customer satisfaction.
Secondary Activities
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These are important in present workings scenario to help firm to have competitive
advantages which contribute in making all function more efficient. It comprises procurement,
technological development, human resource management and infrastructure. Value chain
analysis provide assistance in paying attention on all supporting practices that influences growth
of enterprise (Salayo and et.al., 2021.). Activities of procuring highly influences production and
supply of products. Technological development need to be given greater consideration as it is
main external factor affecting efficiency of product design, research, etc. in addition to this, it
aids in achieving ability to meet market trends. HRM play role of recruitment, hiring, training,
retention, etc. that ensures higher potential sharing of employees’ potential to reach desirable
position. Infrastructure activities regarding overhead and management involving financial
planning, etc.
Value chain analysis is utilized to get clarity regarding part of activities prevailing in
firm which enable its management accounting processing in proper way.
Analysing decision Making process
Ever organization irrespective of their type of industry makes certain crucial decisions on
daily basis that impact the functional processing of firm. There are various types challenges that
company faces and affect its growth and profitability. It becomes crucial for the company to have
proper understanding of prevailing lacking areas so that suitable course of action can be
determined.
Decision making is systematic procedure that helps company in eliminating irrelevant
factors which are irrelevant in achieving organizational objectives (Stankevich, 2017). In order
to make strategic decision company require to recognise the problem existing in its organization.
To make sure about its impact and causes firm require to collect all related information so that
deeper emphasis on this can be exerted. Identifying alternative that can resolve the issue as it
may be affecting various functions of company like planning, organizing, coordinating,
controlling, etc. which can decline growth rate of firm. In the next phase after collecting
information regarding gathered method of resolving issue. Selecting best alternative among the
chosen methods for achieving the target outcome in most efficient pattern. Taking corrective and
suitable course of practice play important role in influencing the irrelevant aspects to move
organization towards failure. The last step in formulation of particular decision is evaluate the
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result with predetermined standard so that variation can be assessed to take appropriate plan to
improve it.
In order to move towards success, it is crucial to make strategic decision in all functional
areas as there is coordination among them to obtain organizational overall objective. There are
several situations which require firm to make important decision so that higher efficiency,
productivity, declining cost, etc. can be derived. This become important for the firm to focus on
all areas with proper focus to get appropriate processing in company. These mentioned
techniques are contributing in deciding important functional part to give more focus to remove
lacking performance via effective management.
CONCLUSION
From the above report it can be concluded that management accounting is crucial part of
modern business process to get competitive advantages. The current case study ha involved
revolution of management accounting from cost regime. Present report has comprised traditional
MA techniques such as marginal and absorption costing via providing practical example in the
required context. In addition to this, it has involved modern development in management
accounting techniques such as performance measurement, balance scorecard, TQM, JIT and
activity based costing. Report has given emphasis on describing relationship ith other
organization function. Present case study has focused on Michael Porter generic management
function, value chain analysis and decision making process.
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