Management Accounting Report: Techniques and Applications

This report delves into the core concepts of management accounting, exploring its significance and various applications within organizations. It examines methodologies, including costing techniques such as absorption and marginal costing, and their impact on profit quantification. The report furth...Read More

MANAGEMENTMANAGEMENT
ACCOUNTINGACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Explanation regarding the management accounting, its importance and management
accounting systems.................................................................................................................1
Explanation about the methodology and reporting of the management accounting .............2
Describing the advantages of the management accounting system and their applications ...3
Description regarding the management accounting system and management accounting
reporting integrated in organisational processes ...................................................................4
TASK 2............................................................................................................................................4
Quantification of Net profit by using absorption and marginal costing techniques of
Management accounting.........................................................................................................4
TASK 3............................................................................................................................................6
Advantages and disadvantages of different types of planning tools used in budgetary control. 6
Analysation of the different planing tools used for the purpose of preparation and forecasts the
budgets ...................................................................................................................................8
Analysing various budgetary planning tools essential for responding the financial issues. .9
TASK 4............................................................................................................................................9
Comparing the Jupiter PLC with other business entity on the basis of solving issues of
financial problem by budgetary planning tools......................................................................9
Describing the contribution of management accounting in accomplishment of organisational
sustainable success ..............................................................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES .............................................................................................................................11

INTRODUCTION
Management accounting refers to analysing, summarising and recording the business
operational transactions for the internal entity use in order to ascertain the efficiency and
productivity. Management accounting is also known as the managerial accounting and cost
accounting. Moreover, it is the process of analysing the business costs and operational
transactions for preparing internal financial report, records and for decision making and for
accomplishment of desired objectives(De Harlez and Malagueño, 2016). Overall the
management accounting engages with the preparation of financial and costs data and converting
the data into understandable format or in useful information for the management and top level
authority of the organisation.
This report pertains the knowledge about the management accounting its objectives and
techniques of management accounting, also it pertain the comparison of two entities in context
of management accounting tools and their use in solving the financial issues etc. these all
contexts are examined with the illustrative example of Jupiter PLC for the better understanding
of the management accounting and systems.
TASK 1
Explanation regarding the management accounting, its importance and management accounting
systems
Management accounting is that branch of accounting which is engaged in preparation of
the managerial or business operations reports. It means the management accounting pertain the
knowledge process of preparing and maintaining the statistical and financial reports of the
business operational transactions and mainly engages in the costing of the business operational
transactions. Under the management accounting several techniques are involved for the purpose
of proper analysing, summarising and ascertaining the effectiveness and the efficiency of the
business transactions and also for the purpose of the preparing the managerial or business
performance record in appropriate form of informational report, which is to be communicable for
with the business heads and other users(Watts and McNair-Connolly, 2012). Mainly the
management accounting report provides the information regarding the product, plant, operational
projects. There are different methodology used under the process of management accounting
such as the Inventory management, cost accounting, Job costing system and price optimising
1

system etc. used by the business entities like Jupiter PLC for the proper analysation and
ascertainment of these managerial operations in appropriate useful format or report.
There are some objectives of the management accounting system are as follows.
 Beneficial in proper planning and formulation of future policies.
 Facilitates better interpretation of the financial information.
 Ensuring effective controls over the performance.
 Helpful in better coordination.
 Facilitates effective motivation to employees.
 Acts as the solution of the strategic business problems.
 Ensuring the evaluation of effectiveness and efficiency of business policies.
Explanation about the methodology and reporting of the management accounting
The managerial accounting pertain the tasks such as planning, controlling and decision
making, these tasks are performed on the basis of the managerial reports prepared by using the
management accounting techniques and planning tools. These techniques and tools are used by
the organisation like Jupiter PLC in order to proper categorized the business transaction and
costs and revenues occurs from the operations of the business. These all relevant business
information are recorded in several books of managerial reports for the proper evaluation. Some
of the managerial books or reports are as follows.
Cost Reports: The cost reports are used to record all the relevant costs incurred in
operating the business activities. Such as in production various costs are incurred by the business
like labour, fuel, raw materials etc. these costs are record, classified and analyse in costs reports
according to their nature that is fixed or variable(Suomala and Lyly-Yrjänäinen, 2012)
Budget reports: Budgets are set of several costs and revenues which may be incurred or
earned by the future operations of the business entity like Jupiter PLC. The budgets are prepared
on the basis of past recorded data and use for estimating the future projections. Each and every
business entity prepares budgets for the projects.
Execution report: The main purpose of this method is to execute the business operations
which is crucial to identifying the errors existing in it. Reporting by using this method provide a
strength to management to face future uncertain demand and additional expense which may
occur(Welford, 2016).
2

Describing the advantages of the management accounting system and their applications
There are some advantages enjoys by the business entities like Jupiter PLC, by using the
management accounting system. Also the applications of management accounting are described
below.
Increment in abilities: No doubt the management accounting system ensures the
increment in the ability of management to perform the organisation's management in performing
future operations. By improving the effective and efficiency in performing operations and
recording analysing and reporting of operational information in form of several managerial
reports(Tiron Tudor and Mutiu, 2012)
Increase the profitability: By maintaining proper record of each business operation in
form of managerial reports and by using various management accounting techniques for
analysing and ascertaining the profits form the business operations helps in accomplishing the
business entity's goals of profit maximisation.
Quick Decision making process: management accounting system ensures the proper
maintenance of the record of business transactions. It is beneficial in making better analysis and
comparison for the future operations also for making quick decisions regarding the future
operations of the business.
Effective Controlling: The organisation like Jupiter PLC management accounting
system maintain the proper record of the business operations and pertain the report of every
transaction this ensures the effective control over the business activities by eliminating the errors
and frauds. So the management accounting ensures the direct and effective control over the
business operations of the entity.
Forecasting from past results: The management accounting system records and
maintain the past years records of the business operations which are beneficial in quantifying and
identifying the growth rate and the progress of the organisation.
Achievement of objectives: by ensuring proper analysis along with the quite well
maintenance of business transactions and by reducing the cases of delays in decision making and
with profit maximising the management accounting techniques help the business entity like
Jupiter PLC in accomplishment of desired objectives(Coronel and Morris, 2016)
3

Description regarding the management accounting system and management accounting reporting
integrated in organisational processes
It is true that the management accounting techniques and the management accounting
reporting both are crucial for the processing of the managerial accounting. On one side, the
management accounting techniques performs the function of analysing and ascertaining the
transactions of the business operations for the preparation of several managerial accounting
reports and on the other side the management reporting is also essential for the proper reporting
and communicating the channel for the flow of information from the managerial level to the
administrative level(Myers, 2013). As the several accounting reports maintained after the brief
analysation by management accounting techniques, these reports are transferable by the
managerial level to the top level or administrative level for the effective decision making
regarding the current or future business operation. Thus, the management accounting system and
management accounting reporting integrated in organisational process.
TASK 2
Quantification of Net profit by using absorption and marginal costing techniques of Management
accounting
Absorption costing: Absorption costing means the analysation of all costs that are
related to the manufacturing and which are absorbed by the units produced. The costs of the
output in the inventory stock record includes the direct material, direct labour etc. moreover,
fixed and variable costs that are associated with the production activity of goods and services of
the organisation.
Marginal costing: Marginal Costing refers to technique of costing where the variable
cost is chargeable to units cost and the fixed costs for the period is chargeable form the
contribution. Besides this, Marginal costing is the process of ascertaining the marginal cost and
the changes in volume of profit or type of output by differentiating between fixed costs and
variable cost.
The illustrative example of these two costing techniques are as follows.
(a) Absorption Costing
Calculation of production cost per unit:
4

Rate
Direct Material 10
Direct labour 20
Variable Production overhead 5
Fixed Overheads (100000/20000) 5
40
Absorption Costing Income Statement
Particulars Budgeted Actual
Rate Units Amount Rate Units
Amou
nt
Sales 50 16000 800000 50 16000
80000
0
Cost of goods sold
Direct Material 10 18000 180000 10 19000
19000
0
Direct labour 20 18000 360000 20 19000
38000
0
Variable Production overhead 5 18000 90000 5 19000 95000
Fixed Production overheads 5 18000 90000 5 19000 95000
Less: Closing inventory 40 2000 80000 40 3000
12000
0
Contribution 250000
25500
0
Less:Fixed Cost - -
Net Profit 250000
25500
0
(b) Marginal Costing
5

Calculation of production cost per unit
Rate
Direct Material 10
Direct labour 20
Variable Production overhead 5
35
Marginal Costing (Variable
Costing) Income Statement
Particulars Budgeted Actual
Rate Units Amount Rate Units Amount
Sales 50 16000 800000 50 16000 800000
Cost of goods sold
Opening inventory - - -
Direct Material 10 18000 180000 10 19000 190000
Direct labour 20 18000 360000 20 19000 380000
Variable Production overhead 5 18000 90000 5 19000 95000
Less: Closing inventory 35 2000 70000 35 3000 105000
Contribution 240000 240000
Fixed Production overheads 100000 100000
Net Profit 140000 140000
TASK 3
Advantages and disadvantages of different types of planning tools used in budgetary control
Under the management accounting there are only three types of planning tools for
controlling the budgetary process of the business entity like Jupiter PLC. There are some
advantages and disadvantages of different types of the planning tools.
6

Forecasting planning tool: The forecasting planning tools helps the management in the
process of forecasting the budgets or expenditure incurred while performing the business
operations with a motive to generate the revenues (Siverbo, 2014). Forecasting is divided in two
types of methods that are Judgement forecasting and Quantitative forecasting. The advantages
and disadvantages of forecasting are as follows.
Advantages Disadvantages
The benefit of quantitative forecasting method
is that projections are based on the past
recorded performance of the business entity
such as Jupiter PLC.
Future is uncertain and nobody knows, the
projections under the judgement forecasting
are based on individual judgement which may
be right or wrong. There is no surety.
The predictions of quantitative forecasting are
taken by the experienced of qualified
executive and employees by evaluating the
business growth in recent past year.
Under quantitative budgeting there may be
chances of unexpected occurrences and
inaccurate forecasts in case of dynamic nature
of environment.
7

Scenario planning tool: The scenario planning tools for budgetary control is known as
Scenario thinking and scenario analysis. This tool is used by the business entity like Jupiter PLC
for the purpose of knowing the facts that about the future like social, technical, economical,
environmental and political future trends that are necessary to analyse or predict in order to make
effective decisions for future operations(Zoni, Dossi and Morelli, 2012). Some of advantages and
disadvantages of the using of Scenario planning tool for budgetary control.
Advantages Disadvantages
Scenario planning tool ensures the
responsiveness, flexibility and for competitive
analysis.
Scenario planning is time consuming process
and requires the professionalism for preparing
model.
For model of scenario analysis low data is
required.
Challenging to validate the potential scope
creep in projects.
Contingency planning tool: The third, is the contingency planning tools which is
prepared with the motive to minimise the effects of contingencies and uncertainties occurred
with the business entity and its operations(Quinn and Jackson, 2014). There are some
advantages and disadvantages of the contingency planing tool used for budgetary control are as
follows.
Advantage Disadvantages
The contingency planning assistive in
decreasing the negative impact of the
contingencies occurred with entity like Jupiter
PLC.
Contingency planning, concerned as the
accretion or back supporting plan, so it requires
the additional costs and time for preparation.
diminishes negative impact on customers and
suppliers in case of occurrence of a major
disaster.
Needs to constantly updated as the number and
range of potential disasters can change over
time.
8

Analysation of the different planing tools used for the purpose of preparation and forecasts the
budgets
There are mainly three types of the budgets used for the purpose of the preparing and
forecasting the budget for the future business operations. The planning tool along with their
applications are as follows.
Forecasting planning tool: Forecasting planning tool is used for the purpose of making
future projections. There are two methods of future projections under the forecasting tool and the
two methods are Judgement forecast and quantitative forecasts. Mainly the quantitative forecast
is used by the business entity like the Jupiter PLC (Bovens, Goodin and Schillemans, 2014). The
applications of forecasting planning tools are as follows.
 Mainly used in forecasting or planning regarding the production target as it is beneficial
for effectiveness in production schedule, inventory management etc.
 Quantitative forecasts is usually applicable to forecast the performance of the
organisation and appraisal of the organisation like Jupiter PLC on the basis of past,
present and future performance of the entity.
Scenario planning: This tool is used by the business entity like Jupiter PLC for the
purpose of prognosticate the information about future like social, technical, economical,
environmental and political future trends that are essential to examine or foretell in order to make
effective decisions for future operations. This tool is applicable in following cases.
 The scenarios are applied for the better understanding of the different issues important for
the future of the entity, assist in fixing the plans for the future issues.
 The scenario planning applied by the business entity like Jupiter PLC, for multiple
intentions of increasing the knowledge of future of business environment and eliminating
the influencing factors also it helps in removing the several issues of several
departments(Weigand and Elsas, 2012).
Contingency planning tool: it is also known as the back-up plan of uncertainty, it means
the contingency plans are beneficial in facing the unforeseen future liability or unfavourable
event. This contingency plan is applicable in following situations.
 It is usually applied for the continuous functioning of the business operations without
affecting by unforeseen events like natural disasters and any other contingent event.
9

 It is rarely applied in case of failure of executed plan due to any reason, in this case for
the effective functioning contingency plan is used.
Analysing various budgetary planning tools essential for responding the financial issues
The main three budgetary control tools that are forecasting, scenario, contingency tools
used by the entity like Jupiter PLC in order to make the proper analysation of the future issues
which can influences the financial performance and also helps in reducing the affects of financial
issues by by applying the identities like Benchmarking, and Key performance indicator.
TASK 4
Comparing the Jupiter PLC with other business entity on the basis of solving issues of financial
problem by budgetary planning tools
There are various techniques under the budgetary controlling tools, which are useful for
solving the financial problem in an organisation like Jupiter PLC. The commonly used
techniques are as follows.
Key performance indicators: KPI refers to the technique used for the purpose of
evaluating the performance of the employee. This technique is also used for the purpose of
comparison of past and present performance of the business. The KPI method ensures
performance appraisal of employees helps in better productions as well as better outcomes this
reduces the chances of the financial shortage(Flamholtz, 2012).
Benchmarking: It is also an effective method used with the motive of measuring the
performance of products and services in market, by the organisation like Jupiter PLC. The
techniques focuses on the improving the efficiency and effectiveness in operations ensures the
better quality of products as well as the better performance of the organisation. Thus, reduces the
cases of financial issue.
The comparison of the Jupiter PLC with the EveryJoy enterprise in context of responding
the financial issues.
Jupiter plc. Ever joy enterprises
In company that is involved in manufacturing
method use inventory management system. As
it records inventory that will be ascertain
It is construction organisation which involves
in construction process uses job costing
system as it boost efficiency if price of every
10

opening and closing cost . project and job will be determined. Some
technologies are used in this. It take resource
from other firm that bring effectualness.
Financial indicators are proper tools so that
they handle and control price in company
which cause major issues. As there are scarcity
of resources and they required to placed for
alternative use.
Some financial risk like improper budgeting
which will be resolve by using the budgetary
system reports in industry. It help to trace
record of expenses and income.
Describing the contribution of management accounting in accomplishment of organisational
sustainable success
The management accounting engages in analysing and performing the managerial tasks
for the proper analysation and the evaluation of the business operations and also for the motive
of reporting the managerial operational information which is very crucial for the management
and administration for making the business decisions. On the basis of these reports the top level
or administrative level becomes able for effective decision making regarding the current or
future business operation.
CONCLUSION
From the above report it has been concluded that the management accounting and system
are inevitable for the proper recording and analysing the business operational information and
the techniques used under the management accounting system are crucial for the proper
evaluation of the business information. Thus, the managerial reports are prepared after the long
procedure of recording and analysing. These managerial reports are transferred to the
administration and to other internal users within the organisation for the motive of making useful
decisions for more betterment.
11